And Which Should You Use For Facebook Advertising?
When getting started with online advertising a legitimate question to ask is; “What’s the difference between CPM and CPC?”. And even if you know the difference, you may still wonder; “Does how I get charged directly impact my ad performance?”
We’ll be answering both these questions in this blog and also outlining which situations call for which charge type on Facebook.
CPM vs CPC
What does CPC mean?
CPC stands for Cost Per Click. This means you only get charged when someone clicks on your advert.
What does CPM mean?
CPM stands for Cost Per Mille (which means per 1,000 impressions). This means you get charged when 1,000 impressions of your advert are shown, regardless of how many times someone clicks on your advert.
CPM vs CPC on Facebook
How does it work?
Facebook advertising works as a blind auction (similarly to many other forms of programmatic advertising) where you bid against competitors for an ad slot. Facebook displays the best performing ads—or essentially those which generate the most revenue for Facebook. Regardless of whether you opt to be charged by CPM or CPC, Facebook revenue is calculated by CPM.
The difference between Charge Type and Ad Optimization
You set your charge type within each Ad Set on Facebook using the When You Get Charged field:
Charge type is different to whether or not you are optimizing for Link Clicks or Impressions, which you set using the Optimization for Ad Delivery field.
If you are optimizing ad delivery for Link Clicks you can set your charge type to Impression (CPM) or Link Click (CPC), whereas if you’re optimizing ad delivery for Impressions, Daily Unique Reach or Conversions you can only set your charge type to Impression.
What happens when your ads launch?
Once your ads launch they will be entered into a blind auction against your competitors—whose ads have a history of performance data Facebook already uses as a benchmark. During this initial period the performance of your campaign is critical. If your performance is poor (i.e. you generate little revenue for Facebook in comparison to your competitors) your ads won’t get good visibility.
How does charge type affect this?
If you use CPC you only get charged every time someone clicks on your ad. Therefore if you have a low Click Through Rate—say 0.15%—and are bidding at $0.25 per click, the number of clicks you generate over 10,000 impressions is 15. As you are only getting charged every time someone clicks your ad, this works out as an effective CPM of $0.37. Therefore you’re probably not generating enough revenue for Facebook vs your competitors and your ads will likely lose out in the auction and stop being shown.
If you use CPM you get charged every time 1,000 impressions of your ad are shown. Therefore even if you have a low Click Through Rate, your ad will still be shown regardless of the number of clicks it gets, your effective CPC will just be very high. Conversely, if you have a high Click Through Rate and are being charged by CPM, your effective CPC will end up being low.
Should you use CPC or CPM?
While there’s no right answer, there are a couple of scenarios where one may be more favourable than the other.
Why choose CPC?
Simply—because you only get charged when someone clicks your ad. This means, in theory, if your ad doesn’t get many clicks, you will initially be getting thousands of impressions for free. It also acts as a safeguard against paying lots of money if your ad isn’t performing well.
This is a good option for people just starting out with Facebook advertising. However, the downside is that if your ad performs very well, you still get charged every time someone clicks. Therefore, you cannot “beat” Facebook and earn yourself a low CPC, as you won't pay less than what you are bidding.
Why choose CPM?
Because when you get charged has nothing to do with how you perform. As described above, this can result in overpaying and wasting money if your ads are performing poorly—a substantial risk. If your ads perform well however, this means you can beat Facebook’s recommended CPC rates.
If you’re running large-scale, advanced Facebook advertising campaigns with lots of different target segments, multiple ad creatives and are optimizing your bid and budget strategy effectively, this gives you a great chance of outperforming Facebook’s recommendations.
But this is very difficult to do manually, due to the complexity in tracking the performance of thousands of target segments, creatives, bids and budgets. By automating bid optimization and creative selection using proprietary algorithms however, Adgo enables anyone to do this.
Whether you decide to go with CPM or CPC on Facebook may come down to personal preference, but your choice will have a very real effect on your campaign.
If you’re new to Facebook or have a small budget then CPC may be best for you. This way you’re ensuring you only pay for what you get and safeguarding against poor performance. If you’ve got a larger budget, have been using Facebook for a while and are confident in your ability to create well structured campaigns then CPM will give you a chance to optimize performance whilst bringing your costs down. Especially when used with Adgo and our proprietary algorithms.