By now, you already know the basics of running ads on Facebook – impactful headlines, attention-grabbing images, and concise copies, delivered within an emotional framework. Of course, you should not forget the advanced Facebook targeting capabilities and conduct multivariate tests over time to continuously improve your results.
Apart from these decisions however, do you know how Facebook Ad Bidding work or are you just following best practices blindly?
How Facebook Ad Bidding work
To understand how Facebook ad bidding work, we need to revisit Economics 101 – Demand and Supply.
The entire process works like a live auction. When advertisers like you create ads on Facebook, you create demand for ad spaces. You will compete with similar advertisers for limited ad spaces and the highest bidder will have his ad served to his target audience.
Supply on the other hand, is created when users login to Facebook. This is the primary reason why investors use to claim that Facebook users are the products. Facebook is a media company and makes money by showing your ads to the people you want to reach.
So, how does knowing this affect your ad campaign strategy?
AdEspresso wrote a detailed article to explain Facebook Ad Bidding 101 last week. It was coincidental that I was working on this piece as well. Thankfully, I need not write an additional 500 words to explain it anymore, so I will highlight the 2 key points you should know about Facebook Ad Bidding.
2 Key Things You Need to Know about Facebook Ad Bidding
First, your bidding competitors are defined by 3 key things (there could be more, but these 3 are the most important ones):
Do you want to place your ad on the desktop newsfeed, mobile newsfeed, or desktop sidebar?
Based on your defined list of demographics, lifestyle, and other variables on Facebook, who is listed among your estimated audience size?
When Facebook introduced Ad Objectives, they openly declared that they want to show your ads to the users who are most likely to take the action you are looking for. You are therefore more likely to compete with advertisers who have the same ad objective as you than advertisers with other objectives.
Then, your competitors and you are populated and bidding begins. You can bid using any of the 3 methods:
- Cost Per Mille (CPM)
- Cost Per Click (CPC)
- Optimised Cost per Mille (oCPM)
I do not know the exact details as to whether Facebook will group advertisers by their bidding options, but that is not important at this point.
The second key thing you need to know about Ad Bidding on Facebook is that you only pay for the minimum bid required to win an auction. This is an important piece of information which we will revisit later.
But…what about Facebook Ad Ranking?
Like Google, I believe that Facebook ranks advertisers by giving them a quality score. The exact breakdown of the quality score is not important for the purpose this article.
Together with another component I call “luck”, which in other words mean a random allocation, the total score will determine which particular ad spaces you will bid for. In other words, you will not participate in every auction.If you are lucky and you have a high quality score, you could participate in and win as many auctions as your budget allows.
So if you were to ask me, I would say yes to 3 things:
- The basics of good Facebook ads as described at the start of this article will largely determine whether your ad is effective in helping Facebook earn money. This will contribute to your quality score
- Because of the sheer number of advertisers and the fact that there is no “equal” way of allocating ad spaces to advertisers like you and I, Facebook’s algorithm involves a random component to put advertisers together when they bid for an ad space
- Your daily ad budget affects how many auctions you can participate in and therefore the number of times you can show your ad to your target audience. This is a key point that Alex Houg brought up late last year
This is why you should rethink how you bid
Remember when I mentioned that you only pay the amount equal to your winning bid? I am bringing this up again because most advertisers forget about this and pick the oCPM bidding option over CPM or CPC by default.
Instead, I would suggest you take a look at this checklist before you choose a bidding option:
1. Budget constraints
The problem with most of the advice that experts dish out online is that they are too general and meant for clients who face no limitations. Unfortunately, such clients do not exist.
Let’s say that you have $500 to spend on Facebook Ads over 2 months. Would you spend all $500 to drive Page Likes or Website Clicks? Of course it depends on your marketing objectives.
In one example, you might spend $200 on driving page likes and $300 on driving website clicks. Based on a cost estimation of $0.20 per page like and $0.60 per website click, you might target 1000 page likes and 500 clicks to your website.
With such a limited budget, you should choose CPM or CPC, since you already have an idea of how much your page likes and website traffic would cost and more importantly, you do not want to spend above the estimated costs. This is important as you are aware that you have 2 months to achieve those page likes and website clicks, so you should not rush into expending your budget.
2. Maximum allowable cost per desired action
Every “guru” out there is telling you to spend money on social media ads right now because they are so cheap as compared to traditional forms of advertising. To them, I say, “stop”.
We are forgetting that $0.20 per page like is not that cheap and in fact is a waste of money whether you compare it to traditional forms of advertising or not.
Assuming that you are selling a product online worth $100, your sales funnel is a simple 4-step process (Fans > Engaged Fans > Email List > Customers), and your conversion rate is 10% at every step.
In theory, this means that you should only spend $100 at most to acquire a customer, $10 at most to acquire an email subscriber, $1 at most to engage a fan, and $0.10 at most to turn a non-fan into a fan.
Of course, this is a simple calculation of social media ROI. Proponents of social media will claim that social media marketing delivers partially immeasurable ROI and my example above is too simplistic an explanation.
But if you are not setting limits to your plan in theory, you might find that you are losing money at the end of your ad campaign. And this is something that your typical social media consultant will not be telling you.
3. Finding out what works for your business in a foolproof way
Jon Loomer recently shared that oCPM drove higher ROI for his business than CPM did.
He was not lying. But as you see, he conducted a small experiment to prove that and his results are not representative for all businesses.
If there is anything I have learned from Jon Loomer over the past year, it is his approach to execute ad campaigns by conducting small and iterative experiments. He takes nothing for granted and questions status quos, which explains why he has found success with sidebar ads again and again when others failed.
So if you have a budget limit but you are not seeing the results yet nearing to the deadline of your campaign, go ahead and make the switch to oCPM to see what works. You could also choose oCPM at the beginning of your campaign before you switch over to CPM or CPC.
Remember: find and do what works for you. Experts’ advice online is a good starting point but don’t stop there.
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