What are the different type of Facebook Bid Strategies?
Which bidding strategy should you use for your ads?
How does lowest cost, cost cap and bid cap differ?
When should you use which bidding strategies for your campaigns?
If you are wondering how to use Facebook bidding strategies…
You are not alone.
Those are very common questions I get in our Facebook Group.
Picking the wrong bidding strategy can kill your ads.
And end up losing money.
Understanding how bidding works is key then!
Facebook Ad Delivery System Explained
First…
How does the Facebook ad delivery system actually work?
Why is this important to understand?
Because knowing how Facebook auction works, will help you understand how bidding is one of the most important variables that will determine how your campaigns perform.
Facebook ad delivery is based on an auction.
An auction that is constantly balancing how to bring the most value to both advertisers and users.
Facebook tries to optimize user’s experiences by matching them with the right ads the are most relevant for them.
At any given time there are millions of users logging in and opportunities for you as an advertiser to show your ads. Whenever there is one of these opportunities, Facebook run an auction.
Every second there are probably billions of individual auctions happening in Facebook platform.
If the user falls into the demographics, interests and behaviours of your target audience, you will compete with other advertisers to show your ad.
Whoever Facebook determines that it will bring the most value to the end user, will win the auction and show that specific ad.
So what does bidding have to do with the auction?
Well…
it turns out that bidding is one of the the most important variables that determines the winner in each auction.
So picking the right Facebook bidding strategy can be key in being successful with your campaigns.
Who wins each Facebook Auction?
As I mentioned before, Facebook is always trying to maximize the experience for both users and advertisers.
Facebook will use TOTAL VALUE to determine the winner in an auction.
What is total value for my Facebook campaigns or ads?
It’s a simple formula (probably pretty complex in the algorithms used):
So total value is…
Total Value = [Advertiser Bid] x [Estimated Action Rates] + [User Value]
where,
- Advertiser Bid: The amount you bid.
- Estimated Action Rates: How likely it is that showing your ad to a person will lead to your desired outcome
- User Value: Ad’s quality along with how relevant your ad is to the chosen individual.
The advertiser that is able to build the highest TOTAL VALUE will ultimately win the auction.
As you can see in the formula, advertiser bid is on the the components for uplifting or downgrading your estimated action rates.
In other words, Facebook will determine how likely your target audience will react or take action on your ad (estimated action rates).
This number is then multiplied by your bid and is the first component of the total value formula.
So picking the right Facebook bid strategy is key.
Picking the wrong one can lead to:
- Your campaigns not spending budget at all
- Your campaigns spending your budget too quickly
- Getting results at a really high cost
- Not being able to bring in profitable results
- Not having positive ROAS or ROI
Will Facebook spend all of my budget if I pick the wrong bidding strategy then?
Not necessarily.
Pacing System
This is where pacing comes into play.
Facebook pacing system will automatically adjust your bid or which auctions to enter based on how much budget you have left and the time of your campaign.
In other words, if you have 30 days left on your campaign, Facebook will not spend a big chunk of your budget all of a sudden just because it found possible conversions.
It will even out your campaign spending and bidding throughout the flight of your campaign.
There are two pacing variables that Facebook uses with your campaigns:
- Bid Pacing: The aspect of pacing where we adjust your bid or which auctions we enter based on how much budget and time are left for your ad set
- Budget Pacing: The aspect of pacing where we may increase how much budget we spend if there’s an opportunity to get many optimization events with costs aligned with your bid strategy
How can you influence Facebook pacing system?
By changing your bid strategies!
What are Facebook Bidding Strategies?
Facebook lets you pick from the following bidding strategies:
- Lowest cost with automated bidding
- Highest value with automated bidding
- Cost cap with automated bidding
- Minimum ROAS with automated bidding
- Bid cap with manual bidding
Keep in mind that most bidding strategies are automatic.
A bid represents what you’re willing to pay to achieve your desired result from someone in your target audience.
Facebook will determine how much to bid in each auction for your campaigns; however, what changes in each of the automatic bidding are two things:
- How Facebook will optimize for your business or campaigns goals
- What type of actions or conversions Facebook will bid more heavily
What this means is that Facebook might go for different auctions or bid higher in certain auctions that align more with your business and campaign goals.
To maximize your results!
If you don’t like reading, watch the video below where I explain how each bidding strategy differ within Facebook platform.
How do each bidding strategy differ?
Let’s dig deep into the specifics for each bidding strategy.
Facebook Lowest Cost Bid Strategy
Facebook lowest cost bid strategy will try to:
Maximize the number of results for your budget.
Regardless of the cost.
It’s also the default option for all of the campaigns.
