Like it's parent company, Facebook, Instagram is a powerful platform for laser-targeted advertising.
While it's definitely a “pay to play” system — that is, you won't get much traction with organic posting alone…
It can still be quite affordable for small businesses and solopreneurs.
In some kinds of niches, like travel and apparel, you're leaving a ton of money on the table if you're not on Instagram yet.
So how much is this going to cost?
Instagram actually uses some rather complex algorithms to determine how much an ad is going to cost, and it's not just a matter of being the highest bidder.
The factors the site uses to determine the price of advertising are meant to reward quality ads, and discourage ads that users don't like.
This Value Formula has five key components.
By understanding them and knowing about them, you can find ways to tweak campaigns in a way that reduces your ad spend.
Instagram Ads Cost: a 5-Ingredients Mix
If your bid was the only Instagram ad value factor, then the cost of an Instagram ad would be the highest bid, just like with a traditional auction.
But there are two other factors—Estimated Action Rates and the ad Quality/Relevance Score—that are included in the ad Value Formula, so they also determine the cost of the Instagram ad.
Let’s take a closer look at these three factors, as well as a few other conditions that can influence the estimated action rates and ad quality/relevance score, to understand what can affect Instagram ad cost.
1. Your bid
Because advertisers acquire Instagram ads through an auction system, they have to bid for each ad.
Advertisers can choose to set their bid as manual or automatic:
- Manual bid: The advertiser selects a maximum amount that they’re willing to spend to achieve the selected ad result (ex: $5 for a click).
- Automatic bid: Instead of the advertiser selecting the bid amount per ad result, Facebook chooses how to spend your entire ad budget to optimize for your ad result. This option is recommended for users who are unsure of how much they should bid.
It’s true that an advertiser could make their ad cost lower by placing a low manual bid, but that comes at the risk of having your ad show less frequently, losing out to other ads with higher bids.
In any case, users shouldn’t worry too much about placing high bids since you’re only charged the minimum amount needed to win the auction if you’re the winning ad.
2. Estimated action rates
When Facebook advertising is deciding whether to display your Instagram ad to a user, they consider their measured estimated action rate for your ad, which indicates how likely they think the user will complete your optimized ad action (such as a link click).
The estimated action rate is measured by considering the past actions of the user you’re trying to reach, and the Instagram ad’s historical performance data.
For example, if you are releasing an Instagram ad that’s optimized for clicks to your website, the estimated action rate might be calculated by considering how many website conversions your ad has received so far and whether the user has clicked on Instagram ads for websites like yours.
Depending on your selected bidding type, estimated action rates can directly impact Instagram ad costs.
If your ad scores a low estimated action rate with a user and you’ve selected automatic bidding, a higher bid (within your ad budget) will be placed to increase your chances of winning. For users who opt for manual bidding, having a low estimated action rate ad could just mean less ad exposure depending on whether their bid amount is high enough to compete.
3. Ad quality and relevance
The ad quality and relevance value factor represents how interested Instagram expects a user will be in your Instagram ad. It’s calculated by considering three factors:
- negative feedback — a score based on the number of times users hide your ad or choose not to see it
- positive feedback — a score based on whether people are expected to complete your ad objective (ex: click on a link)
- users’ past Instagram activity — considers whether they have a demonstrated interest in what you’re advertising
The more positive your ad feedback, the higher your ad quality and relevance score is (and vice versa). Likewise, if a user has a history of being interested in what you’re advertising, then that will increase its ad quality and relevance score.
Advertisers can easily gain a sense of their Instagram ad’s quality and relevance by going on the Facebook Ad Manager, selecting the ad they want to view, and checking its positive feedback, negative feedback and relevance scores.
Just like with estimated action rates, an Instagram ad’s quality and relevance score can impact the ad’s cost depending on your bidding type.
For automatic bidding, higher bids will be placed by Instagram if the ad quality and relevance score isn’t as high as competitors. With manual bidding, a low ad quality and relevance score could result in less ad exposure if the placed bid isn’t high enough.
4. Your audience targeting
If there are many brands that are targeting the same audience you’re targeting, the competition to be the winning Instagram ad with the most value is going to be high. With this competition, audience targeting impacts Instagram ad cost.
Typically, ads with popular target audiences are going to cost more.
If there are a lot of ads targeting the same audience, there’s a good chance that many of these ads will have similar estimated action rates and ad quality/relevance scores, meaning that the ads will need higher bids to have the most value.
It’s important to note that Instagram ads are in competition with any company that is trying to reach the targeted user, not just brands within their industry. People typically have a wide variety of interests, so they are going to belong to target audiences of many brands.
Pro Tip: While advertisers ideally want to pay as little for their ads as possible, you don’t want to pick a less popular target audience to save money. Instagram ad conversions are all about targeting the right audience, so there’s not much you can do if your target audience happens to be a popular one.
5. Time of year
We just covered how the cost of an Instagram ad can increase if its audience is being targeted by a lot of brands. One reason a bunch of brands might start targeting audiences is that it’s a peak time of year.
Advertisers know that Instagram will get more traffic during times like the holidays or the Super Bowl, so they’re going to put more effort into reaching their target audiences.
Black Friday and Christmas are obviously going to be competitive days for advertisers, but other holidays to keep in mind for popular sales are Labor Day, New Years, and Cyber Monday.
Like other advertising platforms, Instagram has a ton of traffic on holidays, making investing in an ad during peak times potentially worth it.
If you’re considering Instagram advertising during a busy time, just be sure to keep in mind that costs will be higher.
You can learn more about how Instagram calculates your ad costs over at AdEspresso.