A Simple Formula For Choosing CPM vs CPC Pricing for Facebook Ads

Should you choose CPM or CPC for Facebook ads?

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One of the most important aspects of setting up an effective Pay-Per-Click advertising campaign is using the correct bidding strategy.  Modern ad delivery platforms now offer a myriad of options for marketers, and it is crucial to select the right settings to maximize the effectiveness of your campaign spend. This is something that often causes confusion for even relatively well-versed advertisers. In the case of Facebook, when selecting a bid strategy, one of the decisions you need to make is “When You Get Charged”. You are given 2 options – CPC or CPM.

While it may not be immediately intuitive, there’s no need to pull your hair out over this decision. In this post I will lay out a simple formula you can use to determine whether you should use a CPC vs a CPM pricing structure.

Heres the summary formula :
CPM Total Potential Clicks = [(Budget / CPM)*1000]*CTR
CPC Total Potential Clicks = Budget / CPC
If CPC Clicks > CPM Clicks, switch the campaign to CPC

If you’re confused – don’t worry, after you do this once its ridiculously easy.

Before I get into explaining this formula, first it is important to understand the difference between CPM & CPC delivery strategies. CPM stands for “Cost Per Mille” (Mille in this case means “thousand”). With this option selected, you are charged for every 1,000 “impressions”. An impression is counted each time a user sees your ad – but it does not necessarily mean they interacted with it in any way. So once 1000 people see your ad you get charged whether or not anybody actually clicked it.

“CPC” simply stands for “Cost Per Click”. With this option selected, you are only charged when somebody actually clicks on your Ad, and is taken to whatever destination page or URL you entered.

OK I get it, so what now?

In this case, I’m making the assumption that you’re running ads with the goal of driving people to click on it, or a link within it. As a smart advertiser, you want to maximize the number of ad clicks you can get for your ad spend.  Using the following steps and simple formula, you’ll be able to determine the bid strategy that will enable the maximum number of potential clicks for any given bid price.

Step 1 – Set it and forget it:

As soon as you run an ad on Facebook, a behind-the-scenes algorithm starts trying to figure out which types of people are most likely to click on it.  The ad will show up to users based on a number of factors – including ad relevance, click through rates, ad quality, and how much you bid.

I recommend starting with the campaign set to CPM pricing, and set the bid price to “automatic”. The automatic bid setting lets Facebook’s algorithm determine the optimal bid price you should pay for maximum results.  As the ad runs, the bid price will fluctuate as it fully optimizes. Let the ad run for 24-72 hours until the price remains relatively flat.

Step 2 –  Find the total potential CPM clicks

Next, we will figure out the maximum number of clicks you can afford within your campaign/ad group budget, while using the the CPM setting. To do this, you will need to have a fixed budget amount in mind. If you don’t have a set campaign budget – you can just use an arbitrary number to represent one (I like to use $500, which you’ll see in the following examples).

Now you need to find your optimized campaign’s actual CPM dollar amount (cost per thousand impressions).  You can find this number easily on your campaign’s “performance and clicks” report. Not

CPM Price

Note: These reports will display multiple metrics for CTR & CPC. One of these metrics is for “All Clicks” – which includes any interactions with your ad, even if they don’t click on the actual URL link. The other set of metrics is for “Link Clicks”  – this only takes into considerations clicks on the link in your ad which direct people off Facebook. The metric you should use for this formula depends on your campaign goals. If your goal is to get people to click to your website – use the “Link Clicks” metrics in your calculations.

Using the CPM dollar amount and the budget number, we will calculate the total potential impressions you can afford for this campaign with CPM pricing.

To do this – Take your budget and divide by the CPM , then multiply by 1,000.   Using the above example, and a $500 example budget, we could afford ~265,957 impressions [($500/$1.88)*100]

Next, multiply the number of potential impressions by your actual CTR (For those who don’t know, the CTR represents your Click Thru Rate, which is simply the percentage of actual ad clicks divided by the total number of actual ad impressions.)  This calculation represents the approximate number of clicks you can afford for your $500 budget on a CPM model. For our example, we could afford ~32,686 clicks (265,957 impressions * 12.92%).

Not too bad. But we still want to see if we could do better with the CPC pricing.

Step 3 – Find the total potential CPC clicks

This step is easy. Just take your budget number, & divide by the campaign’s optimized CPC price. That will be the approximate number of clicks you could afford within your budget on a CPC model, assuming all other factors remain the same.  In our above example, that would be ~25,000 ($500 budget / $0.02 cost per click)

Step 4 – Compare the Numbers
Now we can compare our two potential click totals to see which is the better option.

The rule is easy, the CPC number of clicks is greater than the CPM number of clicks, you should consider switching the campaign to CPC. If not, keep it CPM.

In our example, our budget could buy us ~32,686 clicks using CPM, and only ~25,000 with the CPC. In this case its a no-brainer, we should keep the CPM pricing.

Step 5 (Optional) – A/B Testing
The Facebook ad algorithm can be unpredictable at times. If your calculations suggest switching to a CPC model, I would recommend performing an A/B test to ensure your final optimized metrics don’t change. You can do this by creating an identical ad set within your campaign, with only the CPC vs CPM setting changed. Let it fully optimize and compare the metrics before deactivating your CPM ad set.

Heres the shortened formula once again :
CPM Clicks = (Budget / CPM)*CTR
CPC Clicks = Budget / CPC
If CPC Clicks > CPM Clicks switch the campaign to CPC

Hope that helps some of you out.

Let me know what you think or if you have any questions!

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