How Does the Facebook Auction Work? Manual Bids, Lowest Cost, Cost Cap, Bid Tests

Facebook ads are a great way to get your products and services in front of your target audience. By knowing how Facebook ad auctions work, you can put yourself in a better position to win and generate more visibility for your ads. 

Facebook Ad Auctions work by evaluating ads based on auction bids (how much you are willing to spend per ad), ad quality, and the probability that it will do well to determine auction winners. These auctions take place every time there is a chance to display your ad to your target audience.  

In this article, I’ll teach you about Facebook auctions. I’ll also compare bidding techniques and go over how to set up a bid test and try out different bid amounts to improve your ad’s performance.

How Facebook Auctions Work

Whenever there is a chance to display an ad to a person on Facebook, there is an ad auction that takes place behind the scenes. Any advertiser that has defined that person as a part of their target audience is eligible to compete in that auction. The winner is chosen by evaluating certain factors like the likelihood of engaging with the ad, the ad quality, and the bid.

Of the three qualifying factors, your bid is a very important part of the auction that you, alone, control. The key is to choose a bidding strategy that works. 

Bid Strategies for Facebook Auctions

No two companies are the same, so no two marketing plans will be the same. Therefore,  bidding strategies will vary and depend upon what’s most important to you as a business owner. Are you more goal-oriented, or are you more focused on keeping costs down? Check out these four bidding strategies to find out what makes sense for you. 

Lowest Cost

The lowest-cost bid strategy allows you to get the best results that your money can buy. Within this strategy, your ad will enter a variety of auctions until it hits your budget for the day. So if your budget for the day is $150, your ad will compete in auctions with a lower cost until it hits your budget.

However, if your budget is higher, say $1000, your ad will compete in more competitive auctions making your cost per purchase higher. It can also be higher if you have a small target audience.

Target Cost

Target cost is a bid strategy where you manually set how much you want to bid in each auction. Whatever amount you set, Facebook will try to bid exactly that amount or a little lower or higher.  

In this example, if your target cost is $25, Facebook will bid anywhere from $20 – $30 (this is just an estimate). 

Bid Cap

The bid cap is a manual bid strategy that allows you to set a specific bid amount you don’t want to exceed. With this strategy, your ad will not enter any auctions over that amount. The upside to this is that you can control how much you pay to acquire a customer. Yet, a potential downside is that there may be a low volume of auctions. 

If you are confident that you can pick the right bid and have a great understanding of predicted conversion rates, then this strategy may be for you.

Cost Cap

Cost cap is also a manual bid strategy. It allows you to set a specific bid amount and will aim to bid that amount or lower. However, when it makes sense, Facebook will bid a little higher than that to maximize your results. This is a great technique for business owners who want to keep costs lower regardless of the market conditions. 

In this example, if your cost cap is set at $25, your bid can be anywhere below $25 or higher at approximately $28.

Comparison of Bid Strategies for Facebook Auction 

Understanding the different bid strategies is important, but you also need to know how to use them to your benefit on any given day and what makes sense for your business in the long run. Let’s see how they match up. 

Bid Strategies on an Easy Day

Ideally, on an easy day, there are a lot of cheaper auctions to enter and more opportunities to get your ad seen. This is how each of the bidding strategies matches up on an easy marketing day. 

 

Lowest Cost Target Cost Bid Cap Cost Cap
  • The average amount per customer is great
  • Even larger budgets can keep costs low
  • You can reach your full spend for the day due to ample opportunity. 
  • You can reach a decent spend because of cheaper auction options
  • You’ll enter more auctions & get more spend for the day

Bid Strategies on a Competitive Day

On a competitive marketing day, it is going to be pretty expensive to get your ad in front of people. There will be little to no cheaper auctions available. Here’s how these bid strategies match up on a competitive day.

 

Lowest Cost Target Cost Bid Cap Cost Cap
  • Bidding will start mid-range and work its way up
  • You’ll hit your full spend for the day, but you won’t get very good results
  • You’ll get a small spend for the day
  • You’ll get virtually no spend for the day and get your ad in front of just a few people.
  • You may be able to enter into a few of the competitive auctions, but you most likely won’t reach your spend for the day.

Lowest Cost vs. Manual Bidding: Over Time

Another important factor to consider is how these strategies compare over time. While the lowest-cost bid strategy will give you peace of mind by allowing you to spend the same amount every day, your results will fluctuate gravely as the market does. On the other hand, manual bidding will keep your cost per purchase down, which is great, but on most days, your spending will be really low, and on competitive days maybe none at all.

I personally like to run both of these at the same time because I get the best of both worlds. I can get consistent sales with varying results. On great days, I can hit my daily spending, and on competitive days I won’t lose money on the cost cap. 

Bid Testing Strategies

Bid testing is when you test out a manual bidding strategy. To do so, you will need to change your campaign strategy under Campaign Budget Optimization from lowest cost to whichever strategy you would like to use. Then choose four different bid amounts and run each campaign. You will know which of these campaigns is doing best by how much daily spend is allotted to each. 

Here are some tips for bid testing:

  • Ensure all of the ad sets are identical because you are only testing the different bid amounts. If you already have an ad set that is doing well, you can duplicate it.
  • If you have been running lowest-cost campaigns, you can analyze that data to choose the four bid amounts.
  • It may make sense to bid higher than you usually would to outcompete other ads, find valuable customers, or just to see how it performs. This will also help you to get closer to your daily spending goal.
  • Run these in combination with lowest-cost campaigns. 

Conclusion

Winning Facebook ad auctions is a skill that can help you scale your business. You can achieve great success in online marketing by evaluating the different bidding strategies and comparing and aligning them with your business goals. 

If you’re looking for an in-depth overview of my Facebook ad strategy, check out my  2-hour beginner to expert training video.

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