LinkedIn advertising tends to be more expensive compared to other social media platforms for a few key reasons. First and foremost, the target audience on LinkedIn – working professionals and B2B decision makers – is considered highly valuable to advertisers. LinkedIn members have above average incomes and buying power. Second, LinkedIn has a limited supply of ad inventory but huge demand, which drives up pricing. The platform’s feed receives much less daily content compared to the endless scrolling on sites like Facebook. Finally, LinkedIn’s auction-based pricing model allows advertisers to bid up prices based on what they deem specific ad placements to be worth.
The Value of LinkedIn Members for Advertisers
With over 722 million members worldwide, LinkedIn is the go-to social media platform for professional networking and company marketing. But what makes LinkedIn’s member base so attractive to advertisers comes down to a few key demographic and behavioral traits.
First, LinkedIn members tend to be higher income professionals in lucrative industries like tech, finance, healthcare, and more. Over 50% of members are in decision-making roles at their companies, meaning they control or influence budgets and purchases. As such, they have tremendous buying power that brands want access to.
Many members are also in the later stages of their careers when incomes peak. The average age on the platform is over 40. So unlike platforms like Instagram or TikTok that skew towards younger demographics, LinkedIn provides direct access to older professionals with established incomes and net worths.
Members also regularly engage with professional content from brands, companies, and thought leaders. Over 80% of members drive business decisions at their companies. That level of influence means professionals rely on LinkedIn not just for networking but also staying current with industry news, trends, and insights. This mindset makes them very receptive to advertising.
In summary, LinkedIn members represent an attractive blend of income, buying power, and willingness to engage with B2B and professional marketing content.
Limited Ad Inventory Drives Up Competition
LinkedIn pages have a much more limited supply of advertising real estate compared to other social networks. The desktop feed is fairly clean and uncluttered, while the mobile app is even more conservative about inserting ads into the user experience.
However, advertiser demand has grown substantially in recent years as brands recognize the value of the platform’s professional target demographics. The result is lots of competition for the finite ad space LinkedIn makes available.
With ad inventory staying flat but increasing demand, slots end up being sold to the highest bidder. LinkedIn’s auctions for placements on member homepages and feed spots have become intensely competitive. Just being able to insert an ad on a high-value page like a decision maker’s newsfeed has become expensive for brands.
Additionally, LinkedIn retired Sponsored Content in 2020, which was a popular native ad format. This reduced overall supply, giving the remaining ad units even greater prominence and value.
In essence, LinkedIn’s reluctance to clutter up their platform with ads makes the limited slots more of a scarce commodity that advertisers aggressively bid for.
Targeting High-Value Demographics
Due to the size and diversity of the member base, LinkedIn enables advertisers to target based on professional seniority, job function, industry, company size, and more. Narrowing down an audience to C-level execs or IT directors at Fortune 500 firms commands big money.
Moreover, the depth of professional insights on member profiles allows targeting highly-specific, influential segments like:
- VPs of Sales at software companies
- Chief Marketing Officers in the retail sector
- Directors of HR at healthcare providers
Because these people are prized prospects for products and services aimed at their industries and roles, advertisers bid aggressively to get their ads seen by them. Even narrow audiences of a few thousand such individuals can drive conversions and ROI that justify big ad spends.
In contrast, more generic targeting of say all college graduates or women under 50 may reach big numbers but engages a much less relevant and valuable audience for most B2B advertisers. LinkedIn’s platform strengths revolve around zeroing in on influential niches.
Higher CPM Rates
CPM stands for cost per thousand impressions, or how much an advertiser pays for their ad to be seen 1,000 times. The average CPM on LinkedIn tends to be significantly higher than Facebook, Instagram, and other mass market social platforms.
CPMs on LinkedIn generally range from $10-$30+ depending on targeting parameters and other factors. That’s considerably more than Facebook, where CPMs often fall between $5-$15 for the News Feed.
For the very highest value audiences of senior directors and executives, LinkedIn CPMs can even reach up to $100. While still unlikely, it exemplifies the extremes advertisers will pay when they want to get in front of coveted decision makers.
Higher CPM rates drive up the overall cost of running LinkedIn campaigns relative to other digital channels. And CPMs continue to creep upwards over time as well, forcing advertisers to keep pace if they want to maintain visibility.
Auction-Based Pricing Model
LinkedIn employs a real-time, automated auction model to price and allocate ad placements across its platform. Each time an ad slot becomes available, whether on a member homepage or feed, advertisers place automated bids to compete for the opportunity to display their ads.
It’s similar to how Google AdWords auctions work. Advertisers preset their maximum bids based on what they deem specific ad placements to be worth. LinkedIn runs auctions when inventory becomes available, factoring in bid amount plus an ad’s expected click through rate and other relevance indicators.
The nature of an open auction means advertisers end up bidding prices up higher and higher, especially for coveted slots. Bid inflation is common when running LinkedIn campaigns, where you have to keep raising max CPCs over time just to keep pace.
Auctions can also lead to unpredictable daily fluctuations in cost depending on competitor activity. The opaque, black-box feel of the model is another frequent advertiser complaint. But ultimately, auctions coerce advertisers into paying whatever it takes to beat the competition.
Higher Engagement Benchmarks
LinkedIn advertising pricing takes into account historical benchmarks for metrics like click through rate and conversion rate. Benchmarks for LinkedIn tend to run higher than other social platforms.
For example, LinkedIn’s average CTR is around 0.9% compared to Facebook’s 0.90%. Conversion rate benchmarks also tend to be higher thanks to the professional intent of visitors.
Factoring in these higher benchmarks means LinkedIn advertisers end up paying more in situations like CPC bidding, where your bid is multiplied by LinkedIn’s expected CTR. Again, advertisers pay more just to meet platform average performance.
How to Reduce LinkedIn Advertising Costs
Despite the many factors pushing LinkedIn ad costs higher, there are ways savvy advertisers can control expenses and maximize ROI:
- Optimize for conversions rather than impressions/clicks. Focus ad budget on best-performing placements.
- Test different targeting approaches and audiences. Expanding beyond executives may find hidden gems.
- Experiment with different ad formats. Avoid premium placements unless they truly deliver.
- Monitor performance data closely. Adjust bids, targeting, creative based on insights.
- Set aggressive bids for the awareness stage, then optimize for conversions.
The competition for professionals’ attention on LinkedIn will only intensify. But advertisers willing to adopt smarter optimization practices can ensure their ad spend continues driving strong ROI.