Typically, CPM (cost per 1000 impressions) bidding has been reserved for companies wishing to establish themselves as the brand to choose. CPM is most apparent in media buys, where the advertiser will pay for a certain amount of impressions on a given website or application. At a CPC (cost per click) cost, each and every click costs you money. It is most likely those that are bidding by CPM are establishing their brand into the users.
Now, the same idea was imposed for Facebook Ads. Those looking to reach a massive amount of views and brand their product or website would use CPM. However, today, CPM is being used more and more often by private advertisers and affiliate marketers. Rather than becoming more expensive and just for branding purposes, those smart enough and wiling enough to take the risk have actually lowered advertising costs and increased profits with CPM on Facebook.
Facebook calculates click costs using a number of variables, the most important variable being click-through rate percentage. An ad with a .05% (1 click every 2000 views) CTR will create a minimum bid of around 30 cents. While at .1%, you might only have to bid 20 cents to keep getting impressions. These impressions will eventually die if your CTR is too low for your bid. This is why it is essential for anyone bidding CPC to experiment with different demographics, images, and texts to increase their click-through percentages in turn lowering costs.
Say you optimize your ad so much that you have now got a 1.0+% CTR. It’s not easy, but with a little creativity and lots of experimenting with a tight demographic, you can do it. At this rate, you should have very cheap clicks (around 5 cents). For every 1000 views, you are paying 50+ cents just for clicks. Rather than do this, take the exact same ad and recreate it using CPM bidding instead. Minimum CPM bids start at 10 cents and go up. Facebook will keep sending you impressions even if CTR drops and you won’t ever have to adjust bids to keep getting the same amount of impressions. Depending what demos you are targeting, on a campaign targeted to US adults you would pay around 15-25 cents for 1000 views vs. 50+ cents with CPC bidding. You’ve just doubled your ROI.
The problem with CPM bidding is that it generally doesn’t work with giant demographics. It is very hard to get a high CTR targeting over 3 million people. You just can’t please every single one of them so much to the point where they have to click your ad. CPM bidding on Facebook is generally more profitable with smaller niches and targets where you can laser in to people that really want to buy into whatever offer you are promoting. Another problem though, is that you will run out of people to target quickly, especially on CPM bids. Eventually, people will become blind to your ads and CTR will drop until it is no longer profitable to keep that ad running. A quick fix to extend the lifetime of these kinds of campaigns is too switch ads (images, headline, body text) often, pausing ads you’ve ran for a few days and changing to another for a few days, and then switching back.
For more information on bidding strategies within Facebook, check out what Facebook has to say about it.