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Doing Facebook and social media ads is now a common part of most business, compared to 10 years ago. When it comes to Facebook and a lot other of the social media platforms, the cost of the actual ads is determined by bids. In other words, it’s an auction for all the advertisers and marketers. X amount of advertisers want Y amount of exposure for their businesses and there are Z amount of ads to display (determined by Facebook).
Facebook can then via their pretty advanced algorithm calculate who will get the ad displayed and at what price. There are a lot of different factors going in this equation for Facebook to calculate the exact “ranking” of the advertisers and their ads.
Facebook changes all the time, more than most people think. Sometimes it’s just small visual updates, then they suddenly added “marketplace” (a while back though) and a lot of other features, but where the magic really happens is behind the scenes. This is one of the things that will keep the good marketers separated from the very best marketers, the ones who is always up to date with the latest changes, and how to adapt to this.
What determine who is wining the bid?
Well in short. Your bid, a combination of your objective, targeting and ad copy as well as “estimated action rates“.
So what does this mean for you and your business you might ask. We’ve covered this below in 3 easy steps.
The 3 most important aspects of getting your ads displayed
1. Your bid.
This is pretty obvious, but none the less, more complicated than most people think. The higher you bid (if you choose manual) the higher and better changes you have for getting your ad shown, however a lower bidding advertiser might get more exposure than you, because his/hers ad are more popular to the target audience.
Most people and business are using automatic bidding (which Facebook also recommends) which is totally fine. We use automatic bidding for 90% of all our Facebook campaigns and the performance is just fine. When using automatic bidding, Facebook will automatically determine your bid and place it accordingly to your campaign goal, ad set, ad copy as well as your budget (lifetime or daily). This means that Facebook is trying to allocate the lowest possible bid, in terms of paying the lowest possible price, but also high enough for you to actually get impression and reach and spend your targeted budget.
2. Relevance score (and related metrics)
Your relevance score is one KPI weighed by all the positive reactions to your ad (clicks, likes, shares, comments etc) minus all the negative related reactions (not engaging, leaving negative comments, not clicking, uses “see fewer ads like this”). The relevancy is an overall score from 1-10 (10 is the best of course) where Facebook combine the metrics you see above.
The reason why should care about relevancy score is because this actually reflects if you have done your targeting and ad copy well. If not, you’ll have a low relevancy score, and your targeted audience is less likely to convert or engage with your business and ad.
The other very important reason is that it will increase your CPM (cost per mile aka cost per 1000 views) and therefore you will get less reach and more expensive clicks, compared to high relevancy score. This is why you want to kill low relevancy score ads, usually 1-4. However lower relevancy score does not equal bad ad, which is why it can’t stand alone. Sometimes we have ads with relevancy score of 7 converting way better than a 9 or 10, which means higher ROAS for the 7 scored ad. Make sure to test this for your own business.
3. “Estimated action rates”
This is a more complex metric, but it is exactly what is sounds like, the estimated action rates. The higher action rate (click, conversion etc) for your desired campaign objective, the better. This is calculated by a number of different factors, but if the algorithm believes that your ad would have a high action rate, this will help to decrease your CPM and therefor also get a higher relevancy score and therefore winning the bid but also get the cheapest possible reach.
It’s not a metric you can see yourself and is evaluated and optimised by Facebook only, and therefore not something we can adjust, but we can still impact this with our targeting ad creative.
How does Facebook ads bidding work?
Facebook ad costs are paid in CPM (mostly) or for example link clicks. You will pay for impressions most of the time depending on your goal and objective you choose. Sometimes you can choose different “optimization for ad delivery” with for example link clicks, but most of the time will stay pay for the impressions (ad servings) you get. However Facebook’s algorithm will just optimize to get most “link clicks” or “reach” or “engagement” or whatever you choose, for the desired amount of impressions.
CPM Vs. CPC bidding
Facebook is mostly being used as CPM bidding by the time of writing this article, however they do offer some CPC bidding variations with for example a traffic objective campaign. Here you can choose to pay only by link clicks, as shown above or you can leave this as default for “impressions“.
Paying for impressions just means you pay for the amount of exposure you ad get, not matter if someone actually engage with it, see your video, click on it or whatever else you want to optimize for (CPM bidding). On the other hand if you choose link clicks for example, you’ll only pay for the amount of links click (CPC bidding) you get.
CPM bidding is very common with these kind of platforms for social media, where also Instagram, Snapchat, Twitter etc offers CPM bidding, compared to the search engines such as Google and Bing. Here they only offer CPC bidding where you can only choose to pay per click and even pay per conversion.
CPC bidding and billing on Facebook
When you choose pay per link click on Facebook you’ll actually pay for a few related actions for “link clicks”.
The related “link clicks” for you ad is the following:
- Clicks to visit another website
- Call-to-action clicks that go to another website (example; “Shop Now” or “learn more”)
- Clicks to install an app
- Clicks to Facebook canvas apps
- Clicks to view a video on another website
Manual vs. Automatic bidding
Manual and automatic bidding is best using for ad scaling. The manual bidding options have changed over the years from maximum, average and minimum bid to offering lowest and target cost. On default every campaign will run with automatic bidding, which as described earlier, will be an automatic bid, matching your audience, the competition and your ad copy. This means that you will get the “right” amount of impressions because Facebook will just increase or decrease your bid accordingly.
When choosing manual bidding you will have more control of your bid and know how much you spend. However you can face 2 problems if you have not set-up the right bid.
- You bid too low, so you don’t spend your budget
- Your bid is too high, so the campaign is not profitable for you
However the good thing about manual bidding over automatic bidding is if you test this right, you’ll have good opportunities to scale the ads a lot, because it’s easier to maintain a good ROAS. There is no right/wrong it depends on your business and target audience, however we recommend that you test out manual bidding, for ad sets over 150 USD a day or 50 conversions a week. Test out both lowest with bid cap and target cost, to see which fits you best.
