Demystifying Meta’s Ad Auction: How Your Facebook and Instagram Ad Costs Are Determined

Introduction

Ever felt baffled by why Facebook and Instagram ads cost so much? You’re not alone.

Imagine walking into your favorite pizza shop where you go every Friday to get a slice of pepperoni pizza as big as your head, always cheaper than your tween's favorite Starbucks order. This time, the lady in front of you orders your exact same slice from last week but gets charged $7—$3 more than before.

Annoyed but hungry, you stick with it. When you finally get to the counter and order your favorite slice, the clerk says, "That will be $14."

WHAT? Um... what's going on? The clerk explains there’s been a price increase due to higher ingredient costs (similar to how Facebook cites increased competition as a reason for rising ad prices—#hellotiktok). Then you ask, "Why did she pay $7, and I’m being charged $14?" The clerk replies, "Oh, it was an auction—you got outbid, so now you owe more." It’s like, what the what?

Seriously, why do Facebook and Instagram ads cost so much? In their own Support documentation, Meta begins their pricing section with, "The goal of an auction is simple—to pair your ad with people in your audience who are most likely to be interested in it," but then they complicate everything, with an auction explanation that goes on for pages.

The truth is almost all digital advertising platforms use this auction price model, so when you are ready to put more eyeballs on your offers and scale your business, it is important to understand this pricing model, so you don't feel like you’re flushing money down the toilet every time you hit "publish" in a digital ad campaign.

Digital advertising is incredibly effective—according to a study by eMarketer, digital ad spending worldwide is projected to reach $517 billion in 2023, showing the immense value businesses find in these platforms.

In this article, I’ll break down why Facebook and Instagram ads cost so much and suggest money-saving steps you can implement next time or even the first time, you craft a Facebook or Instagram ad campaign.

1. The Ad Auction Process

When you run an ad on Facebook or Instagram, it enters an auction. But this isn't your typical highest-bidder-wins scenario. Meta’s auction considers multiple factors to ensure that the best ads reach the right audience.

2. What Factors Into the Auction?

Meta’s ad auction takes three main factors into account:

• Bid: This is how much you're willing to pay for a desired action, such as a click, impression, or conversion.

• Estimated Action Rates

  : This predicts how likely it is that a user will take the action you want.
• Ad Quality and Relevance: This measures how relevant and engaging your ad is to the audience.

3. Calculating Total Value

The auction calculates a "Total Value" for each ad. This value combines your bid, the estimated action rates, and the ad quality/relevance. The ads with the highest total value win the auction and get shown to users.

4. How You’re Charged

Depending on your goals, you can be charged in different ways:

• CPC (Cost Per Click): Pay each time someone clicks on your ad.
• CPM (Cost Per Thousand Impressions): Pay for every thousand views your ad receives.
• CPA (Cost Per Action): Pay when someone takes a specific action, like making a purchase.

5. Setting Budgets and Bidding Strategies

You can control your spending with daily or lifetime budgets and choose bidding strategies that suit your goals:

• Daily Budget: The amount you’re willing to spend each day.
• Lifetime Budget: The total amount for the entire campaign.
• Bidding Strategies: Options like automatic bidding, bid cap, and cost cap help manage your costs.

6. What Affects Your Ad Prices?

Several factors influence why Facebook and Instagram ads cost so much:

• Competition: More advertisers targeting the same audience means higher costs.
• Ad Relevance: Better quality and more relevant ads can reduce costs.
• Audience: Narrower audiences might cost more due to limited availability.
• Time and Seasonality: Costs can fluctuate based on demand, such as during holidays.

7. What to Do If Ad Costs Are Still Too High

So, you’ve optimized your ad relevance, tested different bidding strategies, and refined your targeting, but your Facebook and Instagram ad costs still feel too high. Don’t take it personally—remember, it’s just data. Here’s what you now know: Your offer, in its current form, is not selling to the audience you targeted on Meta's advertising platform.

But don’t be discouraged. This information is valuable and can guide your next steps. Here are several options to consider:

1. Re-evaluate Your Offer

   Sometimes, the issue isn’t the ad, but the offer itself. Is your product or service priced appropriately? Many businesses undercharge, not realizing that digital ads require a sufficient return on investment. Consider adjusting your pricing or adding value to your offer to make it more enticing. This could be through perceived value (like better branding) or actual value (like bonuses or additional features).

2. Remember the Human Element

   Even when analyzing data, remember there are real people on the other end. Sometimes, focusing on what the customer wants, or even asking them directly, can reveal valuable insights. Shifting your mindset from "how can I make money?" to "how can I help my customers?" can make a significant difference.

3. Change Your Target Audience

   If your current audience isn’t converting, consider targeting a different group. It’s often easier to sell to people who want to be helped and have the means to pay for it. Assess whether another audience might be a better fit for your offer and more responsive to your ads.

4. Improve Your Landing Page

   Ensure your landing page is optimized for conversions. A high bounce rate can signal that the page isn’t meeting user expectations. Make sure it loads quickly, is mobile-friendly, and has a clear call-to-action.

5. Conduct Testing

   Continuously test different ad creatives, copy, and landing pages to see what resonates best with your audience. Small changes can sometimes lead to significant improvements in performance.

6. Sell to People Who Already Know You

   Use retargeting to reach users who have previously interacted with your ads or visited your site. These users are often more likely to convert, helping to improve your overall return on ad spend (ROAS). It's easier to sell to people who already know you or have bought from you before.

7. Consider Alternative Platforms

   While Meta (Facebook and Instagram) is often the cheapest in terms of raw cost, other platforms might prove more cost-effective if they better fit your business. Platforms like Google Ads, LinkedIn, or even TikTok can offer new audiences and potentially better ROI for your specific needs.

8. Analyze Competitors

   Look at what competitors are doing. Analyze their ads, offers, and engagement to gain insights and inspiration. Understanding their strategies can help you refine your own.

9. Seek Professional Help

   No, I don't mean a therapist to listen to you complain about ad prices, but consider outsourcing! Consulting with a digital marketing expert can provide new perspectives and strategies that you might not have considered. A fresh pair of eyes can be invaluable, and the time you gain back from all this trial and error can be spent making money in another way or simply rejuvenating.

By addressing these aspects, you can ensure that your ad strategy is as effective as possible, even when faced with high costs. Remember, it’s all about continuous improvement and adapting to what the data tells you.

Conclusion

And there you have it! Meta’s ad auction might seem complex at first, but by understanding these key factors and strategies, you can better navigate and optimize your ad campaigns. Remember, a high-quality, relevant ad with a well-thought-out bidding strategy can make all the difference.

Ready to take control of your ad costs? Start implementing these strategies today and watch your business grow!

Happy advertising! 🚀