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    Calculating CPM vs CPC (Great for Facebook CPM ads!)

    Posted by JasperP on May 27th, 2009

    On facebook, you have the option of choosing CPC or CPM for your ads and you should always test your text ads with CPC first.  But when do you turn them into CPM ads?

    To answer this question, you need to collect some data from your ads and determine the maximum CPM you can pay based on the clickthrough rates and CPC for your ads.

    maximum CPM = CPC * CTR * 1000

    For example, if you are paying 0.30 CPC and getting a CTR of 0.25% then your maximum CPM that you should pay should be:

    maximum CPM = $0.30 * 0.0025 * 1000 = $0.75

    Now, I like to think in terms of CPC, so I can change the CPMs to see the different CPC costs I would be paying.  The magic formula for that is:

    CPC = [ CPM / (CTR * 1000) ]

    Using the same example as above with the 0.25% CTR,  I can plug in different CPM of $0.70, $0.50, $0.30 to see the different CPC costs:

    CPC = [ 0.70 / (0.0025 * 1000) ] = $0.28
    CPC = [ 0.50 / (0.0025 * 1000) ] = $0.20
    CPC = [ 0.30 / (0.0025 * 1000) ] = $0.12
    CPC = [ 0.20 / (0.0025 * 1000) ] = $0.08
    CPC = [ 0.10 / (0.0025 * 1000) ] = $0.04

    So you can see the potential of using CPM to lower your costs.  By writing compelling ad copy and images that grab attention, you can lower your CPC costs dramatically.


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