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Marketing 360® Blog

How Much Does Online Advertising Cost? (This is How You Understand the Cost of Online Advertising)

Post By Scott Yoder | Paid Search

Here’s a review of the costs of online advertising with information on how keyword bidding, ad targeting, and performance affect costs.

One of the most common questions we get at Marketing 360® is about advertising costs.  Naturally, businesses getting ready to promote online want budget estimates for their advertising.

It’s a good question, but the estimate is only useful when you understand how online advertising works – and how those processes determine what you’ll need to spend.

In this post, we’ll review how online advertising works on two of the biggest platforms, Google Adwords and Facebook Ads.   Both of these platforms use algorithms that affect budgets, exposure levels, and rankings.  Also, both are auction systems where the amount you spend compared to your competition affects your results.

Quality and Relevance Scores

One thing that’s important to understand with online advertising is that while the systems use bidding between advertisers to determine exposure, the campaign with the highest bids is not usually the winner.

The reason has to do with an underlying standard of each platform:  they want to deliver content that’s the most useful and relevant for users.  A large part of what the algorithms do is assess the implied needs of the user, then match those needs to both the advertisement and landing page content.

For advertisers, this assessment is displayed in Google’s Quality Score and Facebook’s Relevance Score.  These are 1-10 scores that reflect how relevant your ad is for the targeted audience.  The more relevant you make the ad copy and landing page, the better the score will be, but the primary factor is user metrics.  When users engage with your ad and its content, the system determines that it’s serving its purpose, improving your score.

When you have a higher Quality/Relevance score, your threshold for most competitive bid goes down.  The system wants to display your ad because people like the content.  This means if you have an ad with a score of 9, and a competitor has a score of 2, they won’t be able to match your exposure, no matter how much they bid.

Quality score on Google Adwords is a data column associated with a keyword:

google quality score

Facebook’s Relevance Score is found in their ads reporting tool:

facebook relevance score

The better quality your content is for users – as it connects to performance metrics – the less you have to spend to get exposure and ranking.

This, of course, affects your budget.  When your execution is at its best, you’ll get the most exposure possible for a lower overall budget.

Competitive Bidding

Both Facebook and Google are based on auctions that determine the amount of exposure you get.  While you bid against competition, your bidding is not literally one-to-one against them.  Rather it’s affected by what the system indicates you need to pay to get the maximum amount of exposure.

Facebook’s auction is based on three criteria.

First is the amount you bid.  Facebook suggests you bid an amount that reflects the value of the action you want people to take.  For something such as increasing likes, you might bid low.  For an actual website conversion, you’d bid more.

Second is the estimated action rate.  The necessary budget will vary depending on whether you want to boost a post, get a video view, or increase conversions on your website.  The system automatically displays your ad to the audience most likely to take the desired action.  If you target your ad more precisely, you’ll get more out of your budget.  Options include:

facebook campaign objectives

Third is the relevance score.  For example, if you have an ad that gets a lot of negative feedback, it decreases its value, and therefore its exposure.  An ad that gets a lot of likes or shares will do better.

Google Adwords takes into account your Quality Score and what other businesses are bidding, then gives you estimated bids, for both first page and top of page:

google estimated bids

As your campaign data is tracked, the bid you need to make to be at the top of page changes.  When the metrics reflect user engagement and interest, your required bid drops.  When user metrics are poor, you’ll have to spend more to hold higher positions.

Local Service Ads (LSA) – The Value of Reviews

In 2017, Google introduced Local Service Ads, which changes the way some local businesses (that work on site, i.e. locksmiths, plumbers, handymen, garage door repair) approach their advertising.

Local Service Ads is pay per lead advertising as opposed to the pay per click model we’ve discussed.  Google sets the price per lead based on the vertical, location, and if the lead was a phone call or direct message.  Typical costs are $10-25 per lead (as of this writing).

For this platform, keyword relevancy and bidding are not factors in how you rank on searches.  Instead, your ranking is determined by your review profile on both Google My Business and the LSA platform itself.

In other words, you’ll pay the same as your competition on a per lead basis, but you’ll get more leads if you have more positive reviews.  You’ll also have to pass a background check to become a Google Guaranteed business.

The feedback Marketing 360® gets from clients using LSA is positive.  The quality of the leads is excellent, and the business only pays when the lead directly contacts them by call or message (unlike many pay per lead services where you pay just to be made aware of the lead, then you have to contact them before your competition).

LSA beta tested in 2017, and in 2019 is rolling out to most metropolitan areas.  Contact us if your business services take place on residential or business property, and we can let you know if this advertising is live in your area.

Your Exposure Goals

The last factor in understanding how much your online advertising will cost is the most straightforward:  how much exposure you want from your campaign.

There are few cases – on either Facebook or Google – where you simply want to run your ads 24×7.  One of the advantages of digital advertising is how precisely you can target your ads so they show at the most relevant times for the right users.  Likewise, you don’t want to run ads when the clicks will be wasted by an audience unlikely to act on your conversion goal.

The amount of your campaign budget determines how often your ads show.  For example, Facebook uses an automated “pacing” program to show your ads evenly over the time duration you set.  Similarly, your Google ads will be paced throughout the day based on your budget.  If your daily budget is lower, the system won’t display your ads every time a user does a search on your targeted keyword.  Your strategy needs to be set around getting your ads to show to your audience as much as possible during the time periods they’re most likely to convert.

On Google, the keywords you’re bidding on and the location of your advertising also affect your costs.  For example, a lawyer in Manhattan, Kansas bidding for the keyword “divorce lawyer” will pay less than a lawyer targeting the same keyword in Manhattan, NYC, where competition for top ranking is much higher.

Google and Facebook also have demographic features that let you display ads to targeted audiences based on criteria like age, location, gender, and interests.

Last, you can also use ad retargeting to show ads to specific groups who’ve already interacted with your brand.  On Google, you can create remarketing lists that use cookies to track people who’ve previously visited your website.  Facebook lets you create lists based on customers (like an email list), remarketing from website traffic, and from people who’ve downloaded an app.  These can be highly targeted ads based on the previous interaction.

When you speak with one of our marketing consultants, we’ll provide you estimates on what your online advertising budget will need to be.  But as you can see from the details of this post, it’s a number that’s likely to change.

The goal is to work within the systems to your advantage.  When the campaigns are well optimized, you’ll reach the right audience at the lowest possible cost.

Your Goal is ROI

There is a problem with this blog post, and it’s in the title itself.

The truth is that the question “How much does online advertising cost?” is based on a misconception.

Marketing is not like a piece of equipment you buy for your business.  A truck or a printer cost a certain amount.  They have a set price that’s an expense.

Marketing, on the other hand, is an investment.  You’re not targeting a set cost.  You’re targeting an amount you can invest that will result in a return that exceeds what you put in (in other words, that results in revenue and profit).

The amount you have to invest is determined by the nature of your business and your competition.  In a highly competitive vertical, you have to invest more to win the market share that delivers ROI.

So don’t think of digital advertising in terms of set costs.  Analyze your market space and the channels you need to use, then determine what you have to invest to give yourself a viable chance to get a high return.

This will be an estimate and the number will change.  It may go up, and it very well may go down.

When you’re getting ROI, marketing pays for itself.  That kind of investment is always worth it.