When getting started with online advertising, one of the first questions people will ask is, “Should I bid on a CPM or CPC basis?” Ultimately it’s a personal preference for most advertisers, however this guide should help answer your questions and determine which you should use. By default, most people go the CPC route, however there are legitimate reasons to occasionally bid on a CPM basis. Read on to figure out which you should use.
How Facebook Ads Work
Before jumping in to the difference between cost per click (CPC) ads and cost per thousand impressions (CPM) ads, we thought we’d provide a basic over view of how Facebook’s ad system works. Ultimately, Facebook’s ad network operates as a blind auction. Advertisers bid to have their ads displayed to various demographics. Facebook then displays those ads which perform the best (or generate the highest CPM for Facebook).
The Initial Test
While Facebook already knows how ads that have been running beyond the first few thousand impressions will perform, Facebook must test all new advertisements to determine their effectiveness. It’s during this period that the future of your ad will be determined. The goal for Facebook is to run those ads which will generate them the most revenue by run ads that maximize their CPM. Whether or not you bid on a CPC or CPM basis, Facebook must run your ads to determine their performance.
If your ad gets 10,000 impressions and no clicks, but you bid on a CPC basis, Facebook will eventually push your ad out of the rotation. This is because you aren’t generating any revenue for them. If however, you bid on a CPM basis, Facebook will be guaranteed that your impressions will at least generate some level of revenue.
If for some reason your advertisements start performing insanely well (for example, you are able to get your CPC down to $0.01), Facebook will eventually take note and check whether or not your ads violate any terms. If they don’t, they will be allowed to continue to run, but they won’t be optimized for as many impressions since they don’t maximize revenue for Facebook. It’s extremely rare that ads will attract exceptionally low CPCs, which is why Facebook will tend to investigate ads, or campaigns, that perform at this level.
There’s A Balance
The reality is that there’s a balance for all advertisements run on Facebook. While the company will run your ads, even if they are performing insanely well, they must come close to matching the “house CPM”. The best way to look at the “house CPM” is this: it’s the amount Facebook would have generated if they didn’t run your ad. As you begin running numerous ad campaigns, you can figure out what Facebook’s current house CPM is based on how your ad performs. This is for people who are running numerous campaigns however.
Ad Variations & Market Variations
The single largest determinants of the cost of your Facebook advertising campaigns are your ads and the target demographics you are going after. Some demographic groups have been targeted heavily and as such, have a much higher “house CPM”. As you adjust your ad title, body copy, and image, you will sometimes see dramatic variations in performance. This variation between ads and market prices (testing various demographic groups) is exactly what professional advertisers spend their time testing. Another word for these individuals is “optimizers”.
As defined in our Facebook marketing dictionary, optimization is the process through which an advertiser minimizes the cost of advertising while simultaneously maximizing performance to reach the ad campaign objectives. Optimization is a luxury for those that have money to test ads. If you don’t have the time to invest in optimization, you are going to end up spending more for your individual ads.