Understanding the New Facebook CPC Formula

July 22, 2015

By July 22, 2015insights

It was bound to happen at some point. Facebook marketers would stop paying for likes, and start focusing on real metrics. Fortunately, Facebook finally agreed.

They are now moving a Cost-Per-Click (CPC) model that has the potential to change how the entire Facebook advertising structure works. This means Facebook advertisers can stop chasing metrics such as likes, shares, and other social engagement metrics. Instead, start looking at traditional conversion metrics to determine the value of Facebook ads. To help you understand how to benefit from this system, we go over how the new CPC model works. Also, understand the benefits and drawbacks of this new system.

Overview of CPC Actions

Traditionally, Facebook encouraged advertisers to spend money on building likes for their Facebook page and increasing the number of likes to their page. The problem with that is advertisers were not directly paying to grow their business. Instead, they paid to Facebook to grow their audience on Facebook. Simply put, your advertising dollars is now more performance based than it was previously. As marketers paid more and more to add new fans, fewer fans were reached organically. It felt a bit like a scam.

To protect advertisers, Facebook now bases your cost on the following actions:

  • Clicks to visit another website
  • Call-to-action clicks that go to another website (i.e., “Shop Now”)
  • Clicks to install an app
  • Clicks to Facebookcanvas apps
  • Clicks to view a video on another website

All of these are more action oriented to ensure that marketers get the most out of their advertising budget. Before, this the discrepancies in clicks to third party websites between Facebook and third party analytics numbers were vastly different. An extreme example is the case of Raaj Kapur Brar. He lost $600,000 on Facebook advertising. With this new system, many of these discrepencies can be eradicated.

However, what other benefits and drawbacks can happen with this change?

The New Facebook CPC Formula Benefits

Better business analytics.

How much is a Facebook like worth? That value can change depending upon who you ask? Some analysts like Augie Ray say that fans are worth zero, because they are potential value.  Conversely a report by Syncapse said that Facebook fans on average are worth $174 per fan. See the problem? What is your ROI on Facebook fans? That is the issue Brar had when he paid for what he believed were fake accounts.

By changing the system, Facebook can reframe the question to what is the ROI on visits to your landing page. Landing page visits are trackable through your CRM to determine how many people purchase your products or signed up for your email list. Likes are not. This is the value of the new system. It is the same reason why Twitter moved to an objective-based campaign last year. They knew the best way to let marketers know the value of advertising on Twitter was to provide advertisers with real numbers… Now, Facebook can do the same.

CPC encourages a more balanced approach to marketing.

At Shout, we look to create social media advertising campaigns that are real, human, and relevant that time and time again reach new prospects and drive loyal followers back to your site. The new CPC model aligns perfectly with our social goals, because we want to drive targeted traffic to your website.

Using the demographic and geo targeting tools on Facebook, you can now create a CPC campaign that can demonstrably lead to more sales. In the end, that is what matters.

The New Facebook CPC Drawbacks

Advertisers need to start over again with Facebook.

For years, advertisers on Facebook relied upon the metrics Facebook provided them to determine the value of their marketing efforts. Marketing Land mentioned how the new system compares “apple to oranges.” Marketers cannot compare how they are doing financially to last year, because they are looking at two different set of metrics: likes versus CPC. For the upcoming year, it then becomes a challenge to assess the success of a campaign in comparison with previous results.

An Increase in CPC.

While not guaranteed, switching to a model that goes for clicks to a link versus engagement on Facebook will probably increase the rates. Because Facebook is a for profit company that was probably why they made the switch in the first place. However, this is not all bad. Business Insider mentioned that these increased rates probably also lead to an increase in the return on investment.

It is still too early to tell what the final costs are on Facebook CPC. In the meantime, this is a trend that advertisers have to watch closely.

Final Thoughts

It is about time that we ditched the old model of social media advertising. Counting fans and likes is not a great way to run a business. Instead, marketers today need to focus on how to increase the ROI of their advertising campaigns. To do that, they need the right tools at their disposal. Facebook’s new CPC formula provides advertisers with the right tools to create the most the effective campaigns. It is a huge win for any business that likes to make money with their advertising.

If you are interested in using these new changes for your business, then request a quote from Shout. We want to work with you to improve your new CPC campaigns on Facebook, and assist growth in conjunction with other digital marketing and social media and content marketing efforts.