Many businesses have successfully generated revenue auctioning their products on Facebook. The important question, however, is how to do it as efficiently as possible to make the most profits. Therefore, it is crucial to properly understand how Facebook Ad Auctions work.
Facebook’s Winner Ad Formula
Facebook’s official winner ad formula is composed of the advertiser bid, the estimated auction rates, and the user value. In the following article, we will explain to you how to optimise for these specific factors.
User Value & Relevance
The more relevant the ad is to the audience, the less it will cost you. This is because it becomes more competitive and hence needs lower advertiser bids to win. The relevance score shows a score from 1-10 after the ad has received over 500 impressions.
The factors determining the relevance score are composed of:
- The performance of the ad
- Positive feedback (e.g. app instals, clicks etc.)
- Negative feedback (e.g. “I don’t want to see this” clicks)
Facebook’s third winning factor, User Value, is measured by the way that users interact with the ad, the quality of the ad, and the post-click experience. In order to avoid poor content experiences, you should not display a disproportionally large volume of ads, as well as avoid sexually suggestive content, pop-ups, and malicious ads. Additionally, make sure the ad does not load slowly.
Every time an ad is shown on Facebook, an auction has taken place. Nonetheless, there are several different types of bidding strategies to choose from, depending on each individual campaign.
Lowest Cost Option:
If you have no experience with the potential cost of your advertising campaign, it is advisable to start with the lowest cost option without a bid cap. This option helps you discover how much it costs to achieve your desired result.
Lowest Cost with Bid Cap:
Use this option if you know how much you want to spend and want to pay the least amount possible. However, take into account that the cost per result will not be stable with this strategy.
This bidding strategy is optimal if you want a stable cost per result and aim to determine how much you spend at your target cost.
Recommendations for bidding strategies in general:
- Don’t make multiple changes to your bidding strategy in a short period of time (because the Facebook system needs time to learn from the new adjustments)
- Adjust your bidding strategy for different audiences (e.g. for high-value customers use the target cost or bid cap)
How you get charged:
You get charged based on the type of advertisement you choose. You can select the Cost-per-Impression ad (CPM) to create awareness, the Cost-per-Click ad (CPC) to increase traffic, or the Cost-per-Action ad (CPA) to increase conversions. The CPM is the cheapest option while the CPA is the most expensive since it brings the most value to the advertiser.
Estimated Action Rates
The Estimated Action Rates are determined with the estimated CPM (eCPM) and measures how likely Facebook thinks someone is going to take the wanted action, as for example click on a website or download an app.
The factors that affect the Estimated Action Rate include:
- A person’s previous actions
- The ad’s historical performance data
In order to create Facebook campaigns as efficiently and cost-saving as possible, you will have to make sure to:
- Be clear of your campaign’s goal achievements
- Target the right customers (the better the targeting, the cheaper the ads)
- Offer relevant content (also making advertising cheaper)
- Create high-quality ads that the viewers will interact with
- Use constraints to guide your bid strategy and your costs