Cost Controls Vs ROAS Optimization For Facebook Ads
Updated: Sep 8, 2023
If you are advertising on Facebook, you are probably aware of the challenges of ensuring your campaigns stay as profitable and as efficient as possible. If you read my previous blog posts, you know that my marketing approach is extremely product-focused. Invest heavily in your product creatives and presentation and focus the majority of your time on improving your website experience and ad creatives, while leveraging the machine learning of Facebook’s ads algorithm to automate and handle performance. That being said, other factors can contribute to more efficient performance and better ROI.
The use of cost controls (bid caps or cost caps) is the most widely used optimization feature among advertisers. I wrote a dedicated blog post about the benefits of using cost controls. Aside from cost control, Facebook ads offer selected advertisers an option to optimize by highest value or a minimum ROAS (return on investment goal) on their campaigns. Essentially what it means is that instead of focusing on getting you a conversion for a specific cost, Facebook will expand the opportunities and will focus on targeting users who are likely to spend the most money, which means that the ROI will be greater. Sure, your cost per conversion might be higher, but what difference does it make if you end up making more profits (greater ROAS)?
Let’s quickly examine all optimization methods for conversion objectives campaigns available on Facebook’s ads managers.
OPTION 1: HIGHEST VALUE OR LOWEST COST
Get the highest volume of results or purchase value for your budget.
This option is also known as the lowest cost optimization method. What it means is Facebook will try to get the lowest cost per result regardless of your goals. It won’t factor in your ROI goals and will simply aim to get the lowest costs.
In this option, you have two sub-options to select from:
Optimize by value.
As the image below illustrates, instead of just looking for the lowest cost, Facebook will search for the users who are likely to spend the most. Again, maybe it won’t be a high enough ROAS to meet your goals, but it will aim to find the highest spenders in your current audience targeting.
Optimize for conversions.
In this option, Facebook will simply aim to get the most conversions for the lowest cost. Instead of focusing on bringing in top spenders, it will search for the lowest cost of conversions available. It might not be a low-cost conversion for your business, but it will be based on what’s available on the market.
2. COST CAP, BID CAP, AND TARGET COST.
These three options work in similar ways:
Cost cap is like an average cost per conversion over the life of the campaign. This means that bids conversions will be sometimes above and, at other times, under your target but it will remain within or under your target on average. The difference between cost cap and target cost is that, in the cost cap method, it will first look for the cheapest options that are below your target goal and only then when it can maximize those opportunities. If Facebook doesn’t find such opportunities at the lower cost it will start working up to more expensive opportunities while staying within your target bid.
Target cost means that it will stick to your bid cap and will deliver results that are within your target goal. Even if cheap conversion opportunities are available, it will keep bidding with the same target goal regardless, to maintain the average cost of your target bid over the lifetime of the campaign.
Bid caps are the more conservative way of bidding. With bid caps, Facebook won’t try to achieve an average cost per result, it will simply never bid higher than your target bid cap. In this method, cost per result tends to be lower than your cap, however, the volume can be limited. This method is used mostly by advanced advertisers. If you want to learn more about how to use bid caps, you can read this post.
3. MINIMUM ROAS
Like it sounds, minimum ROAS only delivers your ads if it predicts it can meet your ROI target. For example: if your target ROI is 2X, Facebook will only deliver your ads when it predicts it can deliver results that will meet that. The cost per result might be higher than regular conversion optimization, but what matters here is your ROAS, which will likely be better as your ads are targeting higher spenders within your audience targeting group. But if you think about it, what does it matter what your cost per conversion or cost per click is? All that matters is your return on investment.
WHEN CAN YOU USE THE VALUE FEATURE OR MINIMUM ROAS?
Unlike the default conversion option, Value or minimum ROAS doesn’t become available in your ad account right away. It’s a feature that becomes available once you have enough conversions in your ad account because it uses machine learning to predict how much a person will spend on your business over 7 days. It’s not enough to just randomly target higher spenders on Facebook because it’s all relative information and someone who might spend more on one website, might spend less on another. That’s why it’s based on your data from your store and uses a wide range of values from your orders to understand the difference in the average order value so it can distinguish your low to high spenders.
You need to have an active Facebook pixel that:
Sends and optimizes for Purchase events
Has generated 100+ optimized purchases
Has at least 10 distinct values over a 28-day window (cumulative purchase values)
Note: Access can take up to one week from the time the pixel, SDK, or product catalog is eligible as the system takes time to recognize conversions coming through.
HOW TO CHOOSE BETWEEN USING COST CONTROLS AND ROAS OPTIMIZATION
Now that we have covered the basics, here comes the hard part. How do you know which optimization method to use? Aside from trying to figure whether to use cost control and when, you now have to figure out when to use ROAS as well, which can be challenging.
