Since its founding in 2004, Facebook has grown from a tiny start-up to a global powerhouse, amassing 2.5 billion users worldwide.
Much of the fuel behind this unprecedented growth has been advertising.
And these days, marketers around the world are increasing their spend on Facebook Ads to garner more traffic to their sites.
What We’ll Cover:
- How do Facebook Ad Auctions Work?
- What is the difference between Facebook Ads and Google Ads?
- What Pricing Model Works Best for Facebook Ads?
- What are the Different Ad Types?
- How Much do Facebook Ads Cost?
- Why are Facebook Ads so Effective?
We explore the ROI factors that determine whether your Facebook ad campaign is worth it.
But with so much competition on the platform already, just how effective is Facebook advertising nowadays?
Are Facebook Ads worth it in 2020?
When done correctly, the answer is absolutely!
How do Facebook Ad Auctions work?
Before you can start learning how to effectively leverage Facebook Ads for your business, we need to understand how and why Facebook decides who sees what content.
Whenever Facebook serves ads, they have to strike a balance between two goals:
- Create value for advertisers
- Deliver positive and relevant experience for end-users
Facebook accomplishes these two goals through its automated auction. This isn’t a typical auction where the highest bidder wins. The auction takes place each time a user logs into their Facebook account, Instagram account, and the wider internet through the Audience Network.
Facebook will check to see which users online match the targeting group determined by the advertiser. If that person’s online behavior aligns with that criteria, the auction will begin.
To verify relevancy, each ad is given what’s called a Total Value Score. The higher your Total Value Score, the more often your ad will be displayed at a lower cost. A low Total Value Score implies that your ads aren’t showing, or cost more.
Let’s take a closer look at the three components that make up the Total Value Score.
- Bid amount: Bids are the traditional part of the auction, representing the amount you’re willing to pay for users to see your ads. Facebook offers two levels of bidding—lowest cost and target cost. Lowest cost is the more automated option and allows Facebook to do the bidding for you at the lowest price possible. With target cost, advertisers can choose to manually bid to better control their costs.
- Estimated action rate: Facebook’s algorithm bases estimated action rates on the likelihood of users converting after viewing your ad. They’re basically looking for how relevant it will be to someone or if it will actually lead them to take the specific action you’re optimizing for. These estimates are made using information from historical ad performance and the previous actions of the person you’re trying to advertise to.
- Ad quality and relevance: This factor is fairly self-explanatory. Facebook tries to identify whether your ad is going to be interesting and relevant to the person who will see it. To help them determine this, they look at things like positive and negative feedback. Ads with negative feedback tend to decrease overall value.
As an auction occurs, Facebook collects all this information and combines the data into the Total Value score. The ad with the highest score wins and is subsequently revealed to that user.
How does Facebook Ad Auctions Differ from Google AdWords Auctions?
In addition to Facebook Ad Auctions, Google AdWords Auctions is one of the most popular advertising platforms on the internet.
From a cursory glance, the two platforms appear somewhat similar. But, when compared side-by-side, they both offer two distinct and diverse ways to target and convert an audience.
When it comes to bid amount, users can check Google’s keyword planner tool to gain a rough idea of how much they should bid on each keyword. On Facebook, it’s not as easy to determine a bid price because there is no clear-cut benchmark.
In regard to ad quality, both Google and Facebook are comparable. Both assign a score ranging from one to 10 to evaluate the relevance of the ad and both find out the score based on “voting by users.”
And finally, Facebook looks at three different factors when determining ad rank, while Google only takes two of them into account. As mentioned previously, the third factor in the equation for Facebook Ads Auction is estimated action rate. This is unique to Facebook because it allows you to choose your preferred objective, representing one of the most powerful aspects of Facebook advertising. While you can also track conversions in Google AdWords, ad rank remains unaffected. Your ad will appear regardless of whether you’re meeting your conversion goals.
What Pricing Model Works Best for Facebook Ads?
