Facebook ad auction and delivery are unique in that they need to find a thin balance between users and advertisers.
Its key to understand how the Facebook ad auction and delivery methods work as it can have huge impact on your ads.
Their primary priority is to provide an awesome experience to all of Facebook and Instagram’s end users. But they also need to maximize value for all advertisers without making the end-user experience sloppy.
Hance, Facebook auction system.
The winner is the one that provides the maximum value for end users.
The biggest difference than a traditional auction is that the winner is not necessarily the one who bids the highest, but the advertiser who publishes the ad that can maximize end-users value.
How does the Facebook ad auction work?
In order to find this balance, Facebook uses a Vickrey-Clarke-Groves auction.
In Facebook auction, you will be competing against thousands of advertisers worldwide. They are all competing for one thing.
Facebook’s users time and space.
End-users space on the News Feed, Messenger, Audience Network, Video Ads and mobile apps. It’s just like a normal supply and demand function.
The more advertisers competing for your time (demand), the more expensive it will become. So the person willing to pay the most will get most impressions.
As Tao Xu answered in Quora post “Facebook auction is incentive compatible, bidding truthfully is the dominate strategy.”
What factors determine the winner of a Facebook auction?
1. Your Bid
Just like any other auction, the more you are willing to pay for your ads, the more likely your ad will be shown.
2. Relevance Score
The relevance score of your ad will directly affect the cost of your ad. The higher your relevance score, the more Facebook will prioritize your ad; hence, the cost of your ad will be lower.
3. Placement or expected action rates
This is how Facebook expects your ad to perform based on actions from your target audience. Also see How to find your ideal Facebook audience size?
- Expected clicks
- Expected engagement
- Expected positive feedback
- Expected negative feedback
- Conversion rate
Depending on the type of ad, the expected action rate can be used as eCPM, eCTR or eCVR. See more info below on bidding types.
Total Bid => eCRM + Ad Relevance Factors
This expected action rates is based on your ad history, ad set history, campaign history, user characteristics, page type and activities specifically optimized in the ad.
Buying Types
There are two ways in which you can big or purchase ads from Facebook.
“Auction” which is normally used by most advertisers and “Reach and frequency” which is used more for branding purposes.
Also see Everything you need to know about the Facebook Brand Lift Study if you are doing more branding advertising.
There is also a third option only opened for certain advertisers and needs to be purchased through your Facebook Account Manager.
What’s the difference?
1. Reach and frequency
With the reach and frequency, you will accurately plan and deliver campaigns with predictable reach and controlled frequency. Also order of the ads. Schedule ads during most impactful times.
2. Auction
With auction, you will reach audiences most likely to react to content.
Takes into account: bid, likelihood of driving desired outcomes, site performance, ad quality and relevant ad to target audience.
3. Target Rating Points (TRP)
TRP allows TV buyers to purchase ads in their own currency; a way to provide predictable delivery and measurement in terms of TRPs verified by Nielsen.
Advertisers are able to measure impressions as a percentage of the target population for a campaign. They are core and similar with how TV ads are purchased and measured by Nielsen Digital Ad Rating.
Terminology
Before going into details, I want to lay out the terminology for this post in case you are wondering what each acronym means.
- CPC: Cost per click
- CPM: Cost per mile
- CTR: Click through rate
- CPA: Cost per action
- eCTR: Expected click-through rate
- eCTV: Expected click-to-conversion rate
- eCPM: Expected cost per mile
- oCPM: Optimized cost per mile
How is the bid calculated?
Facebook bidding follows this general formula:
- Total Bid => eCRM + Ad Relevance Factors (expected engagement, expected positive feedback, expected negative feedback)
However, depending on how you optimized your ads, the formula will change and be adjusted to that payment optimization option.
1. CPC => Cost per Click
You are paying for every kind of click on your ad.
Not just clicks to website but all engagement (likes, shares, etc). The higher your CTR, the lower your CPC will be.
- Total Bid = eCPM x Relevance Factors
- Total Bid = [(CPC Bid) x (expected CTR or eCTR) *1,000] + Ad Relevance Factors
2. CPM => Cost per Mille
You are paying for every time your ad is shown to users.
You may want to stay away from it unless you are looking to maximize reach and your primary objective is branding. Otherwise, you could spend a lot of money without getting any results.
- Total Bid = eCPM x Ad Relevance factors
- Total Bid = (CPM Bid) + Ad Relevance Factors
3. oCPM => Conversion
With oCPM, you are allowing Facebook to automatically optimize for your campaign goal:
- Website conversions
- Engagement
- Website clicks
- Reach
- Page likes
- Mobile app installs, and so on.
Your overall display cost will be higher, but your overall cost of conversion should be cheaper and with higher results. Facebook will deliver your ads to those users who are most likely to complete your desired action.
- Total Bid = eCPM x Ad Relevance factors
- Total Bid = (oCPM Bid) x (eCTR x Conversion probability, or eCVR) + Relevance factors
What should you know for the exam?
- Understand how Facebook auction works.
- Know the difference between the three different types of bidding.
- Understand how Facebook calculates the bid of an ad.
- Don’t memorize the formulas but know the logic behind them.
Facebook auction has stayed the same over time; however, some changes have been made in the number of options allowed within the platform.
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