Advertising variable or fixed cost?

I’ve been talking a lot about variable and fixed costs in this space recently. I wrote a post last week and a video on the topic last week. In the video, I explained variable, fixed, and variable margin. I’m going to break it down and explain it visually here in this post.

First, I’ll explain what I mean when I talk about a variable cost. I’ll then describe what I mean when I talk about a fixed cost. I’ll then discuss how to make sure you’re in the right place to make the right choices with your cost structure.

What is a variable cost?

A variable cost is a cost that varies based on the number of clicks you get on your ad or how many people click on your ad.

Let’s look at an example to get the picture.

Say you have a cost per click of $2. In the early days of Facebook advertising, you could get a click on your ad for a single dollar. This would be a variable cost. You would pay the variable cost for every click you got.

A few years later, Facebook introduced the cost per click. This is the cost you pay for every click you get. You are now paying for a click you don’t get every time it pops up on your Facebook ad. This is a variable cost.

As you can see, the variable cost is the cost for a single click. The cost per click is the cost for one click. The cost per conversion is the cost of a single conversion.

A cost per click is an average cost. If you get two clicks you’ll pay a total of $4. If you get three clicks you’ll pay a total of $9. This is variable.

A cost per conversion is a single cost. If you get one conversion, you’ll pay that cost. If you get two conversions, you’ll pay $2. If you get three conversions, you’ll pay $4.

Now that we’ve talked about variable and fixed costs, let’s talk about how to make sure you’re in the right place to make the right choices with your cost structure.

How do I know if I’m in the right place to make the right choices with my cost structure?

There are three ways a cost structure can fall out of balance.

1) You’re making a lot of money

Your cost structure is a balance between making more money and keeping your profit margin.

If you are making a lot of money, you’ll start to look like a startup, because you’re constantly growing. If you’re profitable, you’ll keep making more and more money.

2) You’re making too little money

If you’re making too little money, your profit margin will start to fall. A cost structure with a low margin and high fixed costs will make you less money than one with a high margin, but still a healthy margin, and low fixed costs.

3) You’re making too little money and you don’t have a cost structure.

If you aren’t profitable, you can’t keep your cost structure in balance. You’ll start to look like a startup again and you’ll keep losing money in the long run.

What are the best cost structures for Facebook ads?

Here are the best cost structures for Facebook ads.

1) Low-cost, high-fixed cost

If you are making a lot of money, you should start with a cost structure that’s high fixed cost and low cost per conversion. The cost per conversion is the cost of a single conversion. If you’re making a lot of money, you want to make sure you’re in the right place to make the right choices with your cost structure.

Cost structure:

  • $0.20 per conversion
  • $0.50 per conversion
  • $0.75 per conversion
  • $1.00 per conversion
  • $2.00 per conversion

2) High-cost, low-fixed cost

If you are making a little bit of money, you should start with a cost structure that’s low fixed cost and high cost per conversion. The cost per conversion is the cost of one conversion. If you’re making a little bit of money, you want to make sure you’re in the right place to make the right choices with your cost structure.

Cost structure:

  • $0.30 per conversion
  • $0.60 per conversion
  • $0.90 per conversion
  • $1.30 per conversion
  • $2.60 per conversion

3) Low-cost, low-fixed cost

If you are not making a lot of money, but your fixed costs are low, you should start with a cost structure that’s low fixed cost and low cost per conversion. The cost per conversion is the cost of a single conversion. If you’re not making a lot of money, you want to make sure you’re in the right place to make the right choices with your cost structure.

Cost structure:

  • $0.10 per conversion
  • $0.25 per conversion
  • $0.50 per click
  • $0.75 per click
  • $1.00 per click
  • $2.00 per click

4) Low-cost, high-fixed cost

If you don’t make a lot of money, but your fixed costs are low, you should start with a cost structure that’s low fixed cost and high cost per conversion. The cost per conversion is the cost of one conversion. If you’re not making a lot of money, you want to make sure you’re in the right place to make the right choices with your cost structure.

Cost structure:

  • $0.20 per click
  • $0.40 per click
  • $0.60 per click
  • $0.70 per click
  • $0.90 per click
  • $1.20 per click

5) High-cost, low-fixed cost

If you don’t make a lot of money, but your fixed costs are high, you should start with a cost structure that’s low fixed cost and high cost per conversion. The cost per conversion is the cost of one conversion. If you’re not making a lot of money, you want to make sure you’re in the right place to make the right choices with your cost structure.

Cost structure:

  • $0.25 per click
  • $0.45 per click
  • $0.60 per clicks
  • $1.25 per click
  • $2.50 per clicks

6) Low-cost, low-fixed cost

If you don’t have a cost structure, you’ll never know how to make the right choices. You’ll never make the decision to make your cost structure less than high fixed cost and less than high cost per conversion. You’ll just keep spending money, not knowing if your cost structure’s right for your business.

Cost structure:

  • $0.10 per click
  • $0.40 per clicks
  • $0.50 per clicks
  • $0.70 per clicks

7) High-cost, low-fixed cost

If you don’t have a cost structure, you’ll never know how to make the right choices. You’ll keep spending money, not knowing if your cost structure’s right for your business.

Cost structure:

  • $0.15 per click
  • $0.35 per click
  • $0.45 per clicks
  • $0.55 per clicks
  • $0.75 per clicks

Conclusion

For Facebook ads, you can’t make a lot of money and you shouldn’t be making a lot of money. In order to make a lot of money on Facebook, you’ll need to find a cost structure that works for you. If you can’t make money on Facebook ads, you’ll never know the right cost structure to use.

To help you find what works for you, we put together a Facebook ad cost structure guide. We’ve created a cost structure for everyone. Here we break down the cost structure for Facebook ads for you.

How to Calculate Facebook Ad Cost?

In this guide, we are going to walk you through the process of calculating Facebook ad cost. Here’s how to calculate Facebook ad cost.

The bottom line

Facebook ads cost structure is one of the most important factors to consider when developing your Facebook ad strategy.

In this guide, we will explain the different types of Facebook ad costs. We will also walk you through each stage of the Facebook ad funnel which is necessary to know in order to find the right Facebook ad cost structure.

Images by Freepik

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