This tells Facebook to go after the auctions or possible conversions that will maximize your results and ensure that you spend your full budget.
Your cost will vary as Facebook is trying to spend your budget (pace it).
Some days it will find cheap conversion…
Other they might be more expensive…
If more advertisers who are targeting the same audience you want enter the auction all of a sudden, your costs will increase as there is more competition in the auction.
This scenario happens a lot during the Holidays or Black Friday events.
If you are using lowest cost bidding strategy, watch out for higher costs and making sure your cost are in a threshold that is acceptable.
Make sure you are making money with your campaigns!
Facebook Highest Value Bid Strategy
With this bidding strategy, Facebook will also try to spend most of your budget; however, it will try to maximize the total purchase value of each conversion.
Facebook will try to maximize your ROAS and go after higher ticket conversions.
As you can see in the example below,
if it finds two possible conversions at $9 and $12 but the $12 conversion will possible bring in more sales, it will try to enter that auction and not the cheapest one.
Facebook is not trying to go after the lowest cost auctions or conversion, but the conversions that will bring or maximize your ROAS (or highest value).
In the same example above, the $9 conversion would bring in $10 in sales whereas the $12 conversion would bring in $50 in sales.
Facebook would try to win the second one as it brings in or maximizes your ROAS.
You want to use this type of optimization whenever you want to maximize your ROAS and are not sure about bid amounts.
Facebook Cost Cap Bid Strategy
With a cost cap bidding strategy, Facebook will try to maximize the number of conversions but also cap or prevent your costs from going above a specific amount.
As you can see in the image below, your cost cap over time will stay under a specific amount.
Let’s say you know you need to cap your cost at $5 per conversion.
Otherwise, if you costs go above that amount, you won’t be profitable with your product.
You can spend a maximum of $5 to generate each sale, otherwise you won’t make money with this product. You would select Cost Cap as your bidding strategy…
and then place a cost control of $5.
This would ensure that your cost don’t go above the $5 threshold.
Use this strategy if you understand the economics of your product (sales prices, costs, margins, and so on) and have strict CPA goals that you need to achieve with your campaigns.
If you are beginning with Facebook ads, stick to lowest cost at first.
You can transition to cost cap once you have a clear understanding of your audience, offer, creative and dynamics of which campaigns work to deliver your results.
Facebook Minimum ROAS Bid Strategy
With minimum ROAS bidding strategy, you are basically telling Facebook how much value (sales) each campaign needs to generate for your spending.
You tell Facebook your lowest return on ad spend you are willing to accept.
You want to use this type of bidding if you want to at least break even in your campaigns.
Keep in mind that this type of campaigns need your Facebook pixel and purchase event to work properly on your website.
Otherwise you just won’t see any campaign spending.
Also you need to have conversions or catalogue sales campaigns for this to work.
I will be honest and transparent here, I’ve never used minimum ROAS spending as it seem like other type of bidding work better for starting and scaling your budget.
If you have, let me know in the comments below.
Facebook Bid Cap Bid Strategy
This is the only strategy in which you are actually telling Facebook how to bid in each auction.
This is the only bidding strategy that is not automatic but you actually define the bid.
Unlike all of the other bidding strategies where you are basically letting Facebook determine the bid amount, with a bid cap strategy YOU are actually setting the bid control ad your ad set level.
In other words, if I were to set up a bid control or bid cap of $5, that would be the maximum amount Facebook would use to compete in each auction.
If there are optimization events or auctions available for $5.01, Facebook would not enter does auctions.
If you look at the image above, your cost will stay below your bid cap.
Unlike cost cap, with bid cap you will find your cost lower than your bid.
Because the bid cap tells Facebook how much you are willing to pay for reach your target audience or users, they don’t translate to CPA.
Keep in mind that your bid cap should be higher than the actual desired costs.
How much higher?
Facebook recommends up to 5x higher but from my experience it’s more like 2x or 3x but you need to monitor and check your results.
These will also vary depending on the industry and country you are in.
Here is a video that explains in further details how Facebook bid control strategy works:
You want to use the bid cap strategy when you have experience running ads and you understand how results vary.
You also want to use this strategy when you want to be aggressive.
For example, if you are running campaigns during the Holidays or expect high competition in the auction, you might want to consider using bid cap in order to out compete other advertisers.
Final Thoughts
Picking the right bidding strategy is a fundamental step in understanding how to better launch campaigns.
In the end, your bid will determine or tell Facebook how much you are willing to pay to reach a specific audience.
And compete in each auction you enter.
Make sure to always test small budgets how new bidding work for your campaigns.
Results will vary by industry…
niche…
and account history…
Let me know what you are testing and new results.
And make sure you to check our Facebook group for more support.