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.
Getting Flagged
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.
For some people this is fine as long as they know that they are getting some level of performance. However, for advertisers who are investing in the long-term performance of their campaigns, optimization is a process which is not only smart, it should be a requirement as it will maximize your performance and cut down your cost. Enough of this long winded response though, let’s get to the part you came here for: CPC vs CPM!
Why You Would Select CPC?
The most obvious reason for selecting a CPC bid is that you are only charged when people click on your ads. This means that in theory, you could get thousands of “free impressions”. The reality is that these “free impressions” aren’t really worth that much to you (yes, this is debatable). For advertisers, you want to pay for ads that generate results. However if you have a low budget ($5 a day or even $20) and you don’t have time for optimization, your best bet is to just go with CPC.
While an ad optimizer could also use CPC to test their campaigns, an expert optimizer will at some point use CPM for extremely high performance ads. The reason is that when bidding on a CPC basis, you will never pay less than your bid rate.
Why You Would Select CPM?
CPM, or cost per thousand impressions (aka. cost per thousand pageviews), is an advertising model that people running tens, hundreds, or even thousands of ad combinations will often use. The reason is that ads can perform better than Facebook’s recommended CPM and CPC bid rates. The only way to maximize your performance beyond a stated bid rate and figure out the lowest possible bid is to run on a CPM basis.
The reason is that your CPM bid has nothing to do with how well it will actually perform. In other words, I could bid $1.00 for 1,000 impressions, but if my click through rate is exceptionally high, my ads could end up obtaining a CPM of $0.10 despite the fact that I bid $1.00. In turn, my ads will outperform Facebook’s estimated bid rates. Keep in mind, if you are running CPM campaigns, you must monitor your ads closely for two reasons:
- You could burn through your budget on low performing ads
- Your ad performance will decrease over time, in turn pushing your effective campaign CPM up over time
Ultimately It Comes Down To CPA
While you can’t currently bid through Facebook on a cost per action (CPA) basis, advertisers need to measure how their ads perform on a conversion basis. Whether you want a user to become a fan of your page, download an ebook, install an application, pay for some digital good, or something else, the ultimate cost is how much you are paying for a user to perform an action. If for some reason you are just looking to drive traffic to your site, and you don’t care about performance (which makes little sense), you could try to minimize your CPC. However if you were just looking to buy traffic you could easily go to StumbleUpon and buy traffic at $0.05 per visitor.
Your Best Bet
Confused? Don’t worry! If you aren’t spending a lot of money on ads, and you are new to Facebook ads, your best bet is to bid on a CPC basis. This way, you are hedging against your exposure to low performing advertisements. Additionally, the real test that you want to figure out is how to maximize your click through rate (CTR) within your ads. Whichever have the highest click through rate will tend to be the best performing over time.
Over the coming weeks we will go into more details about how to measure the performance of your campaigns and go into more detail about the ads and the various terms. If you want to stay up to date on the latest Facebook marketing news and tips, click here to subscribe to our Facebook marketing weekly newsletter.
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You say that "when bidding on a CPC basis, you will never pay less than your bid rate." This is not true. The bid rate is the maximum you are willing to pay for the click. Most of the time, Facebook charges way less then the maximum bid if the CTR is good enough.
Maybe you meant something else I didn't understand?
Comment by FrancoisAllard — September 9, 2010 @ 12:22 pm
My CPM campaigns turned to garbage when fb started giving CPC campaigns priority months ago. Anybody else?? I was basically forced to switch to the more expensive CPC to get quality clicks. It's been tough, clicks now cost about double what they did when I ran good CPM ads. Trying to hang in there with our biz just because fb can be really good place to advertise since everybody is addicted to it!
Comment by Brad — September 9, 2010 @ 2:21 pm
I believe Francois is correct. I have paid less than my maximum bid on every CPC campaign I have run.
