When it comes to crafting the perfect advertising campaign, everyone always focuses the attention on a stunning ads design or selecting the perfect targeting audience.

Very few people take into account another critical factor: The bidding strategy.

What’s the point of a great ad or a carefully selected audience if you’re then screwing everything up with the wrong bidding strategy? You may end up either paying too much for your campaign or reaching a small portion of your potential reach.

A lot has changed regarding Facebook’s bidding strategies in the past year! It’s now time for a more in-depth analysis and an update to the latest news.

Noticed a few changes in the past few months? Us, too. Facebook has changed the bidding format interface.

If you want, you can click here and go straight to our 2016 update.

But if you want the whole picture… Let’s get back to the drawing board and study Facebook Ads Bidding!

Bidding? Is this an auction?

Yes! That’s the first thing you need to understand to master bidding management of Facebook Ads. When you’re creating a new campaign, you’re joining a huge, worldwide auction.

You’re competing with hundreds of thousands of advertisers to buy what Facebook is selling: Real estate on its website and mobile apps to display your message to the users.

While Facebook will try to satisfy every advertiser, even with 1 Billion users, the space for advertisement is limited. Sometimes, Facebook won’t be able to fulfill all the requests. When this happens, the highest bidders will get the most impressions.

The amount you bid for a click –1,000 impressions or a conversion — is not what you’re actually going to pay. It’s just the maximum amount you’re willing to pay to win the bid. Facebook (and Google AdWords) will always make you pay only the lowest amount possible to win the bid and have your ad displayed.

Let’s map out an example, assuming that Facebook only has 3 available spots to display ads and there are 4 advertisers bidding. The real system is much more complicated than this; this is an hyper-simplification:
Advertiser A bid $0,3
Advertiser B bid $0,5
Advertiser C bid $0,5
Advertiser D bid $10

In this example, advertiser A will likely be left out and will receive low to zero impressions. Advertisers B and C will get a good amount of impressions at a price somewhere between $0,31 and $0,5. Advertiser D will probably get more impressions at a price just slightly above those of B & C. Around $0,35 and $0,6. No way is he going to pay $10!

There are two important takeaways here:

• If you try to bid too low, your campaign may not get the exposure it deserves, and you won’t reach your goals. Remember, you always get what you pay for.
• Don’t worry about bidding a high amount. You’ll still end up paying the lowest amount possible in the auction to get your ads delivered.

Facebook Ads Bidding Strategies

Just a couple of years ago, life as an advertiser was simple and straightforward. You could only bid for your ads by Clicks or Impressions. With the incredibly fast evolution of Facebook’s advertising platform, however, modern advertisers have to deal with four different bidding strategies: CPC, CPM, oCPM, CPA.

The differences are often not simple to understand, so let’s do a quick recap. This picture from Facebook will help:

It’s simple, isn’t it? Let’s go through each one and try to understand when you should use them and how.

CPM Bidding

The amount you’re bidding is the maximum you want to pay to deliver 1,000 impressions of your ad to users. It’s the toughest one, and you may want to stay away from it as you could spend lots of money without any result.

Big brands may want to use CPM since it’s the most likely to deliver a lot of impressions. If you’re not really looking for specific results, but just want to create brand awareness by displaying your brand to everyone on Facebook, CPM could be a good fit.

CPC Bidding

Once the most used Facebook bidding strategy, CPC allows you to bid for clicks. This means that you’re going to pay only when a user clicks on your ads. Sounds great, doesn’t it? Your banner could be displayed 1 billion times without you paying a cent if it doesn’t receive clicks.

There is, however, one drawback. With CPC bidding, you’re going to pay for every kind of click on your ad. So, if you’re promoting an external website on the News Feed, you’re not only going to pay for clicks on your external link but also for clicks on your Facebook page name, “like”, share and comment buttons. It’s not a big issue, but a lot of people don’t like paying for 200 clicks with only 120 going towards their website.

When bidding with CPC, keep in mind one thing: Facebook, of course, wants to maximize profits. If your ad is weak and nobody’s clicking on it, Facebook will soon stop delivering it. After all, it’s more profitable for them to have a $0,1 ad that gets clicked 1,000 times rather than a $5 ad that gets clicked only 5 times. This is key for effective CPC bidding: The better your CTR is, the lower your CPC will be. In the end, a higher CTR will grant Facebook the highest revenues.

oCPM Bidding

Nowadays, oCPM is by far the most common bidding option. oCPM is a kind of strange bid. You’re not really bidding, but you’re telling Facebook your desired maximum cost for your goal’s action. The delivery of your ads will be optimized to display ads only to those users likely to complete the action you want.

When you create an oCPM campaign, you can specify what your Facebook bidding strategy should be optimized for: Website conversions, Website Clicks, Engagement, Reach, Page Likes, Mobile App installs, and so on. How effective is it? Extremely! And it’s also Facebook’s default bidding method for new ads.

Overall, when running a campaign with oCPM bidding, you can expect to have a cost per 1,000 impressions — much higher than the average CPM bidding. However, Facebook will carefully choose who will see your ads and will generate way more conversions than usual. So, while you’ll pay more to display your ads, the overall cost per conversion will be much cheaper. That’s the only thing you should care about!