When ROAS optimizations first launched, performance using this feature was extraordinary. Almost every campaign that used ROAS instead of regular conversion optimization experienced a lift in performance. It got to a point where it was reported that large advertisers who were surveyed said that about 50% of their campaigns were using ROAS optimization. This caused a domino effect where more and more advertisers shifted to ROAS optimization and it centered more demand for specific audience groups which in return increased CPM prices which led to decreased performance.
Long story short, after about 2 years, regular conversion optimization still seems the more popular choice where a value campaign is used and tested among more selected top-performing campaigns. Note that even though the regular conversion optimization method is used more often, value still holds a massive share of the daily ad spend as it is usually implemented on larger campaigns because it seems to work best with campaigns that have flexible and large budgets as well as a large number of conversions on the campaign level. Nobody likes to leave money on the table, so it’s important to make sure that you find a way to leverage all of the optimization tools available on Facebook ads.
HOW I USE ROAS OPTIMIZATION IN MY FACEBOOK ADS.
Below are the ways that I use ROAS optimization in my ad accounts.
NAMING CONVENTIONS
If you are not working in an organized manner, you will never be able to properly manage and analyze your campaigns and get actionable insights out of the data.
Now, since most campaigns use CBO (campaign budget optimization), you are forced to select your optimization method on a campaign level. Before the CBO era, you could have one ad set using minimum ROAS and one using regular bid caps. Even then, I always separated them on a campaign level. To have clear data, I use a simple naming convention for ROAS and regular conversion campaigns so I can see the difference in performance on an account level.
Understanding the difference on an account level allows you to understand which method works better across the board and, therefore, you can better manage and adjust your strategy to make things as efficient as possible.
For example:
Campaigns that don’t contain value campaign.
By using proper naming I can filter, with one keyword, campaigns that use Value or ROAS optimization and campaigns that don’t and then compare their overall spend and results.
Here we can see results that contain campaigns with value.
MINIMUM ROAS FOR TOP CAMPAIGNS
Because ROAS optimization doesn’t have the steady results as optimizing for conversions do and I want 2 separate campaigns for each new campaign launched, I leave ROAS for the top campaigns. I usually take the top 25% of my campaigns and duplicate them with the minimum ROAS optimization. These campaigns will have large budgets and generate a lot of conversion data fast which will, in return, perform better.
Using the ROAS optimization method will deliver a higher ROAS than regular conversion campaigns.
The reason I don’t take the top 25% and change existing large campaigns from optimizing conversions to optimizing for ROAS is that it will reset the data and learning phase of the campaign. By duplicating instead, I will have one campaign that will search and focus on generating conversions for a specific cost and another campaign that will focus on generating the highest return on investment.
Normally, the setup across my campaigns looks similar to this.
SELECTING THE RIGHT TARGET ROAS BID
For ROAS optimization to work, the target bid that you select plays a huge role. An important thing to note about bids, in general, is that they do not guarantee results. The bids for conversions or minimum ROAS of your campaigns is simply a reference to tell Facebook what your goals are so it can aim to deliver your ads in a way that will meet those targets.
Your minimum ROAS bid on Facebook should be about 10-20% lower than your actual ROAS goal. For example: If you are profitable with a ROAS of over 2X ( $2 of revenue for $1 of ad spend), set a target of 1.8-1.9X. The reason being that the Facebook pixel is usually able to track and attribute 85-90% of the actual conversions it generates because of tracking limitations and when setting a lower ROAS goal you will open your ads for a larger audience and get more delivery.
If you set an ROI of 5X when you normally get 2X on your ad account, your ad will get little to no delivery. Also, it’s important to understand that this target goal IS NOT BASED ON DAILY RESULTS. Facebook has limited accuracy when you analyze results daily as cost per impressions depend on market demand and it can dramatically fluctuate in a matter of hours.
However, the algorithm learns and becomes smarter and readjusts its bids and delivery every day based on previous days. If, for example, the results today were higher than it predicted and it ended up not meeting your target ROI, tomorrow’s bids and delivery will be adjusted. If you run value or minimum ROAS campaigns, DON’T analyze your campaigns based on 1 day. Look at least 5-7 days worth of data and understand that your target ROAS on the campaign is optimized based on lifetime results.
If your results based on 5-7 days of data are bad, you can consider adjusting or stopping the campaign, especially if you lose money. Just know that the algorithm works based on longer time frames and is set to meet your goals over the lifetime basis of your campaign.
IN SUMMARY
When it comes to advertising on Facebook, you want to make your campaign as efficient as possible while giving you the best return for your investment. Cost control optimization is great if you are after value rather than ROI and you have a more flexible budget. If you are wanting a better return on your ad spend then minimum ROAS is the way to go. However, minimum ROAS is slower at producing actionable results than other cost methods due to Facebook’s algorithm requiring at least 7 days of conversion data from your website before you can make any meaningful decisions about the results of your campaign. Whichever method you choose to go with is a matter of the end goal of your campaign and how you want to best use your ad spend.
