Understanding the Facebook Ads Auction Process
What is the Facebook Ads Auction?
Are you one of the new advertisers on Facebook thinking all you have to do is hit ‘publish’ on your Facebook ads and off they go for approval before going live and then showing up in front of the exact audience you are trying to reach? Are you a long-time advertiser wondering why your ads continue to get more expensive while simultaneously getting less effective? Not understanding the auction process might be your problem, so let’s clear that up.
First, as with anything on the Facebook platform, it’s not quite as simple as you had hoped or expected.
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Every Facebook ad actually goes into an AUCTION before anyone ever sees it. Your ads go into a bidding process, not just with other competing advertisers in your local area, but hundreds of thousands of other advertisers worldwide who are targeting the same people as you. Facebook then uses a formula to decide which ads will be shown and to who. Although this auction process is updated regularly and none of us know all of the intricacies in Facebook’s big fancy algorithms, the following will give you an understanding of the FB ad auction process, and how it may be affecting your ads.
𝐀𝐃𝐕𝐄𝐑𝐓𝐈𝐒𝐄𝐑 𝐁𝐈𝐃 𝐗 𝐄𝐒𝐓𝐈𝐌𝐀𝐓𝐄𝐃 𝐀𝐂𝐓𝐈𝐎𝐍 𝐑𝐀𝐓𝐄𝐒 + 𝐔𝐒𝐄𝐑 𝐕𝐀𝐋𝐔𝐄 = 𝐓𝐎𝐓𝐀𝐋 𝐕𝐀𝐋𝐔𝐄
What the what??? This basic formula demonstrates how Facebook tries to balance offering value both to users and businesses, but what does it all mean?
At it’s most basic level this means that the effectiveness of your ad in the auction process is based on your bid strategy, the budget that you set, and how much Facebook likes doing business with you. Most people leave their ads on auto-bid but higher level FB marketers – especially those trying to scale or grow campaigns and ad spend will play around with manual bidding. While manual bidding isn’t a strategy for beginners, it can be an effective way to get stalled campaigns going again that won’t spend out because you are losing at the auction process, but more on that later.
Understanding Estimated Action Rates
Every adset in an ad campaign is optimized for a different action that you’ve chosen, whether that’s clicks, engagement, purchases, or any of the other options available to you. The estimated action rate factors into account how likely the person seeing the ad is to take that action that you’ve optimized for based on their past behavior both on and off the Facebook Ad platform.
This is why, even though the audience size you have selected for an ad might be 500,000 people, if Facebook thinks only 50,000 of those people are likely to click your ad then it won’t show it to the rest . This is also why your ad may never reach the remaining people in the audience and your ad will start to burn out way before you think it should.
Estimated action rates are calculated based on a mix of an individual user’s history of clicking/engaging/online buying, etc as well as your own historical success rate with your advertising – so if your ads historically have a low CTR (Click-Through Rate) this is where it will hurt you. In other words, stop running crap ads on Facebook, or all your ads will be crap on Facebook.
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Understanding User Value in the Facebook Ads Auction Process
User Value assesses how much value your ad is providing to the person seeing it (and it’s for this reason you get penalized for having too much text in ad images because this makes them look spammy and like something that fell out of a local paper). Remember, Facebook is a social media platform not an advertising platform. You wouldn’t sign up for a TV channel that’s all commercials, so stop making your Facebook page look like one. Images and messages that look like organic posts on Facebook will almost always get you your best results, and this is part of the reason.
User Value is where Relevance Score (which you can see on each individual ad in Ads Manager once they’ve reached 500 people) comes into play. Relevance Score is a RELATIVE metric, measured on a scoring system from 1-10, which only measures how relevant and engaging your ad is compared to others targeting the SAME audience.
That being said, relevance score is only an indicator, and one of MANY MANY indicators of the health of your ad campaign. I’ve seen many people kill an ad with great ROI that is getting great results because of a relevance score of 5…don’t be that person. It’s only an indicator of how well your ad is targeted, something that can potentially help raise or lower the overall costs of your ad.
