Nickels and Dimes

Facebook advertising is an inexpensive way for you to promote your business to your customers.  Facebook is still the biggest and most subscribed social media channel in the world. While Instagram and Snapchat are making headway, they have a way to go to get to the billion user mark, so for now, it is still a smart and strategic move to keep Facebook as your advertising ally. And conveniently, Facebook want you to advertise with them, and are constantly improving their offerings, insights and avenues to connect you with your potential clients. While debate may rage on about the nuancing of the Facebook algorithm and the restriction of organic reach to boost paid reach, the reality is that strategically using Facebook’s demographic limiting tools get you the best access to the people most likely to buy. In every other universe that is going to cost you money, a lot of money, and if you consider the costs of advertising in traditional media, your video or static image is going to reach many more targeted eyes for a fraction of the cost on Facebook. But how do you work out the spend and where to invest? This factsheet is your GPS for navigating through the many options Facebook has to offer.

How Facebook Advertising Works

Facebook ads work like an auction. It is important to remember that as you aren’t buying space as much as you are competitively bidding on getting your ad infront of the same audience that many other businesses are similarly targeting. As an advertiser you nominate the amount you are willing to pay – and note that the more you spend, the more potential views/clicks/etc you will get. If you don’t nominate, Facebook will estimate a number for you automatically.

What the Acronym? CPC, CPM, CPL & CPA

Facebook ads are a minefield of acronyms. Here are the key ones to help you navigate your way through to a strategy:

CPC (cost-per-click): If you use cost-per-click pricing, you only pay when someone clicks on your Facebook Ad.

CPM (cost-per-mille): With cost-per-impression you pay when Facebook shows your ad 1000 times. (Impressions are the number of times your ad is shown to a user on Facebook).

CPA (cost-per-action):  This allows you to track and optimize how much you spend to get someone to take an action (or convert) on your website after clicking your ad.

CPL (cost-per-like): This allows you to track and optimize how much you spend to get someone to ‘Like’ your Facebook Page after clicking your ad.

Note: When you setup your Facebook campaign budget, you need to choose between two - four pricing options. CPA is only available if you choose Website Conversions as your Ad result in the the Ad creator on Facebook.com. CPL is only available if you choose ‘Page Likes’ as your ‘Ad result’

Costs

A lot of factors affect the cost of your ads: the audience you choose and how they react to you, for example, is a factor that weighs heavily on the cost of your Facebook Ads. It can also vary significantly as you target niches and sub-niches of your audience in different campaigns. A great example of this is retargeting: when retargeting, you’ll likely spend less than targeting a cold audience who doesn’t know anything about you. The default pricing option that Facebook sets for your ad is a CPC bid. This is a good option for when you’re first starting out, as the click through rate (CTR) for Facebook Ads is lower and paying for clicks is ultimately cheaper than if you were to pay for the same number of impressions (CPM).

Depending on your ad’s performance, you may want to switch your Facebook bid from CPC to CPM - especially if it’s doing well with a high click-through-rate. But be sure to monitor impressions and clicks. If impressions on your ad increase and clicks decrease, your cost will increase and you may need to switch back to CPC pricing. After choosing your payment method, you can choose to set your own bid or allow Facebook to optimize your bid for you. Unless you’re an advanced user, it is recommended to allow Facebook to optimize your bid.

Here are some of the more significant factors that influence the cost of Facebook ads:

