What are Facebook Ads?
If you’re running an ad campaign for your business in 2022, chances are you’re using Facebook ads as part of your overall strategy. Digital marketing has emerged in recent years as the dominant medium - no surprise, given that Facebook app installs are approaching 3 billion. By extension, advertising on Facebook (and Instagram) has become a go-to solution for expanding brand awareness, getting through to target audiences, and driving all-important top-line sales.
Per Facebook’s Business Help Center, paid ads are featured in News Feed on desktop and mobile and also on the right column of the Facebook homepage on desktop. If you’ve been on Facebook as a user, you’ve likely seen integrated ads pop up as you scroll through your feed.
The ads that you’re shown are a function of the preferences you’ve shared with Facebook algorithms. Because the social media giant has so much data on such a large portion of the population, a Facebook ad campaign is one of the best ways to tailor ad delivery and ad placement to your chosen segment.
Types of Facebook Ads
Facebook’s advertising user interface allows you to select different templates, depending on what you’re advertising. Each template has features designed for whatever is being offered; for example, event ads have an RSVP function and Dynamic Creative Ads allow for mixing and matching images, videos, and calls-to-action. Check out their dedicated ad page for a complete list of the types of Facebook ads currently offered.
How Much Do Facebook Ads Cost?
Most likely, your marketing daily budget includes a line item for the cost of Facebook ads. In reality, costs can be fluid, depending on the industry and the overall market state. As of November 2021, the overall average cost per click is $0.974. Consider that a high-level benchmark - actual cost per click can be as low as $0.45 for apparel or as high as $3.08 for consumer services.
Average cost per click (CPC) is an easy metric to plan your initial spend towards driving awareness and lead generation. But in the big picture, it’s only one piece of the overall puzzle. To get a true sense of your return on investment, you’ll want to go further down the sales funnel and look at your acquisition metrics. After all, clicks are nice, but they’re not too useful if they don’t lead anywhere.
Cost per acquisition (CPA) gives you a more complete picture of how much it’s really costing you to drive sales through Facebook ads and achieve your campaign objectives. You’re probably aware that only a small minority of people who click on ads go on to the purchase stage; curiosity and browsing interest are separate from actual intent. Conversion rates can be as low as 0.71% for Industrial Services and range up to as high as 14.29% for ads in the Fitness category.
In theory, the relationship between CPC and CPA should be somewhat consistent over time, but it’s no guarantee in practice. CPA is a function not only of market supply and demand but of your ad’s characteristics and the overall strength of your brand.
CPA must also be considered alongside the average size of purchase - buying a $10 t-shirt is not the same as purchasing a $100 per month subscription service. Thus, determining whether your ad spend is worth the cost requires a nuanced analysis of your industry calibrated with the price point of the product or service you’re offering.
What determines Facebook advertising costs?
To assess cost, one must look differently through the lens of either CPC or CPA. CPC is simply the total ad spend divided by the number of clicks and can vary based on the type of marketing strategy you opt to deploy. This is where we get into the topic of campaign budget optimization, which is the exercise that helps to determine whether your costs will be higher or lower than your industry standard.
Campaign budget optimization involves choosing ad placement based on available ad space and budget constraints. Because every ad placement opportunity is essentially its own micro-market with unique characteristics, there is practically an endless variety of scenarios that might play out for your campaign.
It all depends on the cost embedded into the current set of available advertising opportunities and which of those opportunities you decide to pursue. You may choose to get heavily involved in the details of the optimization process, or you can allow Facebook to run a preset strategy.
Facebook’s strategies are split into three different categories: spend-based, goal-based, and manual. Each of these strategies differs in terms of how they approach the ad auction process. In the next section, we'll break down the mechanics of Facebook ad auctions.
How does the Facebook ad auction work?
Facebook ad auctions are the determining factor behind which Facebook ads are shown to a particular user. Imagine a constant churn of automation running billions of transactions every day, and you can get a sense of the scale and importance of these auctions.
You might assume by the name that Facebook ad auctions are a method of selling ad space to the most deserving bidder. And you would be right, in the sense that the actual execution of the auction unfolds in a manner that is familiar to most: advertisers, either manually or through an automated strategy, place bids to get their ads shown to certain users. But when it comes time to select the winning bid, things get a little more complicated. That’s because Facebook doesn’t necessarily default to the highest bidder.
Consider that Facebook’s interests involve not only generating ad revenue but keeping its ad ecosystem healthy and up to certain standards. That’s why Facebook uses two additional factors besides cost to determine winning bids for ad auctions: Estimated Action Rate and Ad Quality.
The estimated action rate is the likelihood that a user will engage or convert from a particular ad. To find the exact methodology behind this metric, you would have to go deep inside Facebook’s world of algorithms. But it’s safe to assume that considerations like user preferences, demographics, and past history of ad clicks all play a role in determining the estimated action rate.
Ad Quality may be an even more nebulous metric to parse. Per Facebook’s guidelines, ad quality can be determined by feedback from users viewing or hiding the ad and assessments of “low-quality attributes” such as withholding information, overstated language, and engagement rate. There’s clearly a lot of room for interpretation within those guidelines, so the best course of action is probably just to use your best judgment when it comes to crafting ads that are well-designed and forthcoming.
As you can tell, it’s more than just relevance scores, ad sets, and average CPC. Many facts go into the cost of Facebook advertising. If you want to learn more about Facebook marketing or digital marketing, check out a few of our previous blogs on social media.