When running LinkedIn ads, one of the most important factors to understand is how your bid price relates to the amount you actually pay. Your bid price is not always the exact amount you end up paying per click or conversion. There are several factors that impact your actual costs, which this article will explore in detail.
What is the bid price?
Your bid price, also known as your max CPC bid, is the maximum amount you’re willing to pay for a click or conversion on your LinkedIn ads. When setting up a campaign, you enter a bid price which acts as the ceiling price you will pay.
Here’s an example:
Campaign | Bid Price |
---|---|
LinkedIn Sponsored Content | $5 |
In this case, the bid price is $5. This means you are willing to pay up to $5 each time someone clicks your ad.
However, you won’t necessarily end up paying exactly $5 every time. The actual amount depends on factors like the current auction price and your ad rank.
What impacts how much you actually pay?
There are a few key elements that impact how much you end up paying per click or conversion with your LinkedIn ads:
Auction system
LinkedIn uses a generalized second price auction to determine how much advertisers pay. This means the amount you pay is based on the bid price of the advertiser just below you in the auction.
For example, if your bid price is $5 and the next highest bidder has a max bid of $4, you would pay just slightly more than $4 per click. Even though your bid is $5, you only need to outbid the next closest competitor.
Ad rank
Your ad rank also helps determine your costs. Factors like your bid price, relevance, and expected clickthrough rate are used to calculate an overall ad rank score. Ads with a higher rank score get priority placement and pay less than lower ranking ads.
If your ad rank is high enough, you may end up paying well below your max bid price.
Current auction price
The current auction price fluctuates in real time based on advertiser demand and competition for keywords and placements. More popular keywords and positions tend to have a higher auction price.
Your costs will rise and fall throughout the day with changes in the auction price. If competition goes up, the auction price will likely increase, bringing your costs closer to your bid price.
Discounting
LinkedIn may apply discounts to help stretch your budget further. For example, with Sponsored Content ads, LinkedIn occasionally discounts clicks by up to 50%. This can lower your average CPC significantly.
Discounts depend on your account, spend level, and current auction prices, and are not guaranteed. But when they apply, you end up paying less than your bid.
When will you pay the full bid price?
In most cases, you will pay less than your entered bid price due to the factors mentioned. However, there are certain scenarios where you may end up paying the full bid amount:
- Low competition for the keyword or placement. With less competition, the auction price will be lower, so you need to pay your max bid to win the auction.
- Being significantly outranked by other ads. If your ad rank is much lower than top performers, you’ll likely pay closer to your full bid.
- Sudden spikes in demand for a keyword. If many advertisers raise their bids at once, the auction price can jump up temporarily.
- Having a very narrow/precise keyword target. More specific keywords tend to cost more as there are fewer matches.
In these cases, you may temporarily pay your exact bid price until the auction price drops or you improve your ad rank.
How do different bid strategies impact costs?
The bidding strategy you use can also affect how often you pay the full bid amount. Here’s an overview:
Manual bidding
With manual bidding, you set a max CPC bid at the ad group or keyword level. Since you control individual bids, you may intentionally set some high to target high-value keywords. Manual bids are more likely to pay the full amount compared to automated bidding.
Target CPA bidding
This optimized bidding aims to get conversions at your target cost per acquisition. LinkedIn automatically sets bids to try and maintain your target CPA. Bids may rise and fall significantly below your max bid price as the algorithm optimizes for conversions vs clicks.
Maximize clicks bidding
Designed to get the maximum number of clicks within your budget, this automated bidding often pays well below your max bid. By optimizing for volume, it is less likely to pay the full bid amount.
Understanding these bid strategies can help you anticipate when max bids are more likely to be paid. Some businesses intentionally use high manual bids when going after priority keywords, for example.
Tips for setting your bid prices
Now that you know your bid price doesn’t always reflect actual costs, here are some tips for setting effective bid prices:
- Aim higher for the most important keywords and placements to increase visibility.
- Factor in room for future competition and rising auction prices.
- Set specific match type bid prices higher than broad match.
- Analyze current auction prices using LinkedIn’s bid simulator.
- Test a range of bids to find the optimal balance of volume and cost.
With manual bidding, update your max CPCs regularly to reflect the current market. And with automated bidding, choose targets that align with campaign goals.
How LinkedIn billing works
Finally, it’s helpful to understand how LinkedIn bills you based on your actual ad costs:
- You are billed based on your actual cost per click or conversion, not your bid price.
- Charges accrue daily as you receive clicks/conversions.
- LinkedIn bills your payment method on file around the 5th of each month.
- Your monthly budget caps total spending for the billing period.
So while bid prices indicate your max bid, your LinkedIn invoice reflects the real CPC/CPA you ended up paying after the ad auction.
Conclusion
While the bid price sets your maximum bid, the amount you actually pay for LinkedIn ads can end up being very different. Factors like auction price, ad rank, bidding strategy, and LinkedIn discounts determine your real CPC and CPA costs. In most cases, you will end up paying below your max bid price thanks to LinkedIn’s generalized second price auction. But in certain situations you may pay the full bid amount temporarily. By optimizing bids and analyzing your costs frequently, you can gain better control over your LinkedIn advertising expenses.