When setting up your Facebook campaign budget, you need to choose between the following pricing options:
- CPA (cost per action): This model allows you to track and optimize how much you spend to encourage a potential shopper to take a specific action on your website once they’ve clicked on your ad. The action could be a purchase, an email sign-up, a white paper download, or one of numerous other conversions.
CPA = Cost ÷ Number of Actions
- CPM (cost per mille): CPM refers to the price you pay per one thousand impressions on your Facebook Ad. Facebook counts an impression each time your ad is placed in someone’s news feed.
CPM = Cost X (1000 ÷ Impressions)
CPA vs. CPM
Unlike the CPM model, the advertiser only has to pay if a user clicks AND performs a specific action. For example, if your software company ran a Facebook Ad, you may have your model configured to where you only pay for users who signed up for your newsletter.
The CPA pricing model also provides advertisers with a bit more assurance that what they’re paying for will end up as measurable consumer engagement. In this sense, the advertiser doesn’t have to take as many risks with their money as they know precisely how much each action or sale will cost them.
What are the Different Ad Types?
There are plenty of options Facebook offers in how you want your ad presented creatively. Here are the main ad formats you can currently choose from:
- Video Ads: Most often used for brand awareness and consideration campaigns.
- Photo Ads: One of the easier formats to create and consists of an image, call to action, and a link.
- Slideshow Ads: Involves using a slideshow of photos to tell your brand’s story.
- Carousel Ads: Displays a certain number of cards, each with a unique image and the ability to link to a different destination.
- Canvas Ads: Allows people to click, scroll, swipe, and tap to connect with brands directly on the Facebook platform.
- Dynamic Product Ads: Automatically promotes products to users who have already expressed interest on your website or within your app.
Should there be Different Types?
With such abundance, is Facebook Ads worth it? This is a loaded question. On the one hand, having these many options can be overwhelming. But, with many of your customers spending most of their time on Facebook, running ads levels the playing field.
And the more ad types you have to pick from, the easier it will be to customize your brand’s message and find the one that will drive the most engagement. Plus, many of these ad types overlap, and you could use multiple formats to achieve the same objective. This gives you plenty of opportunity to experiment and implement the best ad format for your business.
How much do Facebook Ads Cost?
Since there are so many variables at play that influence the cost of Facebook advertising, it’s a tricky question to answer.
Depending on your situation, recent studies reveal that a ballpark Facebook Ad cost for most industries falls somewhere between $0.50 and $2.00 per click.
However, this is definitely a skewed average due to some anomalies.
For example, the finance and insurance sectors encompass the highest average Facebook advertising cost at a staggering $3.77 per click.
But, industries like apparel ($0.45 per click), travel and hospitality ($0.63), and retail ($0.70) have significantly lower Facebook advertising costs.
How is this Calculated?
Advertisers have to set a budget for every Facebook Ads campaign. During the campaign creation process, you can establish your budget in the Ad Set section of your Facebook Ads Manager account.
From there, you can choose to set “Optimization for Ad Delivery,” “Cost Control,” and “Budget and Schedule.”
Why are Facebook Ads Effective?
These days, people in the U.S. spend roughly 20 percent of their mobile time on Facebook or Instagram.
With so many active users, Facebook Ads, particularly when set up under the CPA model, are a no-brainer for marketers looking to reach audiences in a place where people are already spending a good amount of their time.
And when choosing to advertise on Facebook, you get to target exactly the demographic you want to see your ads. Since you know your audience’s specific qualities, interests, and online behaviors, it takes the guesswork out of your social media marketing efforts.
How do All the Above Points Make Facebook Ads Worth it?
With all of this in mind, is paying for Facebook ads worth it in the end?
The reality is social media isn’t going anywhere anytime soon. So now is the time to invest your money where it counts.
And while it may be tough to keep up with Facebook’s policy changes, the platform is familiar, easy to use, and already has the connections people are seeking.
It’s up to you to explore the factors that determine whether your Facebook Ad campaign is working and worth it for your organization in the long run.
Time to start optimizing!