You can read some advanced oCPM optimization tactics in our slides about The DO’s & DON’Ts of Facebook Ads:

CPA Bidding

Cost Per Action bidding is another recently introduced method which has proven to be really effective when you only want to pay for specific actions. It’s pretty similar to oCPM. However, instead of bidding for 1,000 impressions, you’re directly bidding for the maximum amount you’d like to pay every time a specific action is completed by a user through advertising.

For example, you can bid how much you’re willing to pay for a like on your page or for an installation of your mobile app. It really works well, and it allows for more granular control over your budget. The only drawback is that Facebook CPA Bidding is only available for a limited set of actions: Mobile App installs, Page Likes, offer claims and link click. Yes, you’ve read it right: You cannot use CPA to promote external website conversions.

A Facebook Ads bidding experiment…

Here at AdEspresso, we don’t like talking without supporting what we say with data. So, we did a little experiment and created 4 identical campaigns to drive likes to our Facebook page (you can also check out Jon Loomer experiment).

Each campaign had the same budget, ads’ design, and targeting options. The only difference was the bidding strategy used: CPM, CPC, oCPM, CPA. Let’s see how they performed using AdEspresso‘s campaigns comparison.

While this is just a small experiment with a low budget, it mirrors what we see across millions of dollars of campaigns going through AdEspresso. Let’s see what we’ve got:

• The CPC campaign generated the highest number of clicks. However, only 20% of those that clicked then liked our page.
• The CPM campaign delivered a huge amount of impressions: 316,100! However, the return was little: 2 Likes.
• oCPM, as we had imagined, was really good at delivering our ads only to interested people: With only 8,000 impressions, it set the record of 53 likes with the lowest cost per like at $0.982. Thought it had a few very expensive impressions, it was a great overall ROI.
• The CPA campaign also performed really well and lost to oCPM by an insignificant $0.073 regarding cost per like. However, it required 2 times the impressions of the oCPM campaign to achieve this goal.

Facebook Ads Bidding 101: December 2016 Update

• Conversions, which comes with the conversions objective and optimizes for those who take action; this is beneficial if you’re looking to drive sales, email sign-ups, donations, etc.
• Engagement, which comes with the engagement objective, and optimizes for those who will like, comment on, or share your ad
• Brand awareness, which (surprise, surprise) comes with the brand awareness objective, which will prioritize showing the ad to those who will pay most attention to them. They may “survey a small section of your audience” to deliver the most brand awareness
• Leads, coming with the lead gen objective, which will show your ads to those who will be most likely to share their information, and it will do so at the lowest cost possible
  

Does Optimization Affect Cost?

Here’s the thing: optimization can affect your cost, even if it’s not immediately obvious as to how and it’s difficult to track accurately. You can run the same ad, in other words, with two different optimizations, and get different costs and results.

Here’s why: the audience members who see your ads may be slightly different based on what you optimize for. Some audience members may not be as likely to take certain types of actions as others; some will always click on an ad, for example, but others will only ever comment on one. This can affect action and relevance score, which can directly influence cost and whether your ad is prioritized.

So what about CPC, CPM, oCPM, and CPA?

We don’t see the terms “CPC” or “CPM” show up on the current Facebook Ads interface. And we don’t get to choose them as freely as we did before, either. Now, Facebook is really pushing charging by impressions (or CPM, as we’re still charged per 1,000 ads). For many ads, this is the only option we’re given.

Ad types that let you choose another bidding strategy are:

• Engagement, which lets you choose Post Engagement, aka (what I’m assuming is) CPA
• Traffic, which lets you choose “Link Click,” aka CPC
• App installs, which lets you choose “Link Click,” aka CPC
• Video views, which lets you choose “10-second video view”

Factors That Affect if You “Win” The Bid

So how do you make sure that you “win” your bid, as Facebook says? There are a few factors to keep in mind, all of which influence whether or not your ad will be shown to the people you most want to see it.

These include:

• Your bid. It is an auction system; it only makes sense that the more you’re willing to pay, the more likely you are to win. If you’re going with automatic bidding, there’s a decent shot you’ll be just fine. Your bid is weighted very heavily in the bidding system.
  According to Facebook, you’re “often charged less than your bid.” While this can be a great perk if it happens to you, I wouldn’t count on it actually happening. Remember not to bid so much that the ROI of good results wouldn’t be worth what it actually costs.
• Relevance score. Your relevance score will directly affect the cost of your ad and how Facebook prioritizes it. If you have a higher relevance score, Facebook will be more likely to prioritize your ad and reduce the cost.
• “Estimated action rates.” Facebook determines your “estimated action rates” (which are exactly what they sound like) by a number of different factors. If their algorithm believes that the number of actions taken on your ad will be high, you’ll get priority in the bid war.

Final Thoughts

The basic idea of Facebook’s ad auction has stayed the same; you bid on having relevant viewers see (or take action on) your ads.

A number of factors contribute to whether or not your bin will “win” those views, and understanding both those factors and how the process works can help you get the results you want.

What do you think? Do you like the new bidding system interface? What do you optimize for? Leave us a comment and let us know what you think!

What’s your favorite Facebook ads bidding strategy? Have you already experimented with the different types of bidding?

Let us know in the comments and remember: While the data shown in this post should apply to most of you, never assume anything. Always test everything!