Why Is LinkedIn Advertising So Expensive?

Why is LinkedIn advertising so expensive?
Ravi Davda Rockstar Marketing CEO

Written by Ravi

Nov 17, 2021

Share this:

LinkedIn advertising has a reputation for being expensive. In fact, most of our B2B clients ask us this question. ‘Why is LinkedIn advertising so expensive’. Well, there are numerous factors that contribute to LinkedIn’s steep advertising costs.

Firstly, it’s not a traditional media channel like Google Ads or Bing. LinkedIn is an exclusive network where people are looking to do business with each other. Reciprocal relationships play a major role in the LinkedIn ecosystem. This dynamic makes it different from other digital marketing channels.

On top of that, more than 722 million professionals actively use LinkedIn worldwide. This makes it one of the most valuable business networks in the world.

Today, we will explain to you how LinkedIn advertising works. We will also discuss whether or not it is worth the extra buck.

What is LinkedIn advertising?

LinkedIn ads are like any other pay-for-performance channel. Businesses can leverage LinkedIn’s extensive audience and advanced targeting features to boost brand awareness, engagement and conversions.

It’s important to remember that we are not talking about advertising on the LinkedIn website itself (although this is also possible). We’re talking about creating ads that will appear in the LinkedIn newsfeeds of your target audience. This is where people go to connect with each other and discuss business opportunities.

How does LinkedIn advertising work?

How does Linkedin advertising work

LinkedIn’s premium ads are built with different goals. The primary ones are increasing awareness, engagement and conversion rates for B2B businesses. Unlike Google Ads or Bing, most of your audience is already there on LinkedIn.

In fact, approximately 70% of all professionals in the world have a LinkedIn account. This high percentage of educated users makes for a great B2B audience.

On top of that, most professionals use LinkedIn to look for jobs and connect with other professionals in their industry. Because they’re not just here to waste time. They’re here to do business.

But, there’s a catch. LinkedIn is about reciprocal relationships. This means, that it can be difficult for businesses to get in front of the right audience.

For this reason, LinkedIn has developed features that help you reach your target audience effectively. You can choose between several different ad formats depending on what your objectives are.

What is the average cost of LinkedIn advertising?

We have some average numbers for you. These are the benchmarks – cost per click (CPC), cost per thousand impressions (CPM) and cost per sale (action or acquisition – CPS).

Here’s a look.

  • The average cost for CPC on LinkedIn is £4.13
  • CPM average costs on LinkedIn is £25.04
  • The average cost for CPS campaigns which involve messaging ads is £0.015.

In comparison, the average cost for CPC on Facebook is £0.72. On Twitter, it’s £0.28. So yeah, LinkedIn is more expensive. But these benchmarks are not an accurate representation of what you will pay when running LinkedIn ads.

Why? Because these are benchmarks for all LinkedIn advertisers, regardless of ad performance.

They tell us more about the average cost to advertise on LinkedIn in general. It’s not what a specific campaign or business objective ad will cost. The actual price you’ll pay for a click is going to be higher or lower depending on various factors. For instance, campaign goal, budget, ad format, target country and target audience.

Why is LinkedIn advertising so expensive – Because of the way they charge businesses

LinkedIn uses six different parameters to decide on the cost of advertising campaigns.

Ad relevance

Ad relevance is a measure of how well a LinkedIn ad meets each individual user’s needs. It is defined by the combination of multiple interaction metrics. The exact formula for this calculation is not public information. Basically, it means that people have to click on your ads for it to get credit for being relevant.

Clicks are not the sole measure though. There’s click-through rate (CTR) and click to conversion rate (CTC) also. But more may be involved depending on ad formats. Here’s the kicker.

The higher the relevancy score, the lower the ad cost. The question we often hear is, ‘How does LinkedIn determine a relevancy score for a brand new campaign’?

Well, it’s an educated guess. But the general consensus says that they look into other campaigns in the account and see if they’re performing well. If a particular ad format, audience or other campaigns in the advertiser’s account are successful, LinkedIn uses that to determine what your campaign should cost.

If there are no campaigns to use as reference, they turn to other similar advertisers. This is how LinkedIn determines the average cost to advertise on LinkedIn for an existing campaign.

