Reach-Focused Facebook Advertisers: Don’t Go Chasing Waterfalls … or CPMs

Advertisers can’t game Facebook’s marketplace, but many continue to fall into the trap of focusing campaign planning around a CPM goal.

A Wired article in the fall did a great job explaining the economics behind Facebook’s advertising auction and how they support the platform’s goal of delivering the most relevant content possible and, in turn, providing advertisers with more value than any other digital marketplace.

Advertisers can’t game Facebook’s marketplace, but many continue to fall into the trap of focusing campaign planning around a CPM goal.

Optimization isn’t just rebudgeting toward your lowest-cost campaigns, it’s about understanding how each component of a campaign contributes to its performance, and knowing how to maximize their efficiency. Those who prioritize quality audience reach will win. Let’s take a look at what this means for your campaigns.

1) You should not “optimize” your CPM

When a partner or vendor claims they can lower your CPMs, what they are really telling you is they don’t understand how the Facebook marketplace works. CPMs for a given audience are set by marketplace conditions, which match demand with the supply of buyable impressions, even as overall competition against the audience also impacts costs. When you are buying Reach or Impressions on Facebook, your CPMs are not materially impacted by creative.

If you launch 30 pieces of creative against a given audience, with the same budget and flight for each, their CPMs will be very similar. This is because despite your different creatives, your demand for impressions is the same for each piece of creative, and the supply of impressions available from your target audience is also the same.

There is one caveat: Facebook wants to create a great experience for its users, so it’s willing to serve better (i.e., more relevant) creative at slightly lower CPMs. However, it’s important to understand that the effect this discount has on your CPM is very small relative to the impact of the marketplace competition. This could certainly change in the future, but it will be up to the platform’s learning algorithms to decide.

2) You can affect your CPM by altering your media plan

You can’t lower your CPMs through ‘optimizing’ without fundamentally altering your campaign. If you want to reduce the cost of reaching an audience, you either have to decrease your budget (decrease demand), or increase your flight (increase audience supply).

Say, for example, you want to launch a one-day campaign targeting a million people in the New York metropolitan area. Each user can receive your ad up to two times a day in his or her Newsfeed. So your audience represents two million impressions per day. If you double your flight length to two days, the inventory available to you goes from two million to four million, increasing your supply and lowering your costs. Likewise, if you double your budget, your demand would double and your costs would increase. By minimizing your spend per day against an audience, you can minimize your CPM costs.

3) You can affect your CPM by buying in different marketplaces

Within Facebook, there are many underlying marketplaces, all with very different baseline CPMs. In order of magnitude, the primary factors that determine your baseline CPM are Placement, Bid Type and Audience Segment.
The point at which these three parameters intersect largely determines your CPM. The rest is determined by your own demand.

Bid Types are essentially targeting overlays. When bidding for conversions, for example, the auction’s delivery algorithm will serve ads to users within your audience who have a history of online conversions.

4) Optimizing distribution costs requires a clear picture of relevant factors

CPMs on Facebook can vary from $0.30 to $25. SocialCode has mapped these costs back to specific inputs over many years of data. The example below shows how much each input can contribute to an advertiser’s total CPM.

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