While consulting with companies on their LinkedIn advertising initiatives, I routinely get asked, “How should I bid? CPM or CPC?”
I very quickly noticed that my response is very different from “conventional wisdom.” When I hear others asked this question, I repeatedly hear, “It depends on your goals.”
These misguided souls go on to explain, “If your goal is brand awareness, bid for impressions (CPM). If your goal is direct response, bid for clicks (CPC).”
Not only is this a gross oversimplification of a rule of thumb, but I’d argue it’s flat-out wrong.
Although the examples I provide here will be related to LinkedIn Ads, it’s important to note that these same principles apply regardless of the platform you use.
Why it’s wrong
It doesn’t matter what your goals are; your job is to generate impression/traffic/leads/sales at lower costs and higher volumes.
Even if you’re only concerned with exposure, wouldn’t you want to get that exposure for the lowest cost? Along the same vein, if you’re concerned with traffic, of course you want to secure that traffic for the lowest cost possible. Using biddable media, you have your bid type as a lever to effect that efficiency.
There will be times when bidding CPM is the most cost-efficient bid type to drive impressions, but, especially in my LinkedIn Ads experience, that’s somewhat rare. There will be times that bidding CPC is the most cost-efficient bid type to drive impressions, too (although this is traditionally a bad sign about the engagement rates of your ads).
At best, your bid type is a terrible predictor of your cost efficiency.
Relevancy score importance
The largest determinant of what bid type will be appropriate is your Relevancy Score. (Every ad network calls it something different; it’s called Quality Score in AdWords parlance.)
For those not familiar, this score is the way for an ad network to decide whose ad to show when two competitors are bidding the same amount. Each network determines the score a bit differently (LinkedIn’s is totally based on historical and current CTR, while Twitter leans heavily on recency of the ad’s creation).
All else held constant, Relevance Score causes the following to occur:
• A high relevance score:
– Bid — You don’t have to bid as high for the same result, resulting in cheaper clicks/impressions.
– Traffic — You get as much traffic as the network has to offer you because you’re a top performer. This is ideal for those with significant budgets, or who want to scale.
– Placement — Placement in the first position, rather than being relegated to 2 or lower, where engagement rates are much lower.
• A low relevance score:
– Bid — You have to bid more to get the same traffic.
– Traffic — You aren’t winning as many auctions for impressions, so traffic drops, and you may have trouble spending your budget or getting enough traffic to lead to conversions.
– Placement — You have trouble landing in the top positions, creating a vicious cycle of bad CTRs leading to worse Relevance Scores.
How to think about bid type
To get a good feel for how LinkedIn treats your ads when you’re using each bid type, try bidding a campaign under each for a day. Then calculate and compare both your effective cost per impression (CPI) and your cost per click.
When you’re bidding CPM, you’re incentivizing the network to show your ad, regardless of how well it performs from an engagement standpoint.
If your level of engagement is over the threshhold (For LinkedIn Sponsored Content Ads, that means a CTR of 1 percent), your cost per click will be lower than if you were bidding CPC. The reason is that, when shown, your ad receives clicks much more often than average. So if you pay for a block of impressions, you know your ad will receive many clicks, resulting in a lower effective CPC.
Keep in mind that CPM bidding will often grant more impressions than CPC, so if you’re under a time crunch for traffic, CPM may be a good way to go. Also keep in mind that costs per result may be very high in this process, but it’s an option to push volume quickly.
When bidding CPC, you’re effectively shifting the onus of performance to the platform. That means you pay nothing if your ad isn’t effective at getting users to click. That risk that the platform takes is not a charity it provides, though. If your ads do not succeed at driving clicks, they very quickly get sidelined and stop receiving impressions.
When your ads get really high engagement rates on other platforms, the platform is quick to provide discounts on your cost per click because your ads are earning the platform money more often than other advertisers. LinkedIn Ads is not as generous in this regard.
Instead of counting on the platform to proactively give you discounts, I recommend lowering your bids until you’re at the point of naturally hitting your daily budget. That will generate the cheapest clicks and act as your own discounting mechanism.
LinkedIn bidding formula
There is a simple process my team follows to ensure LinkedIn Sponsored Content ads are always as efficient as possible. The steps are listed below in detail, along with an explainer video and a cheat sheet (PDF) you can refer to as you launch Sponsored Content ads on LinkedIn.
- Always begin advertising using CPC with bids within the recommended range.
- Observe the click-through rate and take the following actions:
- CTR below .35 percent — The ads are poor performers, and you’ll need to try launching new ads until you get above that level.
- CTR between .35 and 1 percent — Your ads are doing great. If your goal is efficiency, lower your bids until the campaign barely spends your daily budget. If your goal is scale, bid up slowly until you get the amount of traffic you want.
- CTR above 1 percent — The ads are real performers. Change your bid type to CPM and bid high (If you don’t bid high, your ads will fall to the second position, where CTRs are appreciably lower and will nullify the benefit of CPM bidding). Remember to watch performance on these closely, as the audience will tire of the ad eventually, and your CTRs will drop (usually between one to three weeks), and you’ll need to refresh your creative to keep your performance up.
Follow this process while launching your Sponsored Content for the very best results in terms of cost efficiency.
Tweet me with questions or for clarifications @WilcoxAJ. Happy cost savings!
via Marketing Land