The target audience

Essentially, LinkedIn’s advertising platform is an auction-based system. The target audience is one of the primary parameters in the auction. Think of it like keywords on Google Ads. How broad or how niche is the target audience?

Are you targeting the top 200 universities in your geographic area? Or are you targeting the entire planet? This will affect the cost of ads. Similarly, are you targeting the CEOS, CFOs and other decision-makers? Or is your campaign targeted at lower level executives? This will determine the costs.

The more the number of businesses targeting the same audience, the higher the costs. That’s auction advertising 101.

The bidding strategy

Why is LinkedIn advertising so expensive - Depends on the bidding strategy

Want to know why is LinkedIn advertising so expensive? LinkedIn uses a bidding strategy called ‘second-place auction‘. This was created by Google for Google ads. But LinkedIn currently uses this and it’s going to stay for a while.

Second place auction works like this. Let’s say you have a max bid of £6 for a CPC campaign. Your ad relevance score is 6. That’s more than the benchmark. But we will use it as an example. That takes your total score to 36.

Your competitor is new to LinkedIn. But they have tonnes of money. Or he’s not hired a skilled PPC marketing team like Rockstar Marketing. So he bids £9. Your knees quiver. You think there’s no way you are going to win this auction. But, LinkedIn says, let’s check the relevance score. That’s just 3 for him because his marketing team made a poor ad.

Well, bad for him. Good for you. That takes his total score to 27. Now here’s the tricky bit. LinkedIn takes his combined score and divides it with your relevancy score. So, it’s 27/6, which is 4.5. Technically, you will only pay £4.5 + one penny for the ad. That’s the second place auction for you.

The ad objective

Different ad objectives have different costs. So your selection will impact your advertising costs. For instance, the average CPC for website conversions as an objective is £5.07. But if you change the objective to engagement, it drops down to £1.87.

There are three primary objectives. These are awareness, consideration, & conversion. You can fine-tune the marketing goals within each one.

The region & country

LinkedIn uses 4 geographical regions to determine company structures. These regions will affect your advertising costs as will the specific country within the region.

Key markets like the USA & UK have the highest CPC. Asian countries generally have the lowest.

The industry

Some industries are more competitive than the rest. This is universal across paid ad platforms. Technology is one of the most expensive industries. Education is more economically priced.

How to determine LinkedIn Ad costs

These numbers give you a great idea of what to expect. But as we said, there are more parameters that may change the actual costs. That’s why LinkedIn offers a forecasting tool.

You can find this in the LinkedIn campaign manager. It does take some data to get a forecast. You need to enter the target market and the target audience. Select the bid type and it will display the average CPC/CPM for the campaign.

Why is LinkedIn advertising so expensive – Tips to lower cost

All things said and done, how do you reduce advertising costs on LinkedIn? Well, there are many ways in which you can maximise the efficiency of a campaign. A smart PPC marketing team will also be able to use different bidding strategies to lower costs.

Here are some of the things you can do –

1) Make sure your campaign is tightly focused on the target audience and goal. It’s useless to advertise for mid-level executives if you’re targeting CXO level companies. Your ad relevance score will be low and LinkedIn rules state that this will increase costs significantly.

2) Manage your daily budget wisely. Ensure that your ad spend matches the volume of traffic and conversions you get in a given day.

3) If you’re just starting out, choose the CPC bid option. You can always switch to CPM or optimise for conversions later when you have a clear idea of your conversion volume and costs.

4) Consider using LinkedIn Sponsored InMail. It’s an excellent way of reaching out to potential clients without incurring a high CPC.

5) Why is LinkedIn advertising so expensive? Hire an experienced PPC marketing team. They will be able to understand your needs better and bring down costs for you.

Conclusion

In our opinion, LinkedIn’s advertising costs are a reflection of how powerful their platform is. It’s also the result of how much they invest in their algorithms to deliver high-quality leads that can result in conversions.

If you feel that your LinkedIn campaigns could perform better, speak to us. We have a team of experts in paid advertising who can guide you and make a difference.


FAQs

Share this:

0 Comments

Submit a Comment

Your email address will not be published.