Reach is the key to being successful in selling digital products. Even the best offer becomes a virtual slow seller if it doesn’t get any attention. Free advertising options are only effective to a limited extent because they usually do not reach the masses. Sooner or later there is no getting around investing money to make more money.
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With Facebook ads you can address specific target groups easily and precisely, but is it worth it? The answer is: “It depends.” In this post, you will find some decision-making aids.
Facebook offers two billing models – CPC and CPM
Before going into the details, you need to know the billing models that Facebook offers advertisers:
CPM (cost per mille)
“Mille” stands for 1000. More precisely for 1000 impressions. An impression is when an active advertisement is seen on the screen by a target group member.
It is sufficient that it is displayed and can be seen accordingly. Whether a user actually perceives an advertisement that is displayed is another piece of paper.
The CPMs describe the costs that one has to pay for 1000 advertisements delivered by Facebook.
CPC (cost per click)
Here, the advertiser’s account is only charged if a user who has created an impression (i.e. has seen the ad) then clicks on it.
It does not matter whether the click takes place on a link that forwards it to the advertiser’s website or whether the ad is simply marked with “Like”. You will be billed in both cases.
None of the models is “better” in absolute terms
Both have their raison d’etre. For someone who starts at 0, CPC is the ideal billing model. In this way, you only pay when the desired action actually occurs. After all, you don’t have any experience at the beginning.
If you were to rely on CPM here, it could be that you place an advertisement that receives many impressions but few clicks.
Not only is this inefficient, but in absolute terms, it can also escalate quickly. After all, Facebook says to itself: “Great – I just have to deliver this ad very often and earn money every time.” Advertisements are then displayed correspondingly frequently and quickly.
With the CPC model, Facebook has to weigh more carefully: “This user is more likely to click on the ad from advertiser A than the ad from advertiser B – so I place the first one. Then I can count on making money. “
If you get a lot of clicks for your advertisements despite fewer impressions, one speaks of a high click rate (click-through rate or CTR). Essentially, this means that you advertise efficiently. Then consider switching to CPM.
- Advertisement A
- 1000 impressions
- 2% CTR
- 20 clicks
- € 0.42 CPC
- € 5.48 CPM
If you had relied on CPC here, the total costs would amount to 20 clicks * 0.42 € CPC. So: € 8.40. However, with a CPM bid strategy, the same result would have been achieved with a total cost of just € 5.48 (1000 impressions at a CTR of 2%).
The change makes sense depending on the situation and one should by no means completely write off the CPM approach.
With a lower CTR of 1%, you would have generated only 10 clicks, which (with constant CPC) would have cost a total of € 4.20. In this artificial example, the CPC approach would have been recommended.
1000 impressions = € 2.48 and 1 click = € 0.24
As well as being a useful sales tool, Salesforce publishes interesting studies as a company. For example the Salesforce Ad Benchmark 2015.
This shows us the average costs for Facebook advertising activities at the country level and across all industries and formats.
Accordingly, no precise statements can be made based on this data, but at least an approximation of the costs for Facebook advertising in one’s own specialty can be attempted. The data refer to the 1st quarter of 2015.
For 1000 impressions you pay an average of € 2.48 and for a click € 0.24 at 1.02% CTR in Germany.
From 10 € per day, you can advertise profitably and sell more successfully online
To understand whether Facebook ads can be a worthwhile investment, one should go through a few scenarios arithmetically.
To do this, we must first make a few assumptions:
- The available daily budget varies between € 5 and € 1000
- CPM and CTR are the Salesforce national average
- The conversion rate * is 3%
- The average shopping cart ** is € 15
- The ROI (return on investment) results from max. Sales / daily budget
* Conversion rate: percentage of users who buy something on the website divided by the percentage of users who came to the website via the Facebook ad
** Average value of the shopping cart with one or more products that buyers usually pay in the course of a transaction in an online shop.
Calculation scenario for the case of billing via CPM
Taking into account the above assumptions, you could set up a profitable Facebook advertising campaign for your website with just a 10 € daily budget.
Calculation scenario for billing via CPC
It becomes clear that a deterioration in the parameters CTR, CR (conversion rate), and average shopping cart can completely overturn the profitability of this advertising campaign. This is why this scenario should by no means be viewed as representative.
Different advertisers use different target groups, ad images, and texts and their websites and products also differ fundamentally. Accordingly, click and purchase behavior can vary greatly.
If the conversion rate is reduced to 1%, the purchase may not be made with an investment of € 10 and the advertising expenditure will not be refinanced.
Nonetheless, with just € 10 you can run a meaningful test campaign with Facebook ads.
Meaningful in that, as a provider of digital products such as vouchers, instructions, e-books, and more, you could at least theoretically make the first sale.
Whether this all works or not depends on many factors (CTR, CR, etc.). You can only really realistically assess this after you’ve invested something.
Therefore, just give it a try and gather your own experience with Facebook advertising.
If you want to seriously scale your digital business, Facebook gives you a powerful tool. You just have to test it yourself and turn a few adjusting screws again and again to optimize the results.
The costs for Facebook advertising are controllable and those who test systematically with their budget can quickly find their target group and sell more successfully online.