Comment by ducinal — September 9, 2010 @ 2:58 pm
For a more in-depth analysis of the factors that affect pricing for Facebook Ads (with a focus on application developers looking to drive installs) – please take a look at the following AdParlor White Paper. http://www.adparlor.com/FBInstallWhitepaper.aspx
Comment by Hussein Fazal — September 9, 2010 @ 4:47 pm
I agree with Francois, the system does go much below the bid price. However, unlike AdWords it won't go very low on it's own – for example, even if the CTR is very high, it won't easily go below 10 cents.
Comment by AmitLavi — September 10, 2010 @ 4:42 am
I agree with you, Francois. Except AFB means something else…
Comment by Base — September 10, 2010 @ 5:33 am
We were running a CPC campaign to gain more Likes and based on our average CPM we found that we could save almost 50% by switching to the CPM model. However, when we coppied our most popular ads to a new CPM campaign, we found our CTR fell by 90%! Does anyone know why this would be? Could it have to do with Facebook prioritizing ad placement for CPC ads?
Comment by Max — September 13, 2010 @ 12:48 pm
Facebook used to provide an estimate of clicks and/or impressions based on the data you input (location/age/interests/etc). The impressions haven't been showing up for me lately (underneath the cpc/cpm ranges), only the reach (on the sidebar). Has anyone else noticed the estimated clicks/impressions counter going away, any information about it?
Comment by rachel — September 15, 2010 @ 9:01 am
Max, the same thing happened to me. I had a really great CTR for a while with a CPC campaign, so I switch to CPM to reduce my cost, and then my CTR dropped drastically…I had to go back to CPC.
Comment by FrancoisAllard — September 16, 2010 @ 10:13 am
What does AFB means then?
Comment by FrancoisAllard — September 16, 2010 @ 10:14 am
[...] couple weeks ago we posted our thoughts on the discussion of whether to use CPM or CPC when bidding on Facebook ads. After doing further research on the topic, I’ve decided that it [...]
Pingback by CPM vs CPC: Which Is Better For Facebook Ads? Round 2 — September 22, 2010 @ 1:12 pm
After running a slew of ads on CPC and trying to get costs lowered for a few weeks, we opted to test the same ads with the same targets on the same daily budget but as CPM. I am seeing my impressions are comparable, but the clicks are definitely not what they were, and the more recent addition of "Social Impressions" have no data associated with this metric on CPM, whereas my CPC ads were getting loads of Social "action".
I'm thinking of splitting my budget between the two and let them duke it out to see which will bring me the best return, while keeping the costs in check. Would love some feedback from others who have tested similar campaigns. Any feedback would be great!
Comment by Adele TIblier — October 22, 2010 @ 11:50 am
Okay, I'm a Facebook Moron (heretofore known as FBM) but I have three simple silly questions. If I'm running a CPM campaign my "ad" shows up on the sidebar as…something that I am asked to "like"? And if/when someone clicks on the "ad" to "like" it do they go to my landing page? And if so am I charged again for that?
It is with this regard that I get confused. I guess to clarify my confusion is a CPM campaign something that just goes up on the sidebar and I'm charged whether the viewer acts upon it or not? And should they click on my CPM I am not charged any extra?
And an CPC campaign is something that means my "ad" will go on the sidebar and be seen just the same as a CPM campaign would be BUT I don't pay UNTIL they click on my ad?
Thank you from a guy who still is looking for a rotary dial cell phone
Comment by Michael — December 31, 2010 @ 11:37 am
When you bid CPM, you basically pay a set amount of money for facebook to show your add to 1,000 targetted people. No additional fee is charged when someone clicks on your add. This is why bidding CPM should be (but read comments above – it always isn't) the optimal choice if you have a high CTR on your adds (click through rate – your adds are getting a lot of clicks).
When you bid CPC, you are charged for each individual click that your ads get. Bidding CPC when your adds have a high CTR will usually cost more than bidding CPM.
Comment by white_ray — January 11, 2011 @ 7:44 am
After all of this (above), I am still so confused…
Maybe some of you who sound like you know what you're talking about (even though I didn't understand it all!) can look at my specific situation and help me out…??!
I have a book repair and bookbinding business.
