The goals you set in your paid social media strategy, such as building brand awareness or gaining more followers, will help guide your budget. Once you know what you want to achieve, you can figure out what funding you need to help you get there. It’s good to get a sense of which components are generally included in a budget for paid social media.

Components of a paid social media budget

The social media ad budget for different companies will vary. In general, though, companies paid social budgets are determined by their annual revenue. You may invest more ore less on social media, depending on your past return on investment from social media and other marketing channels.

What a paid social media budget generally includes are the following:

Ad spend

Ad spend is how much your company spends directly on advertisements. It’s what you pay on social media platforms like Twitter, Facebook, Instagram, or LinkedIn to serve your ads. It also includes what you pay influencers to promote your content. However, your ad spend is only part of your entire paid social media budget.

Tools

There’s also the expenses associated with the tools and technologies you’ll need to launch, manage, and optimized your social media advertising campaign. Tools you might invest in include social media management software, social listening and analytics software, photo and video editing programs, stock photography and video subscriptions, and influencer marketing platforms.

An influencer marketing platform is a software that provides influencer discovery tools such as large searchable databases of potential influencers. It’s helpful to experiment with free tools before investing in paid ones. Even if you don’t plan to spend money on tools, it’s a good idea to set aside some of your budget for unexpected costs.

Content creation

Even if you’re handling some of the content development internally, you may still need to pay for things like photography, graphic design, video development including talent, and production costs and copywriting.

Management

Management tasks include things like strategy, content planning and publishing, social listening, engagement, and analytics and reporting. In some cases, a company may partner with a digital marketing agency to help manage these types of tasks. Even if many of these tasks are completed by your internal team, there may still be associated costs that apply to your social advertising budget.

The cost of advertising on social media

Once you’ve established a budget for a given social media ad campaign, you can determine how much to bid on your ad in that campaign. Most social media ads are sold in an auction format. You set a maximum bid for a target result such as a click or a number of impressions or a maximum budget per day. The outcome of the auction tells the platform how much you will pay for your ad to be served to your target audience.

When you set up an ad campaign on a given platform, you will select a bidding strategy. Bidding strategy tells how much you will pay for each user action related to an ad. Your bidding strategy will depend on the goal of your ad campaign, your advertising budget, and other factors, such as market research.

There are dozens of bidding strategies for ads on social media, and these vary from platform to platform. Below are some of the most common ones, how they work, and their advantages.

CPC (Cost Per Click) – The amount you pay when someone clicks on your ad. A click means that someone read your ad, thought it was of interest, and clicked on it to learn more.

Advantages of CPC:

• Cost-effective
• Drives website traffic

CPA (Cost Per Action) – The amount you pay when someone completes a desired action. The focus is on what a person does after they’ve clicked on your ad, such as signing up for a newsletter, watching a video, requesting a callback, making an actual purchase, or taking any other specific action.

Advantages of CPA:

• Costs nothing up front
• Increases conversions and revenue
• Allows comparison across platforms

CPM (Cost Per Thousand Impressions) – The amount you pay for every 1,000 impressions an ad receives. Impression – when a piece of content is displayed to your target audience. CPM charges you whenever your ad is viewed a thousand times.

Advantages of CPM:

• Raises brand awareness
• Delivers specific messages
• Increases engagement

Social media ad bidding

Let’s go over the ad auction process, action terms, and bidding strategies.

How ad auctions work on social media platforms

When you post an ad on a social platform, you should have a budget, target market, and bid strategy set. Social media platforms determine which ads to run based on a behind-the-scenes ad auction which is the bidding process advertisers use to purchase ads. Your bid strategy dictates how much you are willing to pay for the outcomes you want from your ads.

Before you bid, search for the social media advertising benchmark and average costs. Paying attention to the data for the business category you’re in and the platforms you want to use is important. This can help you position your bids in an appropriate range to start out being competitive.

You might think the highest bid in an ad auction always wins, but social media platforms also have algorithms that consider an ad’s relevance, quality, and potential for user engagement when picking a “winner” of an auction. Bidding for ad placement is competitive when the potential performance of an ad is factored in during selection. Bids are matched to audience signals that help predict the interaction rate for each ad.

Ad auction terms

Here is a list of terms you may encounter and their definitions:

• Spend-based automated bidding: Set a daily budget to maximize your advertising goal.
• Goal-based automated bidding: Set a return on ad spend (ROAS) or cost-per-action target to maximize your advertising goal at a certain efficiency.
• Manual bidding: Manage bids based on the criteria you select to use.
• Demographic targeting: Deliver an ad based on user information, like age.
• Location targeting: Deliver an ad based on user location.
• Interest targeting: Deliver an ad based on user preferences.
• Maximum bid: Set the highest amount you’re willing to pay, also known as the ceiling.
• Minimum bid: The lowest amount you’re allowed to bid on a platform, also known as the floor.
• Suggested bidding: For manual bidding, this is a recommended bid range.
• Bid modification: Bid a percentage more or less than your starting bid.

Common bidding strategies

Refer to the definitions for four common bidding strategies.

Cost per click (CPC)

With cost per click, you are charged when someone clicks on your ad. Usually, CPC bids have a maximum CPC which puts an upper limit on the amount that can be charged per click.

Cost per action (CPA)

With cost per action, you are charged when someone acts because of the ad. As example, someone could take an action to request a quote, join as a member, provide contact information, or make a purchase. To make this bid strategy work, you must also have conversion tracking implemented on the website where the actions take place.

Note: Cost per action and cost per acquisition (both abbreviated as CPA) are used interchangeably but aren’t the same. Cost per acquisition is the cost based on conversions only and excludes all other actions that haven’t been defined as a conversion. A conversion isn’t limited to purchase, but can be any action an advertiser has defined as a conversion. Cost per acquisition is also different from customer acquisition cost (CAC) which is the overall cost of acquiring a paying customer.

Cost per mille (CPM) or cost per 1000 impressions

With cost per mille, cost is based on how frequently an ad is viewed by a target audience. The unit of cost is per one thousand impressions (views) of an ad.

Cost per view (CPV)

With CPV, the cost is charged only if a viewer watches a video ad for a minimum amount of time, or interacts with it, such as when they click a link embedded in the video.

Bidding on various platforms

Availability of bidding strategies will differ by platform.

• Facebook offers automated, minimum ROAS, cost cap, and bid cap bidding.
• Twitter offers automatic, maximum bid, and target bid options.
• LinkedIn offers maximum delivery, target cost, and manual bidding.
• YouTube offers maximize conversions, target CPA, maximum CPV, and target CPM bidding.

Understand and control your budget, target audience, and bid strategy when advertising on social media platforms. Your target audience will enable you to reach the right users. Your bid strategy will allow you to use your entire budget to pay for the most desirable outcomes from your ads.

Happy learning and good luck!