5 Factors Affecting the Cost of your Facebook Ads

Every smart marketer needs to be aware of the top five factors that affect the cost of Facebook ads. Let’s review!

[0:53] Factor #1 for Facebook Ad Cost: Your Bid

The first thing to know about buying ads on Facebook is that it’s not like other forms of advertising like space on a billboard, or a newspaper ad. 

Rather than paying a certain set amount for an ad, Facebook ads operate with a bidding system. That’s one of the reasons there’s no set number to the cost of Facebook ads.

You, as the advertiser, set a bid by entering how much you’re willing to pay for an ad. If you don’t do this intentionally, Facebook will automatically calculate your bid based on your budget. 

So, if you have, a $20 daily budget for Facebook ads, Facebook will automatically calculate a bid and you’ll only receive the number of clicks that roughly fit within that $20 daily budget.

The advertiser that wins the auction is determined by the overall value the ad creates for its targeted users. 

The overall value is determined by the bid, quality, relevance, and estimated action rates of Facebook users. (more on each aspect of the overall value later!)

The winning ad is then charged the lowest amount Facebook has set to buy the ad space. 

The good news is that the biggest budget doesn’t always win. That’s because of other factors that determine the cost like quality, relevance, and click-through rate.

[1:59] Factor #2 for Facebook Ad Cost: Quality and Relevance

Ad quality and relevance are decided by how interested Facebook thinks a person will be in seeing your ad. 

Facebook gives your ad a score of between 1 to 10 based on how relevant it is to your target audience. The higher the relevance score, the lower the cost.

Relevance is based on both positive and negative actions from your target audience. This is determined by:

• How many people took positive action on your ad, like clicking on it, liking it, or commenting on it
• How many people took negative action, which is how many people said they don’t want to see your ad anymore or that it’s not relevant to them.

Relevance/quality is also calculated by the click-through rate, which is the number of impressions divided by the number of times it was clicked on. The higher the CTR, the lower the cost!

[2:43] Factor #3 for Facebook Ad Cost: Estimated Action Rates

When deciding whether to show your ad to a person in your target audience, Facebook estimates how likely that person will take the action you are optimizing for with your ad, which is the Estimated Action Rate.

So, for example, if you’re wanting people to download your free e-book, and a high number of people take that specific action, that will positively affect your cost. 

For example, if your goal is for someone to ultimately buy a product, and your ad is linking to a landing page for a free ebook download, you’ll want to optimize for the ebook download.

If you optimize your campaign for the product purchase, it won’t be converting very high because it’s further down the funnel. As such, Facebook will think that your campaign isn’t doing well because you’re optimizing for a downstream conversion that’s not happening as often as the ebook download.

So, not only will your ads cost more, but your campaign might not hit budget for your audience because Facebook thinks it’s not doing well.

The estimated action rate is an important, yet subtle metric you must be aware of!

[3:44] Factor #4 for Facebook Ad Cost: The Audience You’re Targeting

The fourth variable is the audience you’re targeting. Who you target and how many people you target affects the cost, as well as how many other advertisers are going after that same audience.

There can be a lot of competition to reach a certain target audience. Your specific audience may be especially popular, which can drive up the cost of the ad.

It’s also important to note that your audience may be targeted by other advertisers who don’t work in your industry.

For example, let’s say you’re selling high-end environmentally friendly cleaning products. You’ve chosen a target market audience of Green Moms with a household income of $50,000 living in at least 2,500-square-foot homes.

Other advertisers might also want to go after this target audience to sell them energy-efficient appliances, organic snacks for kids, and so on.

This type of competition for the audience will drive up the cost of the ad due to the demand.

[4:31] Factor #5 for Facebook Ad Cost: The Placement of Your Ads

Simply, where your ads appear on Facebook influences the cost.

When creating a campaign, you have several different placement options like the news feed, right-hand column, mobile-only, Instagram, and the audience network.

Each of these placement options generates different cost-per-click numbers. 

But remember, just because a certain placement has a lower cost-per-click doesn’t mean that placement will convert as well as more expensive placements.

So to recap, the five main factors that affect the cost of your Facebook ads when running a campaign are:

1. Your Bid
2. Ad Quality and Relevance
3. Estimated action rates
4. The audience you’re targeting
5. The placement of your ads

Next time you’re looking to analyze your Facebook campaign, keep these factors in mind to try and improve your ROI!

Need more insight into Facebook ads? Contact us!