Remember the more control you have, the more adjustments you can do to optimize your campaign. However getting good results with manual bidding requires more experience and skills with Facebook ads, and can cost more money upfront because you need to do more testing.
Also remember that NO ad set or ad copy can sustain high performance forever. It will eventually “die” or need to be tweaked. Even though you had 1 really good week with your conversion or traffic ad set, doesn’t mean the next week will be good. Your competition adapts over time, your audience might get saturated, your audience might begin to dislike your ad creative if you keep showing it to them (too high frequency). Make sure to update and change this to maintain good results.
Bidding strategy (lowest (bid cap) vs. target cost)
Bidding strategies have also changed over the years, and now you have the following options to choose from.
- Lowest cost
- Lowest cost with bid cap (manual)
- Target cost (manual)
Lowest cost is now the automatic bidding option. It’s the default option for all campaign and is set by Facebook.
Lowest cost with bid cap is the first manual bidding option. As shown below, this bid strategy should be chosen when you don’t want to bid more than a certain amount. This was earlier called maximum bid, and is good to spend your budget efficiently. This bid strategy will then spend money on all bids up to X amount you chosen, and can sometimes get a higher ROAS because it will prioritise the actions with the lowest cost. For example this can lead to get a lot of low-cost conversions (if you chose conversion campaign) because your bidding strategy will try and optimize for the lowest possible cost per action first.
Target cost is the second bidding strategy option you have, and is generally better for bigger budgets (however not always, which means you need to test once again) and try to maintain a stable average cost instead of maintaining the possible lowest cost.
I have tried to illustrate my point below with a little graph. The yellow line is the average action cost.
When using lowest cost bid with a bid cap of for example 9 USD you will get conversions that costs less than 9 USD (if any possible) in this example 3 conversions.
When using target cost bid with for example 9 USD you will in this case get 6 conversions, because the average cost of all the 6 conversions is 8 USD. In this case you will have 100% more sales with target cost, while only increasing your bid slightly. However your average CPA (cost per action) or cost per conversion will be a lot higher.
Lowest cost with a bid cap average conversion cost ((7+5+2)/3) = 4,67 USD
Target cost bid average conversion cost ((7+5+10+11+2+13)/6) = 8 USD
In other words, your target cost bid will try to maintain a more stable cost of your conversions, even though you might pay for more expensive conversions. However using this bid strategy, will typically (depending on your target cost) get you more total conversions, which then leads to more total revenue. So if you can afford to spend a little bit more or run campaigns with slightly lower ROAS, you can probably get more revenue by choosing target cost.
This bidding strategy can therefore lead to very good results with bigger budgets. Remember this is always compared to the ad set level, and does not take ad copy or campaign level into account. If you choose to optimize for conversions try and spend as much as needed to get 50 conversions a week for the ad set. This can sometime be a lot, which we understand, but then we recommend staying with automatic bidding.
Ad delivery types (standard vs. accelerated) & Scheduling
When choosing ad delivery types you can choose between the 2 options below:
Standard is by far the most common, and is also default. This just means that Facebook will try and spend your budget to spread it out over the period you want your ad to run for. Facebook will not rush any bids, if it thinks it can get a cheaper/ better bid later on the day for example. If you have chosen the ad schedule, then it will only choose within your scheduled time range.
Accelerated delivery is when you want your ad to be delivered as fast as possible. As shown below, it will get you the results as fast as possible. This means if you choose daily budget and accelerated delivery, your ad might already spend your daily budget at 2PM and then pause until the next day, and try and spend it as fast as possible again.
The reason why anybody should choose this, should be if you are in a rush with some limited offers, selling event tickets and the sale is soon closing, selling at christmas, black friday etc. Then you can also set a scheduled ad budget instead and go for accelerated delivery to maximize your exposure in the selected timeframe if you want to.
The downside of choosing accelerated delivery is that it’s often more expensive, because it just want to get you impressions ASAP and doesn’t care about when to choose the right bid, and maybe the customers are more ready to buy in the evening, then you wouldn’t know, because you have already spend your daily budget.
5 quick tips for improving your ads performance (and decrease ad costs)
- Allow the ad set to spend some time and money to get through the learning phase (is shown below the ad set name)
- Only evaluate the ads performance based on your goal and objective and then filter out the right metrics. If you want conversions don’t look at CPC, if you want engagement don’t look at link clicks.
- After the learning phase, create a new ad copy and ad set to split test the performance. Kill the worst performing ad.
- Split test the winning ad sets with manual bidding
- Tell a good story with your ad, to make it look and feel more appealing and real to your audience.
Well, Facebook advertising and marketing is an auction, with a limited amount of ad space. There are a number of reasons and options why you win or lose the exact bid, and you can choose between both manual and automatic bidding strategies. Facebook is a great way of marketing a lot of different businesses, however remember to try out Instagram, LinkedIn, Snapchat and Pinterest as well (depending on your niche and audience of course) sometimes you will be surprised of how amazing results can be on these platforms as well.
With that being said, Facebook is always changing and updating their algorithm, but for now try to test and implement some of the strategies and variations mentioned above. Remember there are no golden targeting, placement, delivery type etc for all business. Everyone have a different situation and therefore we always recommend to do a lot of split-testing.
However if you already have a lot of data, make sure to utilise this the best way as possible to maximise your targeted audience insight. If you don’t have the time or skills do it yourself, try and hire a good freelancer or agency to help you.
Either way, make sure to stay up to date on our social media marketing page here, for the latest news!