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How facebook ad auction works

How Facebook Ad Auction Works: Make Your Ads Convert Better

Last Updated on June 23, 2022 by Abdulfatai A. Olamide

In your overall Facebook advertising strategy, ad bidding plays a significant role. To be successful with your ad campaigns, you'll need a good ad bidding strategy. Even if your ad copy and audience targeting are spots on, without it, you could lose money on your campaigns. That is why we will be discussing how Facebook ad auction works and how to up your game as one of the few genius advertisers out there.

Bidding incorrectly can lead to overpaying for conversions or advertising not being served due to underbidding.

Let's get started!

How Facebook Ad Auction Works

Today, we'll look at how Facebook ad auction and bidding work and which bidding tactics to employ.

What is the process for bidding on Facebook ads?

Advertisers bid for their ads to be displayed in Facebook's numerous ad placement places through Facebook's ad bidding system, which works like an auction. While the highest bidder typically receives the most ad places, the quantity of your offer isn't the only consideration in ad delivery. This is what differentiates Facebook's bidding system from other auction ad methods.

By allowing advertisers to make money while presenting relevant content to users, the auction system is supposed to balance the demands of marketers with the needs of Facebook's users.

The following are the three major determinants of ad delivery:

Your Bid — This is the most you're willing to pay in order to win a bid. The system on Facebook is set up so that you can pay the smallest amount possible and still win the bid (Lowest-Highest Bid). For example, if your highest-bidding competitor sets their maximum bid at $1 and you set yours at $1.5, you'll only have to pay $1.01 to win the bid, rather than the full $1.5.

User Experience – The user experience (google call it Relevance Score) of your ad is calculated by weighing all good interactions with it, such as liking, commenting, or clicking on it, against all negative interactions, such as concealing or ignoring it. Facebook cares a lot about the relevance score of your ad. Your ad will help consumers spend more time on Facebook if it has a High Engagement Rate.

Facebook ad Quality + Ad Engagement + Conversion= User Experience.

Estimated Action – rates are a feature of Facebook's ad distribution system that is not visible to the public. If the algorithm thinks your ad will get a lot of clicks, it will prioritize it over other ads. This is based on guesswork from the algorithm and relatively correlated to the audience you are targeting.

Choosing Your Ad Delivery

Standard and Accelerated ad delivery are the two choices now offered by Facebook. Standard delivery is designed to spread your ad spend fairly over the course of your campaign (for example, if you set a budget of $70 for a seven-day campaign, Facebook will try to spend roughly $10 each day). This is the delivery method that is selected by default.

Do you want to run Ad for your Black Friday or any busy event? Acceleration is your option.

Accelerated delivery aims to spend your advertising budget as quickly as possible and produce the best results. When you need to get your adverts in front of as many people as possible, rapid delivery can help (e.g. before and during a holiday).

Note: Acceleration Bidding is like a Ferrari Car, the speed is good but if you don't know what you are doing, you will injure yourself

Optimizing Ad delivery

You can choose an Ad Delivery Optimization aim on Facebook as well. Among the objectives now accessible are:

The Most Common one is Conversions. When you choose the Conversions goal, Facebook will aim to show your advertising to those who are most likely to convert and take specific also your pre-determined during the ad creation. This could be your Micro or Macro Conversion.

Link Clicks – If you choose this option, Facebook will optimize your advertising to attract as many clicks as possible from consumers. Know this, I prefer to optimize for landing page view under this same objective to avoid clicks from Facebook Bot. You don't know it exists?

Sorry to break that to you, it does!

Impressions – If you choose this target, Facebook will try to show your ad to as many people as possible.

But the question is, will this meet up with your business goals? Because Impression is different from Reach. If Facebook shows your ad to Dr. Jack twice, you just got two Impressions with a single Reach.

What about if it shows it Dr. Jack 50times? you still have a single Reach with 50 Impressions.

The takeaway is that Facebook might show your ads to people without significant Reach

Daily Unique Reach – With this option, you can send your adverts to each and every member of your audience once a day. If you have a limited offer to make to a small remarketing audience, this is a terrific solution.

You should get the point now! This is why I prefer the Reach to Impression.

Post Engagement – The Post Engagement optimization shows your advertising to users who are most likely to enjoy, share, or comment on them. This is also known as PPE.

Pro Tip: You should always have a PPE campaign on your account to favour your CPM (Cost Per Impression). The more the Algorithm finds out people are engaging with your business, the lower your cost. 

Brand Awareness – Aims to send advertisements to individuals who are most likely to notice them and “remember your Brand” (In Facebook Term). I don't know how true that is for small and medium scale businesses. Will we recommend that for a small business? NO! Only if you have a big budget for a Facebook ad, then you can try it out.

Leads — This feature allows you to target your adverts to those who are most likely to provide personal information (e.g. their email address, Phone Number or Book a Call). A lead objective outside Facebook (with a landing page) is more expensive than the Facebook lead form. But you will get more qualified leads with an external lander because they are not auto-fill like the Facebook lead form where people forget they actually filled a lead form when you contact them.

Landing Page Views – These ads are targeted to people who are most likely to visit your landing page. it is optimization under traffic objective when running a Facebook ad

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What are the strategies for Facebook Ad auction and bidding?

The Lowest Cost, Bid Cap (Manual Bidding), and Cost Cap are the three bidding strategies you can use.

The Inexpensive One

The lowest-cost technique aims to get your ad into as many ad spots as possible for the cheapest price. This is the inexpensive bidding in Facebook ad auction. Facebook Algorithm does the heavy lifting and finds you the profitable audiences with the lowest cost.