  1. Audience: Your Target Audience is the group of Facebook users who will potentially see your ad. Facebook has a very deep knowledge of users’ demographic, employment and interest information to target people. The target audience also significantly determines the cost of your ads. As mentioned, the cost is competitive, it is a bid after all. So while you might be selling to what you think is a specific market – say a yoga retreat for women aged 25 – 35, that market is massive for a huge amount of other sales, and you are competing with not just other retreat getaways, but ALL of the sales opportunities for women in that demographic. You can see how your bid quickly gets swamped and prices escalate. You can’t necessarily change your audience demographic to make it cheaper. It is what it is and you need to target the exact audience you want to buy your product.  But you do need to be aware of how the bidding process works, and that those yoga retreat lovers also love fashion, smartphones, tropical holidays, skin care, books, wine, fine dining, glamping, magazine subscriptions, music festivals, wedding planners and you get the picture.
  2. Relevance: You will need to get savvy with how to design the most compelling and relevant ad for your target audience, as interestingly the relevance of your ad is a factor in its cost. Relevance is measured by Facebook based on their perception of its relevance to your audience. The score is between 1 – 10, and goes up and down based on interactions. If people engage, score goes up, cost goes down. If people click on the button that they don’t want to see it again, score goes down and cost goes up. So making sure that your relevance score is as close to ten as possible means you are going to get the maximum clicks for your dollar spent. This is definitely a metric to keep track of during your campaigns and split testing.
  3. Click through rate (CTR): This is the number of clicks on your ad divided by the number of impressions: the more clicks, the more relevance, the lower the cost. For example, if 100 people see your ad and only 1 of them clicks on it, your CTR is 1%. Your ad will perform more highly and cost less as mentioned with engagement, however it you are optimizing your ad based on cost per click (CPC) then this will increase the cost with more clicks – but then that is what you are aiming for, so all good, in a confusing kind of way.
  4. Timing: Your ad is not only competing with other advertisers, built in to the algorithm of cost is the anticipated volume of advertisers which goes up seasonally and at peak times of the year in your sector. When there are sales, Christmas, seasonal purchasing, this has a relevance of how the cost of your ad is formulated, in conjunction with your demographic bid competitiveness. All of this has to be taken into consideration with the increase in sales you are looking for, so that costs go up is fine if sales or exposure commensurately increase. You just need to be aware of all the elements in how your bid is charged.

Calculating the other CPC – Cost Per Customer

Cost-Per-Customer is the one number you really need to understand. It is the cost of getting one person to buy from you. All of the other cost numbers are just parts of the equation for calculating your final cost of getting one new customer. Using Facebook’s built-in CPA tracking, you can first get the cost of the initial action the user takes on your website. If that action is to make a purchase, then your CPA is equal to your Cost-Per-Customer. But if your action is to download an ebook, sign up for a newsletter or some other form of lead-generation, then you need to add one extra variable to the equation, which then looks like this:

CPA x (Number of Leads that Buy / Total Number of Leads)

The one number that you need to be focused on at all times is your average-value-per-customer minus Cost-Per-Customer. This is, how much money your average customer brings you minus the amount you need to spend on ads to get one customer. If this number is above zero then your ads are profitable. And the higher the number, the more profitable they are. At the end of the day, every other number is just ego counting or incomplete metric. This is the one that truly affects the bottom line of your business.

Testing, Testing

While there are a number of best practices on how to advertise on Facebook, the only way to optimize your Facebook Ads to maximize their ROI is to test, test, test. The most proven and endorsed method across many Facebook advertising pundits is the A/B split test.

A/B testing is a strategy in marketing in which two versions, A and B are tested against each other. The goal is to identify what changes in the ad increase the engagement of your customers and if there are demographic differences in response. A/B testing is familiar ground for digital marketers across a number of digital products including webpages, landing pages, crowdfunding campaigns, marketing emails, and advertising. The key elements to measure don’t essentially differ and are:

  • Change the placement and formatting of objects on a page to get a user’s eye to where you want it
  • Change colors to ensure primary objects stand out
  • Change images to be eye-catching or elicit emotion: encourage engagement
  • Change text to be appealing to the reader, and encourage a desired outcome


Split testing is a good habit to get into when you are starting out with new products or services on Facebook and need to refine the best way to speak to your audience.

There is a lot to learn with Facebook advertising, and it will be helpful to also have a look at the All About Facebook Ads Fact Sheet to understand how to work with Custom Audiences and nuance your demographics, and the Facebook Insights Fact Sheet to help you break down your ROI. Essentially, test your formula until you get it right and don’t be afraid to run a couple of ads in rotation to avoid user fatigue. Keeping on top of your ROI will give you the best insights into if your ads are working, and the bottom line is continuing to grow and flourish.