LinkedIn ads costs can quickly escalate without delivering the desired results. The reason for this varies but often comes down to a lack of research and LinkedIn’s tendency to set high default budgets. This is, of course, a waste and can be avoided. LinkedIn requires more research and a better approach to save on initial LinkedIn ads costs. In this blog, I will explain how LinkedIn determines what you have to pay for your advertisements and how you can ensure that you manage your budget as efficiently as possible.
Why are LinkedIn ads costs considered expensive?
On LinkedIn, costs are higher compared to other social media platforms to reach the same number of people. On average, you pay more on LinkedIn to reach 1,000 people. There is no way around this. However, this does not mean that your ROI (return on investment) will be lower as a result. For the vast majority of B2B companies, the targeting options and the audience are a goldmine. The combined data that LinkedIn possesses regarding its users’ work experience, skills, and interests cannot be found on any other social media platform.
This provides the opportunity to reach exactly the people you want to reach, provided your targeting is correct. The costs are then relatively higher, but the value you derive from this balances it out or is even higher than with other social media. This indirectly ensures that competition between advertisers is also higher because the best ads yield the best results at the lowest costs, while poor advertisements entail higher costs.
How are LinkedIn ads costs calculated?
The way the costs for your advertisement are calculated depends on several factors. I will discuss these factors briefly and concisely and then explain LinkedIn’s system.
The first way LinkedIn ads costs are calculated is based on the objective of your advertisement. Below you can see all the different possibilities:
As most may already know, advertising for brand awareness is the cheapest and conversions are the most expensive. The steps a prospect must take, such as filling out a lead form, are greater than for brand awareness ads. In a brand awareness campaign, the goal is to show your advertisements to the target audience. The intention is therefore not necessarily to prompt the viewer to take action.
The next factor influencing costs is the target audience you wish to reach. Generally, advertising to a smaller audience is more expensive due to increased competition on a smaller scale. The type of people you target within your audience can also affect costs. This translates into the CPC (cost per click) and CPM (cost per mille) that you must pay.
Example: with SaaS companies, you want to reach people who need to make a decision about implementing and purchasing such a product. You can imagine that the attention of these individuals is worth more than that of an administrative assistant.
Based on the information from this competition among advertisers, LinkedIn will determine the final LinkedIn ads costs for their auction. This fluctuates constantly and is established by a smart algorithm.
The auction for the final LinkedIn ads costs
We now know that LinkedIn ads costs are partly influenced by the following factors: objective, audience size, and targeting within the audience. To determine the concrete costs, we look at LinkedIn’s auction. There are several criteria for the auction that determine the final costs and whether your advertisement wins the auction.
The following aspects influence the auction results the most: the relevance score of your advertisement and the bid you place per advertisement.
What is the relevance score?
The relevance score of an advertisement is the score the LinkedIn algorithm assigns to an ad. No one knows exactly how this works, but LinkedIn has provided indicators on which it is based. The golden rule to keep in mind is: the more interaction your advertisement stimulates, the higher your relevance score will be. This score is determined during advertising and can therefore change. It is important to monitor the CTR, conversion rate, and total interaction. The better you become at creating advertisements, the better these statistics will be.
This often involves: good ad copy, professional and brand-consistent content, and an offer with value such as a white paper. To keep your relevance score as high as possible, it is important to always keep your advertisements at or above the LinkedIn benchmarks. This will ensure that your LinkedIn ads costs never become unnecessarily high.
The bid
Next, the bid you set for the advertisements is the final link in the calculation. The bid you need to set depends, as previously discussed, on the objective and the target audience. LinkedIn will provide an indication of the average CPC and CPM that other advertisers spend to reach this audience. However, LinkedIn often estimates costs unreasonably high.
LinkedIn gives you three options to determine this bid: maximum delivery, cost cap, and manual bidding. For now, it is not important which of the three we use, as the calculation is the same. If you want to know what they entail, check out this blog.
The bid placed will be multiplied by the relevance score to ultimately determine a winner. I will explain the price the winner pays shortly.
To get an idea of how the auction winner is chosen, I will provide a brief example below with visual support:
There are three bidders for this hypothetical auction. Bidder 1 has a relevance score of 7/10 and places a bid of $6. The second bidder has a relevance score of 4.5/10 and places a bid of $11. Bidder 3 has a relevance score of 9/10 and places a bid of $4.50. If we then multiply these, the results are as follows.
This auction shows that bidder 2 wins the auction and is allowed to show their advertisement to the target audience.
Final calculation for LinkedIn ads costs
Bidder number 2 has therefore won the auction with their combined score. Their bid was set at $11. However, this $11 is not the amount the winner will have to pay. The winner pays the cost of the bid from number 2 in the auction plus $0.01. So, based on this example, the winner ultimately pays $6.01.
Thus, you can see how a higher bid puts you in a better position, but this naturally carries higher risks if there are other bidders with a high bid and a low relevance score, which ultimately results in you having to pay a lot per bid.
Conclusion
LinkedIn ads costs do not have to be expensive. By doing your research and setting up the campaign correctly, you can still win the bidding with a lower bid. Advertisements perform better when they are designed to stimulate interaction. This also ensures that you win more quickly in the auction with a lower bid. This gives you the opportunity to stay far ahead of the direct competition. At Prime Marketing, we specialize in creating campaigns that align as closely as possible with your target audience. Do you want to know if your campaigns are performing well and if you are using the right strategies? Then please contact us without obligation. We can then look together at how costs can be saved and what can potentially be improved in the strategy.
Read the full version of this article on Prime FinTech as “10 ways to manage and lower your LinkedIn advertising costs“.
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