Facebook Ads: How does it work?

Facebook Advertising: Do it right, make it big. Do it wrong? Well, you may end up losing a considerable amount of money. Tedeschi et al., (2009) argued that individuals act in such a manner to maximise their benefits gained from social interactions. As you already likely know, Facebook is a platform that can be accessed from almost anywhere in the world, satisfying the social needs of people. This is a double edged sword, as companies can exploit this to advertise their products and/or services and maintain engagement and connection with their consumers. According to Statista, (2016) Facebook is currently the leading social network ranked by number of active users – 1.59 billion monthly active users. As such, it provides a substantial podium for a business to showcase their goods. According to last years numbers, mobile advertising attributed to 76% of its total ad revenue – quantified to $2.9 billion, (Kokalitcheva, 2015). With numbers as impressive as these, there must be a reason why companies continue to use Facebook as part of their advertising. Let’s look into this further…

How does Facebook advertising work?

When creating an advertisement on Facebook, there are a number of variables the user must take into account. For the ad to become visible to the consumer, Facebook uses an algorithm to determine whether or not they have shown an interest in the ‘key-words’ that the creator of the ad uses to define their target audience. The key-words, similar to that of Google SEO, will be words that relate to what the product or service is, the market it is in or possibly even a competitor. As a result, the ad campaign will be highly concentrated towards those who would be potential purchasers (if implemented correctly). The minimum budget in the United Kingdom that can be set is £5.00 daily and Facebook will aim to use up the daily budget in it’s entirety.

The target audience is defined through a number of criteria; for instance target demographic which encompasses current location and X amount of radius, and also that of target age range. In more detail, the number of targeting options one can use is quite vast:

• Custom Audiences
• Location
• Educational Demographic
• Age & Gender
• Interests
• Behaviours
• Connections

Upon definition of the audience and incorporation of your daily budget, Facebook will calculate the estimate daily reach of your advertisement. As an example, the image above shows a minimum of 1000 people daily on Facebook and Instagram, taking into account the demographic that was selected along with a daily budget of £5.00. Facebook also shows the potential reach; this is the number of people in the entire stated demographic that the advertisement could be shown to.

For arguments sake, let’s assume we have an ad in place which is estimated to reach a minimum of 2000 people daily on a budget of £5.00. The user will essentially be paying Facebook £5 to show the advertisement throughout the day and over the set period to the defined audience, regardless of whether or not they click through to the actual link or promotion etc, (Facebook, 2016). Facebook offers two methods of delivery for such advertisements; Standard Delivery and Accelerated Delivery. Standard Delivery entails that the advertisement will be distributed to someone in the defined target audience evenly over the course of the campaign. Accelerated Delivery is intended for spending your daily budget as soon as possible, removing the pacing element of Standard Delivery. This is often used as arguably a ‘blitz’ style method, perhaps for a soon ending sale or promotion. Resultantly, Standard Delivery is the most used method.

What are the other considerations?

As previously mentioned, just because an advertisement is visible to a consumer it doesn’t mean that they will actually click through to it. Stats from last year showed that in the UK, only 1.15% of consumers clicked through to a visible advertisement, (Reiss-Davis, 2015). This is called the ‘Click-through Rate’ or CTR for short.

CTR is specifically the ratio of users who click onto a specific link or advertisement, relative to the number of users who viewed it. Using this as a basis for calculation with the aforementioned example reach of 2000 people daily, this would equate to an approximate amount of 23 people accessing the link daily; from the budget of £5.00. It is important to take this into account – especially when numbers of such grandeur are presented to a business. It would be easy to become misled by such figures when the ‘reach’ is so high, but this doesn’t necessarily equate to greater profitability and a return on investment. The correct targeting of an advert and CTR are largely contributing factors as to whether or not an advertisement will be deemed successful, along with the implementation of a suitable budget appropriated to what a business can afford – or more importantly – afford to lose.

References:

Facebook.com. (2016). Help Center. [online] Available at: https://www.facebook.com/business/help/214319341922580?helpref=topq [Accessed 8 May 2016].

Kokalitcheva, K. (2015). Facebook’s Mobile Ad Revenue Is On A Tear. [online] Fortune. Available at: http://fortune.com/2015/07/29/facebook-mobile-ad-revenue/ [Accessed 6 May 2016].

Lukka, V. & Paul T J James, (2014), “Attitudes toward Facebook advertising”, Journal of Management and Marketing Research, vol. 14, pp. 1.

Reiss-Davis, Z. (2015). Salesforce Ads Benchmark: Key Trends Across Facebook, Twitter, LinkedIn. [online] Salesforce Blog. Available at: https://www.salesforce.com/blog/2015/07/salesforce-ads-benchmark-key-trends-across-facebook-twitter.html [Accessed 5 May 2016].

Statista. (2016). Leading global social networks 2016 | Statistic. [online] Available at: http://www.statista.com/statistics/272014/global-social-networks-ranked-by-number-of-users/ [Accessed 5 May 2016].

Tedeschi, J.T., Schlenker, B.R. and Bonoma, T.V., (2011). Conflict, power, and games: The experimental study of interpersonal relations. Transaction Publishers.