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Facebook Auction Insights | In-depth Guide

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Facebook Auction Insights

In-depth Guide

Level – Advanced

Bidding and online advertising go hand in hand. Google Ads has its own bidding methodology and so does Facebook – The two biggest online advertising platforms. Most of the Facebook campaigns usually underperform. The reason being –  marketers do not know which factors to focus on when creating a Facebook campaign. If the core concepts of Facebook ads are mastered only then would the campaign show some exciting results. Most of the marketers have overlooked the core concepts of the Facebook auction – the core crux of Facebook advertising.

This blog sheds light on Facebook auction and bidding methodology in detail. 
Read on!

What is Facebook Auction?

Facebook wants to show the most relevant ad to the most relevant audience in order to add substantial value to the advertiser in terms of conversions as well as to the audience in terms of the contextual content that they are exposed to. There are millions of advertisers trying to reach out to the same potential audience through their ad campaign, but only a few ads are actually served to the audience. Now, in order to determine which ad is served and which ad isn’t served – a Facebook auction takes place, wherein the advertisers put forth their bids and Facebook then takes the final call on the auction winner on the basis of several factors.

There is an interesting question here – how does Facebook actually decide which ad to be served and which ad shouldn’t be served?

Find the answer below.

How does Facebook determine which ad to show?

 

Facebook determines which ad to be served on the basis of an auction. Now the Facebook auction has a few terminologies that you need to be aware of in order to fully understand how the auction works.

[Advertiser Bid] x [Estimated Action Rates] + [User Value] = Total Value

Now, let us break this down.

Each ad that the advertiser is willing to show is given a “Total Value.” The ad with the highest Total Value will be declared the winner of the Facebook auction and therefore would be eligible to be shown to the audience.

The relevant question here would be – what exactly is Total Value and how is it calculated?

What is Facebook’s Total Value?

Total Value is basically a numeric value. This value is calculated using several factors that include the bids submitted by the advertiser when setting up the ad campaign, Facebook’s predictions about how the target audience will react to the advertiser’s ad, and how relevant is the ad to the advertiser’s target audience.

Formula –  These are the most important factors.

Below is an overview of the formula Facebook uses to determine which ad wins the auction:

[Advertiser Bid] x [Estimated Action Rates] + [User Value] = Total Value

Advertiser bid:

 

The advertiser needs to tell Facebook about the amount that he is willing to spend for the advertising.  The advertiser is also required to choose a bid strategy.

You have two bid strategies on Facebook – The Lowest Cost bid strategy and Target Cost bid strategy. Advertisers would be required to include a bid cap for Lowest Cost bid strategy. A bid cap is usually used to set a hard upper limit to your bids and therefore, the bid cap restricts the ad spending. You may also choose the target cost for the bidding strategy Target Cost, where you explicitly instruct Facebook to keep the spending around the target cost and not go beyond it. If you choose Target Cost, Facebook will ensure that it doesn’t spend more than 10% extra of the bid amount that you have slated.

Estimated action rates:

 

 

The advertiser always wants the people in the target audience to take some action after they are served with the ad. The probable actions could be clicking on the ad and then landing on to the advertiser’s website or  installing the advertiser’s app. 

Estimated action is a metric decided by Facebook. Facebook uses machine learning and various other signals that includes – previous actions taken by the  given person, the advertiser’s historical ad performance, etc. in order to predict how likely a given person is going to take an action.

User value:

 

Facebook has its eyes on its users. User value is another metric that is added to the advertiser’s bids and the predicted user engagement with the ad. User value takes into account ad relevance and ad quality. The more relevant your ad is to your audience, the more likely it is deemed to be competitive in ad auctions and is touted to perform better.


User value is about creating the best and most interesting experience for people across Facebook. Facebook determines whether someone would want to see your ad, let alone interact with it. User value captures things like ad quality, expected positive and expected negative engagement from the people in your target audience, and post-click experience.

Facebook always converts the advertiser values [Advertiser Bid + Estimated Action Rates] to an effective CPM (eCPM).  This is does to allow Facebook to rank ads with different optimization goals and bids.

Please note:  CPM is Cost per 1,000 Impressions — the total amount spent on an ad campaign, divided by impressions, multiplied by 1,000. (Formula)

Ad quality: 

 

 

Factors such as the ad relevance, advertiser’s ad copy creative and landing page experience, play a huge role in determining the ad quality. Facebook clearly states – For example, if your ad has gotten lots of negative feedback, that can decrease its total value. Or, if the person has a history of being interested in what you’re advertising, that can increase its total value.

Relevance score:

 

 

 

Facebook assigns a relevance score to your ads.

Facebook determines the relevance score of your ads on one basic premise i.e do people find your ad to be appealing enough? The answer to this question is determined by Facebook after vetting your ad copy.

The relevance score is given on a scale of 1-10. 1 being the lowest relevance score and 10 being the highest. If the ads have a higher relevance score then they are observed to be performing extremely well. The relevance score can be seen by the advertiser once his ad has hit 500 impressions.

User value takes into account – relevance and ad quality. The more relevant your ad is to your audience, the more likely it will be more competitive in ad auctions as well as perform better.

The relevancy score is calculated on three major factors

  • How well your ad is performing
  • Positive feedback (for example, app installs, clicks, video views) we expect from people who see advertiser’s ad
  • Negative feedback (for example, Someone clicks “I don’t want to see this” on advertiser’s ad)

P.S: Note that Facebook uses user value, not the relevance score in calculating total value.

Endnotes: It is extremely important for the advertisers to understand the core concepts of the Facebook auction in order to ace the Facebook campaigns. If the given factors are looked upon with serious intent, then the advertiser would be able to get more out of his Facebook ads.

I hope all the marketers out there apply the learning to their Facebook campaign. If you have any doubts or clarifications then please do leave your comments below. 🙂

Until next time!

A.

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