Why is LinkedIn CPM so high?

LinkedIn advertising costs have steadily increased over the years, with the average cost per thousand impressions (CPM) being significantly higher than other social media platforms like Facebook or Instagram. There are several factors that contribute to LinkedIn’s high CPM pricing model.

Highly Targeted Professional Audience

With over 740 million members worldwide, LinkedIn provides access to the largest professional network on the internet. Over 63 million senior-level influencers and 40 million decision-makers are present on the platform. This allows businesses to target a very specific professional demographic for their ads compared to other social networks. For example, a recruitment firm can target candidates based on their job title, industry, skills, company size and other professional variables. This high level of targeting and segmentation comes at a premium CPM pricing.

High Click-Through and Conversion Rates

LinkedIn advertising often produces higher click-through and conversion rates compared to other platforms. Users are more receptive to sponsored content as they are explicitly visiting LinkedIn for professional networking and development. The conversion rate for LinkedIn Sponsored Content is around 2.9% compared to under 1% on Facebook and Instagram. Higher quality leads translate into higher costs for advertisers who are willing to pay more per click or conversion in this context. LinkedIn themselves mention that conversion rates can be up to 40% higher than other channels.

Limited Ad Inventory

LinkedIn strictly limits the number of advertisements on their platform to maintain the professional user experience. This creates scarcity and inventory pressures that allow LinkedIn to charge a premium for their ad space. At any given point, there are only 2-3 active sponsored content ads visible on a LinkedIn user’s feed compared to Facebook where ads take up large chunks of the scroll. With high demand and limited supply, LinkedIn can keep CPM rates high as advertisers compete for share of voice.

High Barriers to Entry

LinkedIn sets certain pre-requisites for companies wanting to advertise on their platform. It requires having an established company page, clear branding assets, transparent contact details etc. The ad approval process is also more rigorous. This creates a barrier to entry that ensures businesses advertising on LinkedIn are reputable and able to afford the high CPMs. Scammers and poor quality advertisers are filtered out, letting LinkedIn maintain its premium ad environment.

AI-Driven Targeting and Optimization

LinkedIn uses sophisticated AI tools to help advertisers target the highest value professionals and roles for their campaigns. Features like Lead Gen Forms use machine learning to optimize targeting and deliver hot leads tailored to the advertiser’s requirements. AI powers relevant ad rankings, keyword suggestions, lookalike modeling, conversion tracking and other optimization features. The underlying technology required to drive these complex ad systems necessitate higher costs and CPMs.

Higher CPM Industry Benchmarks

Certain high-consideration products and services already have established higher CPM and CPC benchmarks in their industries. For example, B2B technology vendors, enterprise software companies, specialized management consultancies and executive education programs find aligned target audiences on LinkedIn. The premium positioning in these industries sustains the high CPM rates for demand generation and lead nurturing campaigns.

More Immersive Ad Formats

LinkedIn offers advertisers multiple ad format options like Sponsored Content, Message Ads, Text Ads and Dynamic Ads. These go beyond typical display banners with customized creative and messaging mirroring organic posts and interactions on LinkedIn. The ad real estate and active engagement are more expansive leading to higher CPM pricing for advertisers.

Superior Business Outcomes

The combination of targeting, audiences, optimization and formats on LinkedIn enable advertisers to achieve tangible business objectives beyond just impressions. These include website traffic, lead generation, recruiter contacts, content downloads, event sign-ups etc. The high level of outcomes and ROI realized from LinkedIn campaigns justifies the higher CPM rates for savvy advertisers.

Lower Organic Reach for Brands

Over the last few years, LinkedIn’s algorithm has reduced the organic reach and visibility of business Pages and Posts. Paid advertising is becoming mandatory to engage with your existing base and extend beyond followers. With the decline of organic, sponsored content and promotions pick up the slack at a price. This dynamic supports the higher CPM pricing model as organic and paid avenues diverge further.

Steady Growth in Ad Revenue

Despite the higher entry cost, LinkedIn advertising revenue has grown at a 50% CAGR between 2015-2020 and is projected to triple to $4 billion by 2023. More advertisers are embracing LinkedIn ads across a range of sectors and niches. Their willingness to pay premium CPMs has emboldened LinkedIn to hold rates higher as they scale earnings rapidly. Advertiser demand is forecasted to drive CPM prices further in coming years.

How LinkedIn determines CPM rates

LinkedIn uses real-time auctions for pricing ad placements based on bid and inventory factors. Advertisers set their maximum CPM bids and their ads will run up to but not exceed that amount. Actual CPMs are influenced dynamically by:

• Bid density – More advertisers bidding pushes up auction prices
• Ad inventory availability
• LinkedIn’s inventory utilization goals
• Targeting parameters like title, industry, role
• Historical CPM benchmarks
• Ad creative quality score
• Competitor bids in the auction

Typical LinkedIn CPM Rates

Based on 2021 benchmarks, these are typical CPM rates across different objectives and targeting parameters:

Targeting senior-level titles, high tech, financial services, premium education and consulting can expect to pay CPMs at the higher end of these ranges.

How to Reduce LinkedIn CPMs

Here are tips to control LinkedIn advertising costs and potentially lower effective CPMs:

• Set conservative floor bids then optimize to lower CPM gradually
• Tighten up targeting parameters to reduce competition
• Test lower funnel objectives like conversions or lead gen forms
• Create ad variations and A/B test to improve quality score
• Advertise consistently to gain share of voice over time
• Promote organic content to recycle owned media at lower cost
• Evaluate ROI indicators beyond CPM to justify higher spend
• Use analytics to find your best performing audience segments
• Refresh creatives to gain novelty factor periodically

Is LinkedIn Worth the High CPM?

While LinkedIn CPM rates are markedly higher than other social platforms, the question of whether it justifies the investment depends on your specific business goals.

For bottom-of-funnel lead generation, recruiter outreach and other direct response objectives, LinkedIn has consistently proven its ROI potential across industries to warrant the higher CPMs.

If you are looking for pure brand awareness and engagement, you may be better served allocating budget to cheaper CPMs on Facebook, Instagram or TikTok.

Evaluate LinkedIn in combination with your other marketing channels and weigh its impact on tangible business KPIs. This can inform your budgeting decisions and ideal CPM thresholds for your situation.

The Future of LinkedIn CPM Rates

Based on current forecasts, LinkedIn advertising prices are likely to keep trending upwards as more brands shift budgets to reach the platform’s lucrative professional audience.

Scarcity of ad inventory and the continued evolution of targeting capabilities will let LinkedIn maintain its premium CPMs compared to other channels.

However, the depth of advertiser demand will determine how much room LinkedIn has to keep raising prices year-over-year. At a certain threshold, diminishing returns may set in and force CPM rates to stabilize.

The trajectory also depends on LinkedIn sustaining its reputation as the #1 social platform for thought leadership and engagement with decision-makers. If engagement starts to wane, advertisers may push back on indefinite CPM hikes.

For savvy marketers who optimize spend and target high-converting niches, LinkedIn advertising presents a cost-effective opportunity despite the CPM premium. But minimum budgets will likely rise placing it out of reach for many small brands and local businesses.