Since the dawn of Facebook advertising in 2007, the platform has been juggling two objectives: Creating value for advertisers while maintaining a seamless experience for Facebook users.
Advertisers want to easily reach the people most likely to be interested in their product or service, and Facebook users don’t want to be bothered by ads that are not relevant to them. Both parties want the same thing, but the inner workings of Facebook’s ad auction remain rather elusive. Which begs the question, what determines which ads gets shown to whom?
Understanding the Ad Auction can give you an advertising edge! So let’s don our mad scientist goggles and dig into this a bit, shall we?
A Facebook ad auction occurs every time there is an opportunity to show someone an ad, at which point advertisers vying for that spot compete with each other.
Let’s set a scene. As an advertiser, you have selected a target audience of women in California between the ages of 30-50. This creates an audience size of more than 6 million Facebook users. But throughout the length of your campaign, a fluctuating number of them will log-on to Facebook each day, so the number of available ad spots varies daily.
At the same time, there are thousands of other advertisers whose audience overlaps with yours. So, how does Facebook choose which ads to show?
Facebook considers 3 things when choosing an ad auction winner:
- Estimated Action Rates
- Ad Quality and Relevance
Let’s break these down!
Bids are determined by you, the advertiser, at the adset level of a campaign. A “bid” is the monetary value that you’re willing to pay for the desired action, be it impressions or clicks. You can change your bid at any point, based on your campaign’s performance. If your budget isn’t being spent, it may be an indicator that your bid cap is set too low for your ad to be served.
There’s no getting around it, bids are a tricky concept. For clarity, I reached out to someone from Facebook Ad support and here’s what they had to say;
“The Bid is a little tricky because there is no way to tell for sure how the market is going at that moment. Sometimes, your ads will be cheaper and reach a few more people just because there is not as much competition to your same target audience at that moment. Sometimes if your bid is not high enough, your ad will not deliver to anyone at all until the market competition goes down a little bit.”
Groovy Tip #1:
Start your campaign with a reasonably high bid and daily budget for the first few days, or until you’ve seen 25 results. A “result” is determined by your campaign objective (link clicks, leads, etc).
This allows Facebook to quickly go through the “Learning Phase”, i.e. collect intelligence on who is converting on your campaign from a sample of your original prospected audience of 6,000,000. Facebook uses this data to show your ads to other people with characteristics similar to those who have already converted.
Groovy Tip #2:
When you do drop your bid, make sure to do it slowly over time, until you find your bid sweet spot. There’s an adjustment phase that your campaigns undergo anytime you adjust your bid, as Facebook adjusts, causing a temporary lag in impressions. A few bid adjustments won’t negatively affect the results of your campaign, but constant bid changes will.
Estimated Action Rates
But the road doesn’t stop at bidding. Keep in mind, Facebook can only charge you fees for results (which can range from impressions to off-site events like form-fills, depending on your objective).
In order to select ads that are likely to be successful, Facebook uses Estimated Action Rates to represent how likely they think your audience is to take that action. What is it based on? Good question!
Here’s what Facebook says on their Advertiser Help page:
“We base our estimates on the previous actions of the person you’re trying to reach and your ad’s historical performance data.”
Now, say you set your campaign objective as “Traffic” with a competitive bid using a CPC (not CPM) bidding strategy. Facebook will put your ad in front of people who have a history of clicking the link on ads. If your ad is placed before 100 Facebook users and receives 5 link clicks, Facebook will charge you a fee for the 5 clicks, not the 100 impressions.
The fee comes out of your budget, which you can set at either a daily or lifetime schedule. If your daily budget is set at $10 and you paid an average of $2 per result, Facebook will stop showing your ad after 5 clicks, until your daily budget renews the next day.
However, if Facebook sees that your ad is not generating results, it will stop showing your ad in favor of other ads that are generating results because Facebook’s profits come from ad results. In this sense, your interests and Facebook’s are aligned, as both benefit from your ads generating results.
The best way to make ads that your audience responds to is to know your audience. What are their pain points? How do they like to be engaged? By knowing your audience, you can speak their language and make better decisions when developing ad copy and creative.
Groovy Tip #3:
Getting to know your audience and how to engage with them is an ongoing process. You can develop a better understanding of what works best with your audience by A/B testing ad copy, headlines, and images.
Remember to test one component at a time for clear insights (testing too many things at a time can make it unclear what caused the difference in performance)!
Ad Quality and Relevance
Facebook refers to ad quality and relevance as user value. In other words, how relevant is your ad to your target audience? After your ad is served more than 500 times, it receives a daily score between 1-10, known as an ad relevance score, which you can view at the ad-level of your campaign.
Facebook claims that relevance scores are relative in that they only measure how relevant your ads are compared to other ads reaching the same target audience. That said, relevance scores can be influenced by improvements to audience targeting and creative. When your ad is relevant to your target audience, it boosts its total value ranking in the auction.
Groovy Tip #4:
Since ad creative plays a large role in campaign success, it’s best to design your campaigns with a creative strategy in mind. One way to do this is to get an idea of how your competitors are engaging with your target audience. Ask yourself, what are they doing right with their ads? And what could you do better?
You can view the ads of your competitor’s (or anybody’s for that matter) thanks to Facebook’s new transparency policy. Simply go to a company’s Facebook page and click on “Info and Ads” in the menu section below their profile photo.
Groovy Tip #5:
Since accurate audience targeting also plays a role in your ad relevance score, it helps to have an idea of who your current audience is when creating your targeting personas. To learn about them, go to Facebook Ads Manager, click on “All Tools” and then click on “Audience Insights”.
Select your page and you’ll be able to see stats on your audience’s Demographics, Page Likes, Location and Activity. You’ll also be able to compare this data to that of all Facebook users.
The Bottom Line
It’s in Facebook’s best interest that your campaign converts because they are ultimately charging advertisers a fee per result. With all of the user data points they collect, they can target ads to their users at an incredibly complex level.
So know your audience before setting audience parameters, launch your campaign with a generous bid to quickly collect intelligence, keep an eye on performance to adjust your bid accordingly, and let Facebook work its data magic.
So there you have it! Everything you need to know about the Facebook Ad Auction to feel confident going into your next campaign. Now bring on the conversions!