Optimizing Facebook Ads

Lesson 1: Use CPM Pricing

You are probably most familiar with the Facebook default pricing option for ads: cost per click (CPC). You might already have used CPC with Google AdWords and know that with CPC you only pay for clicks on your ads but do not pay for impressions of your ads. Thus it would seem that CPC is the cheapest option if you are aiming to get clicks. In fact Facebook states in its FAQ that while CPM is for marketers interested in views, CPC is for marketers who want people to click on their ads.

This is wrong! CPM adverting will almost certainly be cheaper than CPC, if you are able to achieve a click through rate of over 0.05%. Thus if only 5 people out of 10,000 people click on the ad, it is already worth going for CPM. If you follow the strategies we will look at in later lessons for creating and targeting the ads, then you will surely be able to achieve a CTR of over 0.05%. Thus you should go for CPM. If you do not trust me on this, I recommend you to try out both options and see which one gets your more clicks for every $ 1 spent.

Why is that the case? Facebook tries to make the prices the same for a “normal” ad. A “normal ad” is an ad that has a click-through-rate (CTR) of only 0.05%. For such a normal ad the Facebook might sell the ads space for 20 cent per 1,000 impressions. To convert this cost to CPC, we divide 20 cents by the number of clicks to be expected for a “normal” ad with 1,000 impression. As a “normal” only generated 0.5 clicks the CPC needs to be 40 cents. So Facebook sets the price for any ad for this target group at 40 cents per click. Thus it is clear that if you are able to generate a higher CTR than a normal ad, you can save with CPM pricing. Say you can get a CTR of 1%. 1000 impression thus generate 10 clicks. Using CPM you would be paying 20 cents. Using CPC you would be paying $4!

Many of the strategies the reduce Facebook ad costs involved increasing the CTR. Thus in order to benefit from these strategies you need to use CPM pricing.