The other factor in determining User Value is Ad Quality.
This basically means that if your ad is getting a lot of negative feedback (people closing it or hiding it, reporting it as spam, clicking that they don’t like it) its value will be decreased, you will start paying more for your ads, and you will start getting worse results for your ad. You may also be in danger of getting your ad account shut down if you have major negative feedback issues, again, don’t be that person. Ad Quality also takes into account whether a person has historically been interested in similar ads and how they are reacting to yours in comparison. This is one area where you want to make sure you are keeping up with the Joneses.
How the FB Ads Auction Process Actually Works
So, now that you know the formula, how does the auction process actually work?
When a user opens up their news feed, they instantly become available for ads to be shown to them. The auction for that user’s newsfeed begins, Facebook’s algorithm calculates the results of the formula above to account for different optimization events (i.e you might be targeting an audience with a conversion ad whereas your competitor might be targeting the same audience for engagement on their ad), the total value is calculated and then the winning ad with the highest total value is shown in that person’s newsfeed. Taaa Daaa.
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Pretty clever how Facebook does all that (as well as deciding which posts from friends, family and other business pages to show you) in a matter of seconds, isn’t it? Now you understand why these proprietary algorithms are both highly prized and constantly tweaked.
Now, how can you use this knowledge to your advantage? First by understanding that the quality of your ads, and the conrgruence of your message to your targeting is probably more important than you realized. Second by understanding that Facebook rates you as the advertiser as well, so don’t run shady, annoying, or disgusting ads, and pay your bills! And third, by using the second half of the formula above to beat advertisers who are bidding higher than you!
Ensuring your ads have high quality and relevance means that you can beat people in the auction even if they are prepared to pay more than you, which is a massive advantage if you are competing against bigger companies and brands. Especially because large companies still focus on traditional advertising messages and ads, which aren’t seen as quality or relevant on social media platforms.
This is one of the great things about Facebook Ads; any business, no matter how large or small, can find success on the platform if you work smarter. It just takes a bit of hard work and, yes, an investment in time and money. Facebook ads aren’t going to make you rich overnight, but they are going to get you the most profit for your advertising spend if you educate yourself or enlist the help of a professional.
So how does Facebook decide how much you are charged for your ads?
The Total Value calculation above determines who wins the auction, but not the cost, so how is that calculated anyway? Essentially, you are charged the minimum amount that you would have needed to bid to win the auction.
Here’s a very simplified example of this in action (not taking into account User Value or Estimated Action Rates):
Advertiser 1 bids $0.15
Advertiser 2 bids $0.75
Advertiser 3 bids $0.75
Advertiser 4nbids $5.00
In the auction, Advertiser 1 is likely to get very few impressions of their ads. 2 and 3 will get a good number of their ads shown at prices somewhere between $0.16 and $0.75. Advertiser 4 will get even more impressions – but rather than paying the full £5, they will probably come in at somewhere between the $0.16 to $1.00 range.
As a rule, this means you are charged less than you actually bid. It also means that it’s almost pointless making very small bids like Advertiser 1 as you will end up losing auctions that you could ultimately have won for only a tiny bit more. It also means that bidding higher than you want to pay is a very effective strategy to win the bidding process if your ads aren’t feeding out once you are comfortable enough with the Facebook advertising platform to try out manual bidding.
It also means if you aren’t prepared to spend at least $5-$10 a day on your ad campaign(at least) it will most likely underperform for a number of reasons, but particularly because you aren’t spending enough to win at the auction. This will be especially true if you are targeting smaller or highly sought after audiences.
Now that you have a better understanding of the auction process you now understand why the quality of your ads is critical, so don’t throw garbage up on Facebook and think spending money will turn it into a diamond, and don’t place your own ads if you aren’t aware of all of Facebook’s policies and regulations. Don’t forget your advertiser rating is an important piece of the auction process, so a few terrible ads can ruin your advertising capabilities for a long time.
Now go out and make lots of money for your business with Facebook ads and tell us all about it.
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