I am basically trying to grow my clientelle for my book repair business. I make blank books for journalers, as well. I want to get people to my website so they can see the product I make, the options they'll have for custom work, and the fact that I also do book repair.
At the moment I am contemplating advertising on Facebook, but am not sure how to use my limited budget. I guess I sort of understand the way CPC works vs. CPM…but maybe not quite!
With CPM…I get that ad will show up on the right hand of the screen. What exactly does "1000 impressions" mean? It will show up 1000 times and then be done? If someone sees my add and then clicks on it during the "1000 impressions" will I be charged more?
Comment by Michel — January 20, 2011 @ 10:00 am
For example…say my budget is $50 a week…using CPC, when they give me a cost estimate of $1.13 per click, does that mean as soon as I get 44 clicks my budget is spent? So 44 people who actually look at my website?? Now what if I was using CPM…in the same scenerio, would I reach my budget limit sooner if, during those 1000 views, more than 44 people clicked?? Or do the actual clicks not cost any more, using CPM?
I wish someone could just lay it out in "moron-speak" for someone like me!
I'm very frustrated because I can't really find the answers to these questions on Facebook…are they deliberately obtuse on the subject? Or am I just a blockhead?
Any advice you can offer would be wonderful! Thanks, in advance.
-Michel
Comment by Michel — January 20, 2011 @ 10:01 am
Michel, based on your post ("After all of this"), I think you get it but frustration is blinding you to the fact that you get it.
Now what if I was using CPM…in the same scenerio, would I reach my budget limit sooner if, during those 1000 views, more than 44 people clicked?? Or do the actual clicks not cost any more, using CPM?
No, you wouldn't reach your budget limit sooner in CPM if more people clicked through. It wouldn't matter if two people out of 1000 clicked or if 800 out of 1000 clicked. Either way, you'd be paying for the 1000 impressions.
Comment by Philip — January 25, 2011 @ 9:11 am
I'm an intern in a higher education student affairs organization, trying to pitch a very low budget pilot project for Facebook advertising. Low budget, as in two digit budget.
Although the above says beginners should use CPC, it seems like CPM would work better for what I'm trying to do. We have no clue what our click-through rate would be, so we can't do the math that way. But we'd like to estimate it. With CPC, we're just going to pay for a few clicks, but not generate any data we can use to make the pitch for a real budget.
Presumably FB provides basic analytics data (CTR; also a "fan" rate, perhaps?) — I haven't really investigated.
Comment by Philip — January 25, 2011 @ 9:15 am
okay im new to this and im making an ad to like our food page…i am so confused on what it means.
for example…
if it says my bid is $ 1.40 (usd) per click and my lifetime budget is $50.00 what does this mean? am i paying 1.40 everytime someone clicks our like ?
Comment by sol martinez — February 28, 2011 @ 11:47 pm
"Keep in mind, if you are running CPM campaigns, you must monitor your ads closely for two reasons:
1. You could burn through your budget on low performing ads
2. Your ad performance will decrease over time, in turn pushing your effective campaign CPM up over time"
Hi – Can someone pls explain point 2…why would a CPM ad campaign performance DECREASE over
time??
Thanks!!
Comment by LemonJelly — April 15, 2011 @ 7:09 pm
When you first launch a campaign, the clicks you get are those people who are more likely to click ads/your ad in general. After a while, you're just showing the same ad to people who have already ignored it again and again. All campaigns eventually decline in this way.
Comment by brendan — June 6, 2011 @ 3:59 pm
Hi there i just want to clarify something with CPM
For arguments sake i set up a test ad with CPM
Daily budget is £3, cost per 1000 impressions = £0.30
So basically am i getting up to potentially 10,000 viewers per day, even if my targeted demo-graph is less than 500 people? I gather from previous comments that people can click as may times as they want with CPM.
But what happens if, as I have already stated the CPM ammount is more than the targeted demograph?
Comment by tom — August 3, 2011 @ 9:41 am
great article, I am just starting out with my online store and am looking into Facebook ads. This really helped me understand what I am paying for and which would be better for me, thanks!
Comment by Andrew — January 16, 2012 @ 4:22 pm