Behind The Scenes: Facebook Auctions

Ever wondered how the price of your ads is determined? If you have been advertising on Facebook Ads, you’re probably aware that you are billed based on every 1000 impressions. Meaning, regardless of how many clicks, likes, comments, or purchases you get, you will still be billed by impressions. The real question is, how are the costs of impressions determined? 

On Google, we know that the price per click depends on which keywords you are targeting and is based on competition. The more advertisers are willing to pay for a keyword, the higher the cost will be. Similar to Google Ads, Facebook also uses an auction bidding system to determine the cost per impression. The main difference between Facebook and Google’s auction systems is that on Facebook you can’t bid on specific keywords. Instead, you bid on showing 1000 impressions to a specific group of people (Facebook calls them audiences). Also, on Facebook we can’t specify the exact group of people we want to target. Google gives us the option to target based on the exact search terms we want, while on Facebook we have to trust the algorithm to find relevant audiences.

Facebook lets you target audiences based on possible interests, behavior data that is purchased from third parties, demographics, geo-location, and the use of lookalikes (an algorithm used to find similar people to your customer list or data list). Because of Facebook’s recent privacy changes, you can no longer upload a small list of people and target them specifically. Even if it’s your customers, you will need to have a minimum of a thousand matched people to target them. 

Facebook wants to have full control of which audience to target as they believe they are better at matching your product with the relevant audience and can do so in a more cost-effective manner.

This means that targeting and audience selection is at least partially automated at all times. So if they control targeting, they can also control the amount of competition, right? Theoretically, they can push more advertisers towards the same audience groups only to artificially increase the price for ads. While this is a valid point and should be examined, think of it from Facebook’s point of view.

Their goal is to help advertisers succeed and maximize their performance so they continue to spend money on your platform while keeping the ads as relevant as possible for their users. Why would they double your prices? Their goal is to get as much money as they can from you in the long run while creating a fair bidding system for advertisers that will dictate the price of impressions. The more advertisers who want to reach a specific group of people, the higher the price of impression. They work to facilitate the bidding system to ensure advertisers have an equal chance of participating in auctions and will weed out the advertisers who violate their policies.   

Below you will find an official explanation about the Facebook ad auctions:

WHAT ARE FACEBOOK AUCTIONS?

Facebook uses ad auctions to determine the best ad to show to a person at a given point in time. The winning ad maximizes value for both people and businesses. Understanding the ad auction can help you understand your ad performance.

WHEN DO AD AUCTIONS TAKE PLACE?

Each time there’s an opportunity to show an ad to someone, an auction takes place to determine which ad to show to that person. Billions of auctions take place every day across the Facebook family of apps.

HOW IS THE WINNER OF THE AUCTION DETERMINED?

To ensure that the winning ad maximizes value for both people and businesses, the winner of the auction is the ad with the highest total value. The total value is a combination of three major factors:

1. Bid – the bid placed by an advertiser for that ad (in other words, what the advertiser is willing to pay to achieve their desired outcome). That bid is then used to predict how many impressions would be needed based on your CTR and CVR on your website. Then, your bid per 1000 impressions would be calculated based on that. 

2. Estimated action rates – an estimate of whether a particular person engages with or converts from a particular ad. In other words, how likely is a user to reach the outcome the advertiser is trying to achieve? 

3. Ad quality – a measure of the quality of an ad as determined by many sources including feedback from people viewing or hiding the ad and assessments of clickbait, engagement bait, and other poor user experiences. For more information on how Facebook measures ad quality, see Avoid Creating Negative Experiences for People Who See Your Ads.

Together, estimated action rates and ad quality measure ad relevance, which impacts your likelihood to win an auction. The most interesting part about auctions is that Facebook subsidizes some of the auctions for advertisers who have a higher quality of ads. If advertiser A is willing to pay more than Advertiser B, but Advertiser B has higher quality ads with more engaging content, Advertiser B might win the auction. Competition is the main reason why you see such a difference in CPM prices between targeting countries like the US and targeting countries in Africa. The less competition an ad placement you have, the lower the prices. 

WHAT CAN YOU DO TO HELP YOU WIN MORE AUCTIONS?

1. Use high quality and original images. Facebook favors original content and can easily detect which image is not unique. 

2. Use a clear copy that resonates with the landing page. The copy on your landing page should resonate with your ads.

3. DON’T use engagement bait copy that uses spammy content. 

4. Refrain from using landing pages with pop-ups and a lack of original content.

5. Don’t use a lot of text in your creatives. You have a place to write text above the image. 

6. Ensure your conversion rate on your website is decent. Facebook will label your ad as a poor user experience if it’s not able to deliver your objective as it will suspect that it’s not relevant to the users. 

7. Ensure your ads comply with the FB ad policy.

8. Ensure you don’t have a lot of disapproved ads in your account. Disapproved ads can lead to penalties in auctions as your ads may be listed as being low quality or a violation of policy.

9. Ensure your bids are in line with your actual goals. Don’t use bids that are not just for the sake of trying to get impossible conversion costs.

10. Use a lot of videos and slideshows in your ads as they tend to get ranked higher as they are more engaging than ads. 

IN SUMMARY

Every day, advertisers are participating in billions of auctions on Facebook to determine who showed their ads on Facebook and at what cost. Unlike Google, where you can bid on specific keywords, on Facebook, you bid per audience. Unless you are targeting a large list of customers, exact targeting selection will be automated by Facebook in a way that will be in line to best reach your goals. Facebook favors ads with high-quality content and high relevancy rate over advertisers with poor user experience. Ensuring your ads are highly relevant and engaging will aid in winning more auctions at the best price possible.