With a Bid Cap

Hey, Facebook, Let me decide my fate!

Similar to the lowest-cost technique, but with the addition of the ability to set a bid cap, which stops Facebook from bidding more than the amount you choose as your bid cap. This method can help you avoid bidding more than each Conversion is worth.
If the bid cap is set too low, Facebook may have trouble spending your whole ad budget. The average cost per result should be used as the beginning bid cap, according to Facebook. Setting your daily budget to at least five times your bid cap is recommended by Facebook.

Then we have, Cost Cap

The goal of the target cost strategy is to keep the cost per Conversion as low as possible when Return on Ad Spend (ROAS) is not your primary goal. When you use this technique, Facebook will bid above and below the amount you specified as the target cost, but it will aim to keep the overall average cost close to the amount you set as the target cost. If you want to achieve as many conversions as possible, you should follow this technique. The target cost technique is particularly perfect for scaling campaigns because it allows you to set a limit on your average cost per Conversion, allowing you to expand your campaign budget without risk.

The following campaign objectives can benefit from this strategy:

  • Installs of mobile applications (App Install)
  • Conversions
  • Obtaining Leads
  • Sales Catalog

One disadvantage of employing the target cost (Cost Cap) technique is that you may encounter significant price swings before Facebook completes its learning process (it takes a total of 50 events in one week for Facebook to complete its learning phase for your ad).

Rumours have it that it now takes 7 conversions per week because of the latest iOS14 Limitation. 

Which technique to use is determined by the nature of your offer and your ultimate objectives. Before attempting to employ the other two tactics, most advertisers should probably start with the cheapest strategy (lowest Cost) and acquire some data.

How To Change Your Name On Facebook

Let's break it down in Facebook lingo now.

To choose which ad to show to a person at any given time, Facebook employ an ad auction. Both people and corporations benefit from the winning ad. You can better understand your ad performance by understanding the ad auction.

When does Facebook hold ad auctions?

When a chance to show an ad to someone arises, an auction is held to choose which ad should be seen. Across the Facebook family of apps, billions of auctions are held every day, where every ad is fighting for a place on the user feed.

In each auction, who competes?

Advertisers define a target audience when creating advertising so Facebook knows who they should show Ads to.

A single person might be categorized as belonging to more than one target audience or interest. One advertiser, for example, focuses on ladies who enjoy skiing, while another advertises to all California skiers. Both advertisers' target audiences may include the same person (in this case, a female skier from California).

Ads with a target audience that the individual belongs to are eligible to compete in the auction when there is an opportunity to show someone an ad.

How does the auction winner get chosen?

The auction's winner is the ad with the highest total value, which ensures that the winning ad maximizes value for both consumers and corporations. Three important variables contribute to the overall value:

  1. An advertiser's bid for an ad is known as a bid (in other words, what the advertiser is willing to pay to achieve their desired outcome). In the ad auction, there are several options for managing your bid. See FAcebook Bid strategy for additional information.
  2. Estimated action rates: A prediction of whether or not a specific person will interact with or convert from a specific advertisement (in other words, the probability that showing an ad to a person leads to that desired outcome of the advertiser). According to facebook, clicking on clickbait or engaging in interaction bait does not boost the performance of your ads.
  3. Ad quality: A measurement of an ad's quality based on a variety of factors, such as feedback from people who have seen or hidden the ad, as well as judgments of low-quality qualities in the ad, such as concealing information, sensationalized language, and engagement bait.

Ad relevance is calculated by combining anticipated action rates and ad quality. In reality, in auctions, Facebook subsidizes relevant ads, so more relevant ads often cost less and produce more results. In other words, a relevant ad together with advertising with greater bids could win an auction.

Ad relevance diagnostics can help you figure out if the ads you placed were relevant to the people who saw them.
Facebook ad auction algorithm chooses the best ads to run for each ad impression based on the maximum bids and performance of the ads. In this procedure, all Facebook advertising compete against one another, with the ones that the Algorithmy deems have the best chance of succeeding in winning the auction.

Is Facebook Ad Credit Free?

Consider boosting your bid and working great on your ad copy to help you gain a competitive advantage at the auction. Only the amount required to win the auction will be charged to you. Facebook recommends entering your genuine maximum bid because the winning offer may be lower than the maximum bid you've set for your advertising. This may help you avoid missing out on potential clicks or impressions. Facebook also advocates fine-tuning your targeting to ensure that you're reaching a suitable demographic that is more likely to respond to your ads.

Sometimes, a broad targeting works, but not for every Niche

Conclusion

Understanding how Facebook's bidding mechanism works is essential if you want to run profitable Facebook advertising. You'll need to choose an ad delivery, optimization, working on your ad copy and lander, and bidding strategy based on your objectives.

As always, extensive testing will be required to determine which combination of delivery type, optimization, and bidding approach is most effective for you.

Get in touch for a FREE strategy call today to learn more about how Ollyweb Integrated Concept can help you improve your bidding game and overall Facebook marketing.

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Content Director at Ollyweb Integrated Concept | Website | + posts

Abdulfatai is a Content Director at Olly-web, where he specializes in Search Engine Marketing (SEM) and Social Media Marketing (SMM). He has over a decade of experience working with businesses to promote their visibility through SEM, SEO, and social media. Abdulfatai believes that great content is the key to success on social media, and his goal is to help businesses grow their following by providing high-quality content that resonates. When it comes to online marketing, Abdulfatai knows how to work hands-on with clients and has a deep understanding of what works best for them.

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