Step-by-step guide on bidding CPC or CPM on Facebook (and how to pay much less)

The SECRET to bidding CPC or CPM on Facebook

Hi guys, how's it going?

A lot of my subscribers and probably all Facebook advertisers have a hard time with choosing between bidding on CPC or bidding on CPM.

In this short post I'll try and demistify this and give you guys a solid plan to proper bidding for your ads so you can:

• Pay the least per click
• Get the most impressions possible
• Get the highest possible CTR

First - understand Facebook's goals


Facebook has three goals they want to acheive with their advertising platform:

1. Ensure that their user experience is not devalued with ads
Meaning that they don't want people to be annoyed with ads so that they stop using Facebook as a result.
2. Ensure that the ads are as relevant as possible so that they enchance their users' experience.
Meaning they want their users to have a positive experience when they click on ads because that will make them click on ads even more. And do the opposite if they have a bad experience.

These two things bring us to the ultimate Facebook's goal - make the most money possible. Surprising, isn't it?

If they show ads that are relevant and their users have a great experience, then people will click on the ads more. When people click on the ads more, their advertisers will get more traffic and Facebook will earn more money.

Facebook users will be happy and they will use Facebook even more, and so on.

So why is this important to know when deciding how to bid for your ads?
Now I won't talk about your ads' quality, but focus on your decision on bidding per click or per impression.

So, Facebook wants to make the most money possible, but offers its advertisers to pay for their ads per impression and per click.

Does it makes sense for Facebook to price the CPC and CPM bid in such a way that they earn the same amount of money no matter which model advertiser chooses?

Yes.
And that's the key to the whole bidding game and something that enables savvy advertisers to lower their cost per click.

The only way for Facebook to decide how to price CPC and CPM bids so that they make the same amount of money is to look at the average CTR for all the ads currently showing for a perticular target group!

For example, let's say that all advertisers who are showing their ads to people from the US have an average CTR of 0,1%.

This means that on average all ads showed to people from US get clicked once in every 1000 impression.

Now, Facebook knows that on average each advertiser is willing to pay $0.5 per click.

If they want to know how much they will charge an advertiser who wants to pay per impression so that they earn the same money, they just use the information about average CTR to find that out.

Here's how their system „thinks":

Ok, so we would charge this advertiser $0,5 if he wanted to bid per click. But he wants to be charged per 1000 impressions. Based on our data, most advertisers like this one has a CTR of 0,1%. So we will assume that this advertiser will also have a CTR of 0,1% as this is the average for all advertisers. Ok, so if an advertiser is paying $0,5 per click and has a 0,1% CTR, then his CPM is $0,5x0,1%x1000 = $0.5 we will charge this advertiser $0,5 per 1000 impressions and make the same amount of money.

In other words if an advertiser has an ad that get's clicked once in 1000 impressions and pays for that click $0,5 - it's the same if the advertiser paid $0,5 for thousand impressions!

What if the advertiser pays $0,5 per click and gets 2 clicks out of 1000 impressions, then this is the same as if the advertiser paid $0,4x0,2%x1000 = $1 per thousand impressions! Twice as much.

Finally - how can we use this to our advantage and pay less per click?

So if all advertisers are having a CTR of 0,1%, Facebook will use that to determine the CPM bid.

If your ad has a CTR of 0,2% meaning it's 2x times better than the average, Facebook will STIL offer you to bid as if your ad was like the rest!

This means that by switching to CPM you will pay 2x less per click!
Let's go back to our example.

The average CTR is 0,1% and CPC is $0,5 - based on that Facebook decided it will charge ALL advertisers targeting that group $0,5 CPM! This means you as well!

But your ad has 0,2% CTR, right? If there wasn't an option to pay per CPM, then your CPM would be $1.

But since Facebook has the above mentioned method of determining the CPM bid to charge, by switching to CPM you would pay $0,5 per 1000 impressions - meaning that your average CPC would be $0,25 - 2 times less than if you paid per click!

Is this a way for cheating Facebook?

No!

As I said, if you're ad is twice as better as the average, you're probably in top 1% of the best advertisers. 99% of others will have less performing ads, and they will pay more.

Plus, there are far less savvy advertisers who don't know this and aren't taking advantage of it.

So if Facebook „looses" money from you it gets more money from the less performing ads and from ads that are paying per click.

Ok, now here's the step-by-step method on how you should bid your ads:

How to bid for your ads - step-by-step

1. Start with CPC and bid your maximum.
2. Make 3-4 ad variations - especially make different images.
3. Then after you get around 20 clicks per ad variation, switch fully to the one that has the highest CTR.
4. To determine if you should switch to CPM, go to Socialbakers.com and then in the top navigation click on "Advertising"
5. It will show you what is the average CPM and CPC bid for each country.
6. Then use the next formula to determine the avg. CTR: avg. CPM / avg. CPC * 0,001% = avg. CTR
7. If your best performing ad is below that avg. CTR then you stick with bidding CPC. If it's above that, then bid on CPM and pay less per click.

That's it!

These are the steps you should follow each time you start a new campaign.

Also, if you see immediately that your ad is performing 5-6 times above average, immediately switch to CPM.

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Few other tips and tricks

1. Facebook ad's burnout

Facebook ads get burn out quickly. When you see your CTR is starting to drop, change it! Change the image or even better test 4 different new images.

This depends on what's the number of people in your target. If there's 100.000 you're targeting and your ad has been shown 1.000.000 times - it's time to change the ad.

2. Images are the most responsible for how well your ad will perform

I have a free wso (no optin) about facebook ad images that work, so you can check it out to find out what I do to always get above average CTR.

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Take care guys, hope this will help you!

~Davor

PS: If you have any questions, don't hesitate to ask.