CPM (the cost to show 1000 impressions) on Facebook is a metric that a lot of marketers and business owners are tracking.
The overall sentiment is that CPMs are rising as more people start advertising on Facebook, meaning everyone is now paying more to acquire customers.
This isn’t necessarily true.
Yes, CPMs are higher than in the past because of more advertisers moving spend to Facebook during the pandemic, but higher CPMs are also an indicator of advertisers targeting more valuable users than before.
How you win the Facebook Auction
To really understand CPM, you need to look at the way the auction works.
Facebook uses a value based auction to determine want content you see, meaning it is designed to reward advertisers who deliver the most value to the user.
This is because they need to balance the quality of the user experience on Facebook and Instagram whilst ensuring that advertisers are getting a return.
Here is the formula used to determine which ad wins the auction, which is then converted to a CPM:
[Advertiser Bid] x [Estimated Action Rates] + [User Value] = Total Value
The advertisers who get the best results on Facebook are being rewarded for doing the following:
- Creating high quality ad creative (User value)
- Having a good post-click experience (est. action rate)
- Bidding in line with the ‘True Value’ (this is usually automatic, via the ‘lowest cost’ strategy)
So what you are paying as a CPM is determined by three variables, with two very much in your control: your ad creative and your website.
In fact, Facebook clearly state that they “subsidise relevant ads in auctions, so more relevant ads often cost less and see more results.”
If you have engaging, valuable creative that clearly articulates your product, combined with a great website experience, then your ads will be prioritised by Facebook and shown to the highest value users first.
So what should you focus on instead of CPM?
As every business is different, even in the same vertical, there’s very little value in trying to compare your CPM to someone else’s, or an average, because you have no idea what combination of objective, landing page or creative any of those businesses are using.
What really matters is whether your advertising is profitable based on your business metrics. If costs are higher than you’d like, work out whether it’s down to your fatiguing creative, or because your website isn’t giving people the information they need to confidently complete the purchase.
You have more control over CPM than you think, you just need to work out which lever to pull first.
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