LinkedIn Ads costs and investment: How to calculate them
Are you thinking about LinkedIn Ads costs and investment? There is a science behind calculating how much a LinkedIn Ads campaign costs and how an advertiser should calculate the investment. There are many essential factors to take into consideration before launching a LinkedIn Ads campaign. Such as the Customer Lifetime Value, the advertiser margin on it or the type of client. This article is aimed exclusively at calculating the costs and required investment. To know more about other factors, please check our LinkedIn Ads Definitive Guide or download it in PDF version.
Your campaign cost will be based on two essential factors:
- The number of clicks that your campaign will have
- The cost per click (CPC) of your campaign
But what if you had an unlimited budget? Would your campaign show unlimited impressions and unlimited clicks? No, LinkedIn would not make your campaign to spend unlimited budget. There are two reasons for that. The first one is that your audience is limited. LinkedIn algorithms would only show the ads to a maximum frequency. Let’s imagine you’re an audience member. The second one is that LinkedIn would not show you the same ad more than, let’s say a couple of times a month. That’s the monthly frequency. In our experience, for each campaign, that’s twice a month. 2 is the average maximum LinkedIn frequency. In our campaigns forecast, we fix that to 1.8.
Let’s see how you can define your LinkedIn Ads budget in four simple steps.
Step 1: Size your audience
Sizing your audience is something you can easily do with your campaign manager. Based on experience, ideal audience sizes are between 50.000 and 400.000 members. Let’s say you have an audience of 100.000 members.
Step 2: Identify the number of impressions
Except for a secondary function called ‘audience expansion’, the LinkedIn algorithms will only show your ads to the audience you’re targeting. Would then LinkedIn run unlimited impressions to your -big or small- limited audience? No, it would not.
LinkedIn algorithms would only show the ads to a maximum frequency. Let’s imagine you’re an audience member. LinkedIn would not show you the same ad more than, based on our experience, a couple of times a month. 2 is the average maximum LinkedIn Ads frequency, based on our experience. In our campaigns forecast, we set that to 1.8.
Therefore, the maximum number of monthly impressions will be calculated as follows:
Number of impressions = Audience size x Average frequency
In our example, Number of monthly impressions = 100.000 x 1.8 = 180.000
Step 3: Calculate your CPC
Several reports have analysed the average LinkedIn CPC, such as this one from Adstage that claims that the average CPC is 3.28 €. Based on our experience, in Europe, the average CPC should be around 6 €, with substantial deviations by country. Germany, for instance, is much more expensive than Spain.
A good way to calculate your CPC is to take the spend and clicks value on the result forecast table on the right-hand side of the campaign manager. These numbers will not typically be 100% realistic, so here’s a tip on how to calculate your LinkedIn Ads CPC:
a. Take the average spend and increase by a 20% (low average spend number + high average spend number) x 1.2. In the example shown below, that’s 762 €
b. Take the average number of clicks and decrease by a 20% (low average spend number + high average spend number) x 0.8. In the example shown below, that’s 142
c. Divide the spend resulting number by the click resulting number. In our example, that’s 762 / 142= 5.37
Forecast CPC = ((Expected campaign manager spend x 120%) / (Expected campaign manager clicks x 80%)
Step 4: Set your investment
We said you have a maximum number of 180.000 impressions by month and a forecast CPC of 5.37 €. You’re only one variable away to calculate how much you can spend on your campaign. That’s the average click-through-rate (CTR). Your CTR will depend heavily on several factors such as your offer, your ad format, your ad creative, copy best practices implementation and so on. Let’s say you have a 0.20% CTR, which means that you would have 0.20 clicks for every one hundred impressions.
LinkedIn Ads campaign maximum monthly spend capacity = Impressions x CTR x CPC
In our example, that’s:
180.000 x 0.20% x 5.37 € = 1.933 €