If you’ve ever wondered how much it costs to advertise on Facebook then you first need to understand what CPM is. CPM stands for Cost Per Mille and is measured by taking the total amount spent on an ad campaign, divided by impressions, multiplied by 1,000. As marketers, we use the CPM metric as a baseline to see get a feel of how the cost to advertise on Facebook is fluctuating.

But wait, Eboost, what do you mean the cost of advertising? Didn’t you say in a different blog post that the cost of advertising on Facebook and Instagram is based on your budget and the ads auction? That’s true, but because Facebook ads are based on an auction-based system, there is always another factor affecting advertising: supply and demand. Across the Facebook family of brands, there is a finite amount of ads spots available. There is also a finite amount of people viewing those ad spots, so advertising to certain people will cost more if there is a higher amount of competition to get in front of that audience. Additionally, within your target audience there is a smaller pool of people who are likely to take the action you’re wanting them to take. So your CPM will change based on what your campaign is optimized toward (landing page view, conversion), who your ads are targeting, your ad placement, and many more factors. Al

So now that we know what CPMs are it’s time to understand how you can use them to better understand your campaigns and increase performance. Facebook nods to this in their definition of CPMs, “CPM is a common metric used by the online advertising industry to gauge the cost-effectiveness of an ad campaign. It’s often used to compare performance among different ad publishers and campaigns.”  In fact, with Facebook’s Reach and Frequency campaigns, you can lock-in a specific CPM for campaigns, but with a few caveats. The actual CPM for those types of campaigns, which are scheduled in advance and can only be optimized for reach first and a handful of objectives second, are dependent on a few factors, such as the target audience, scheduled dates of the campaign (CPMs typically rise around major advertising dates or events, like holidays), the placements, creative types, and a few other factors. But Reach and Frequency campaigns aren’t the best campaign choice for a majority of advertisers. Why? For these Reach and Frequency campaigns, you need to have a particular set of parameters and objectives. However, in conversion-optimized campaigns, you can optimize for an event on your website, such as a purchase, and track that performance directly back to a specific ad, audience, and campaign. Since most advertisers focus their campaigns on conversion-based goals, like revenue or ROAS, we don’t typically recommend running Reach or Frequency campaigns.

So, if the restrictions around the campaign type that can lock in CPMs might not make sense for your goals, how can CPMs be useful Facebook hinted to it in their definition, but as marketers, we typically look at CPMs as comparative data. For example, if everything has remained constant in terms of an ad set’s performance (purchase volume and revenue amount) but we suddenly begin seeing a lower ROAS, CPMs are the first thing we look at. In this case, a higher CPM would show us that there is suddenly more competition for the ad set’s audience, placement, etc. If we see a rise in CPMs happen with other factors remaining constant, we likely shift to working on new audiences or expanding placements in order to work toward a lower CPM. If we see CPMs rise across a number of accounts, then it’s a strong indication that there is more competition for Facebook advertising in general.