What is Facebook AD Auction and how it works

Just when you think you’ve fully grasped the Facebook marketing concept, you learn about the existence of an auction on Facebook!  If you have been to an auction, you know how it works. An item like an art piece or jewelry is displayed, people raise their paddles, state their prices, and the highest bidder gets to walk away with the product. Well, that’s not what the Facebook auction is like.

Facebook has a billion users accessing the network for purposes such as chatting, watching videos, sharing memes etc. Additionally, to generate revenue, Facebook allows business owners to advertise on the platform. To prevent ruining user experience due to many Ads but to also give business owners a marketing site, they created an auction to balance the two sides. Facebook has limited Ad slot spaces and they give to the highest bidders.

Here is a practical example of how Facebook ad bidding works:

We have a Facebook user named Joshua. Joshua loves computer games, and you are a business owner dealing with selling PlayStations, game boxes, etc. You decide to market your products on Facebook as your target audience (people like Joshua) are on the platform. However, there are competitors seeking to advertise to Joshua because they also sell similar products. Facebook on the other hand does not want to bombard Joshua with thousands of Ads, this is where the bidding begins.

Facebook compares the ads and the ‘highest bidder, or best ad gets displayed to Joshua. The Facebook algorithm selects the highest bidder depending on factors such as the cost you are willing to pay, the relevance of your Ad to your target audience and the quality of your Ad.

Types of Facebook ad bidding strategies

1.      Lowest cost bidding

This bidding strategy prioritizes quantity over quality and it’s Facebook’s default option. In this bidding strategy, Facebook tries to get the most results possible for your budget no matter the cost. Using this bidding strategy, you are giving Facebook a budget with the goal of getting the lowest possible cost per result/action (leads, purchases)

When to use Lowest cost bidding for Facebook Ads

The lowest cost bidding strategy is best for website traffic, reach, engagement, and video view objectives. It is great when running ads with objectives such as brand awareness as you are likely to attract more people to your page/website, even though they may not turn out to be potential customers. You can also use this strategy when testing Ads as it gives you feedback at the lowest cost.

2.      Cost cap

If you are not new to Facebook advertising, then the cost cap bidding strategy is something you can test out as it will help you target your audience better and it will also keep you within your budget. The cost cap bidding strategy aims to get you the most actions at your maximum cost control or below. Facebook will bid higher for some ad spots and lower for others, but the cost will never go above the cost control you set. For example, let’s say you are running a campaign to generate more leads and you are willing to spend $10 for every lead generated. Using the Cost cap strategy will ensure Facebook to not even spend a shilling more than your set cost per conversion.

When to use cost cap bidding strategy

You can use the Cost cap bidding strategy if you want to generate:

  • Traffic
  • Engagement
  • App installs
  • Video views
  • Lead generation
  • Conversions

3.      Bid Cap

The bid cap allows you to set a maximum amount of money you are willing to spend on a cost per action. For example, to maintain a profitable margin you are willing to spend only $5 for a lead. To avoid overspending, you can use a bid cap strategy, as it will prevent Facebook from going over your budget. Facebook will avoid going near the cost control set and you will end up even paying $2 for some leads. However, remember that this is an auction and if you set your bid cap too low, Facebook might prioritize your competitors’ ads over yours. Therefore, the method is considered ‘advanced’ as you need to have some knowledge in calculating bids.

When to use bid cap 

If you are on a strict advertising budget or want to focus on high-quality conversions.

In conclusion

You might set the cost control higher above everyone else but factors such as poor quality or if your ads are not relevant to your audience will deteriorate your bidding power. Choosing the best bidding strategy mostly depends on your target audience and budget. To learn what strategy works for your business, you can test them out with different campaigns.

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