Making money

Instagram is one of the most recent social media platforms to be developed, established in October of 2010. The platform became available for iPhone users in 2010, then for Android users in 2012, and a most recently, available on desktop. In April 2012, Facebook purchased the platform for about 1 billion dollars. At the time, Instagram boasted a workplace of thirteen and had no revenue. Throughout the last decade, Instagram has grown exponentially and become one of the most popular social media platforms. According to Business of Apps, Instagram has approximately 1 billion active monthly users with at least 500 million daily active users. Within two months of development, it gained nearly one million users by December of 2010. According to Instagram’s demographic reports, women make up 68% of the overall users, men make up 32% of the users, 90% of Instagram users are under the age of thirty - five, and 72% of the users are teenagers. This platform has a wide global audience. Because of the wide variety of people, about 89% of the users are outside of the U.S. And about 130 million of the users click on commercial links to get further details about the products. In 2018, Instagram was worth 100 billion dollars. In the following year, 2019, Instagram generated $20 billion in advertising revenue, according to a direct marketing agency. Instagram makes its money from advertising impressions.

There are four main factors that go into determining advertising costs on Instagram - bid amounts, ad relevancy score, estimated action rates, and competition. Advertiser bid amounts impact how much they will spend on an Instagram advertising campaign. They must consider how much they are willing to spend in order to acquire leads. Instagram has a high bid amount, therefore advertisers should expect to pay more for impressions and clicks. Depending on how much the advertiser's budget allows them to come up with a bid amount, allowing them to obtain a certain number of clicks or impressions to equal their budget. In other words, the bid amount will influence the advertiser's budget, which influences how much they are able to bid. These amounts determine how much it costs to advertise on Instagram.

The second factor is the ad relevancy score. The relevancy score is how Instagram determines how relevant the ad is to those who view the ad. Instagram bases the score upon user reactions to the ad. If users respond positively (defined by clicking, commenting, liking, and more), the ad increases its relevancy score. However, if users respond negatively, such as hiding the ad from their feed, this can result in a lower ad relevancy score. Ads aim to have a higher relevancy score over a lower relevancy score. Having a higher relevancy score indicates that the advertising business will have to pay closer to the minimum amount. Leading to more clicks or impressions for the ad and driving more leads.

The third factor is the estimated action rates. These rates are based upon the likelihood of users interacting with the ad. The engaging behavior is the clicking and converting of the ad. Instagram seeks advertisements that get consumers to interested in and interacting with the content of the ad. The estimated action rates also determine the cost of displaying the ad on the platform. If it seems promising that users will relate to the ad, then it will acquire a lower bid amount, allowing the ad to earn more leads and conversions.

The fourth factor is competition. For every advertisement that attempts to target a specific demographic, there will always be competitors also looking to do the same. Ad competition can impact the cost (per clicks) of an Instagram ad campaign. Companies have to outbid one another to get the top placement. Generally, advertisers can expect to pay somewhere between $0.20 and $6.70. Again, the price of the advertisement’s depends on various things. The ideal cost per clicks is between $0.20 and $2.00. For cost per impression, however, advertisers typically pay $6.70 per 1,000 impressions.