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CPM. How to Make It Cheaper

When you run ads on Facebook, Instagram, TikTok or other social media platform, you know that the cost of your results largely depends on CPM, or cost per thousand impressions. If it raises, overall ad costs go up as well. And at the same time, if you have limits on budget spend or specific bidding settings in your ads manager, you start getting fewer results at a higher price. For example, CPM is always higher in Q4 because the competition is higher closer to Black Friday. CPM may also be different in different seasons depending on the niche.

But in most niches, there’s an average CPM for certain markets so some business owners think that this is just what they’ll be paying for 1000 impressions. But in reality, they can pay more, or in some cases even less than that average price. To be among those who pay less you don’t need any cheat codes, you just need to know how CPM is formed.

Here is what CPM actually consists of:

CPM = bid * estimate action rate + value for a user.

Bid is the sum you are ready to pay for the target action (e.g. a click, a lead, a conversion, etc.) I think I need to mention that Facebook’s, TikTok’s and other social media ad auction works based on the same principle as the real auction which is the second price model. It means that as an advertiser you’ll pay $0.01 more than the second highest bid for an ad impression. It also means that the higher the bids are in your niche, the more you’ll have to pay. Some green advertisers think that higher bid can bring them more results. But not necessarily. Their chances of generating more results are higher, but will they be cost-efficient? I don’t think so. Jumping ahead a bit I want to say that in our practice, we usually chose Lowest Cost when developing our Facebook and TikTok bidding strategies. It is basically an automatical type of bidding when the system is setting an optimal price itself. In fact, that’s what most advertisers do. There are situations when you have to play with bids but it requires big ad budget and a seasoned media buyer or two to do it right. If you don’t have either of these, just go with the Lowest Cost.  

The second constituent of low CPM is high estimate action rate. This rate indicates the probability of the desired action to be taken by a user who has seen an ad. In other words, it estimates whether your chances that users will do what you want them to do are high enough. But what elements exactly contribute to a high estimate action rate? First of all, it’s the offer itself. If you run a sale or use scarcity tactics, it’ll almost certainly greatly improve this rate as people are more likely to purchase when there’s a discount or some other interesting offer. Secondly, it’s a good ad copy with a strong call-to-action. It may sound obvious but you should tell users where to click and what to do. It does improve conversion rate and click-through rate when there’s a clear CTA.

Last but not least in this formula is value for a user.

It indicates how relevant your ad is to the audience you’re showing it to. Sometimes media buyers can target the right audience with the wrong message. For example, if potential customer groups consist of people from 18 to 65 y.o., it is better to segregate them into several campaigns because what grabs an 18-year-old’s attention is different from what grabs a 65-year-old’s attention. These people may also have different reasons to buy your products and you should keep this in mind when working on ad copies and creatives. 

As soon as you fine-tune the key principle of successful CPM constituents, your ads will start getting cheaper. You’ll have to work on them all the time though because people get exhausted by the unvarying creatives, offers, and approaches pretty fast. What’s more, in the hot sale seasons like Q4 it’s always harder to stand out as the competition becomes fierce. But if you test different approaches, conduct surveys among your customers to understand what they want and like, you’ll definitely have an edge over your rivals.

Of course, CPM is not the only factor that affects the cost of results. Average order value is also important. To increase it, you can offer some cost-efficient bundles, cross-sell complementary items, or give discounts on several items purchases. But what is even more important is your website conversion rate. When it’s low, not only you get fewer conversions, but also the cost of ads gets higher. Keeping it at no less than 3%-5% is essential. For this, make sure the website loading speed is fast, product page and checkout are well optimized, payment acceptance systems work smoothly and customer service is excellent.

Today I’ve covered the basics that can help you acquire customers at the lowest cost on social media. This info should become the backbone of your successful digital marketing strategy. But if you want it to be flexible and elegant, there’s much more to it. You also need to understand and incorporate principles of psychology into your marketing to always stay relevant with your audience, use analytics wisely and be ready to readjust your strategy to an ever-changing environment.

Our team has been doing all this for more than 5 years already and some of our clients (with whom we’ve been working for all this time) say we’ve become their outsourced marketing department. And it inspires us to do even more for them and for our new clients! So if you want to give it a try and see what it’s like to work with a whole marketing team, just book a discovery call, and let’s discuss what we can do for you.

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