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Why Should You Use Bid/Cost Caps In Your Facebook Campaigns?


When it comes to scaling ads and maximizing ad performance, different advertisers swear by different strategies and optimization methods. One controversial but very important topic on Facebook Ads is manual bids (recently renamed to bid/cost caps). Should you set your bids for your campaigns or let Facebook fully optimize the delivery and cost per result on your behalf? 

One of the greatest advantages of being an auditor is that I get to see thousands of different campaigns and how advertisers manage them. One very common misconception that I come across is the use of cost controls. To my surprise, a growing number of large-scale advertisers use automated bids and refrain from using bid caps. Instead of setting bid caps, they limit campaign or ad budgets to “control” their cost per result.

 

 Before I go more in detail, let’s look at Facebook’s bidding options and definitions

Cost Control

First, let’s compare the difference between using cost controls vs. no cost control. The default option when creating an objective cost campaign is the lowest cost (no cost control). What this means is that you are telling Facebook to get you the lowest cost possible for conversion regardless of your goals or margins. Facebook will look first for the cheapest opportunities in every relevant market and will bid for you in the auction to achieve the lowest cost possible. Let’s say that today, demand is low and a conversion might cost you two times the price it cost three days ago. Facebook will still deliver your ad in hopes of getting a conversion. Using the lowest costs is like telling Facebook to get you a sale no matter what, at any cost. It doesn’t factor in your actual goals or possible margins for advertising in your business model. It simply looks for auctions with potential and bids in a way to get the lowest cost within your potential market. 

Theoretically speaking, If Facebook would predict that based on your targeting, 5000 people might be potential buyers, it will segment them based on costs and will target the ones who might convert at the lowest cost possible. That’s what lowest cost means. On the other hand, when you use any type of cost control bid, you are telling Facebook what your goals are and when to participate in auctions. Why is this so important? If Facebook won’t predict that it is able to deliver your ads while achieving your bid caps, it will limit delivery of your ads, which is the whole point. If lowest cost (no cost control) tells Facebook to deliver ads at all times and just get me the lowest cost per conversion you can, using cost control (bid caps) tells Facebook to only deliver when it estimates it will get you a conversion for your desired cost. What will happen behind the scenes is that Facebook will estimate based on your pixel data and conversion rate, how many impressions you will need to get a conversion. Then, based on that estimated rate, it will use your bid cap goal as a reference and will only participate in auctions that are likely to deliver results within or near your goal. 

Using cost controls (bid caps), you are able to use large campaign budgets with a more restrictive spend approach.

The main benefit of using bids caps is that you can work with higher campaign budgets that reach their full budget only when you get desired results. Unless there is a glitch in delivery, normally Facebook will only spend your budgets when it predicts it will be able to get you the goals you set. With no cost control (lowest cost), Facebook will most likely always deliver your full budget, because it’s not factoring in your desired cost per conversion. One fundamental mistake that I often see in campaigns is that advertisers abandon the cost control methods. Instead, to ensure their spend will be in control, they create many different small campaigns all with small budgets in an effort to create a more steady and scattered spend across campaigns. This is fundamentally wrong because the algorithm works best when it has a lot of data. Without going into much detail since it’s a whole different topic, it’s better to have a few campaigns with a lot of conversions than a lot of campaigns with few conversions. 

 

Using cost control requires data and past conversions.

In order to be able to use the cost control effectively, you need to have enough past conversion data. The conversions need to be for the same event that you are optimizing for (sign up, purchase, leads, add to cart, etc.). This is because the bid cap works off previous data. It doesn’t have to be from the same campaign, it can be from other campaigns or pixel data on your website. The way it works is that the algorithm will learn from previous data who your potential audience is, what the estimated conversion rate will be, and which bids to use across your campaigns to achieve your desired results. 

This is why advertisers with new ad accounts struggle to get results with bid caps. The algorithm has very little data to work with. If your account is completely new and you have few or no conversions, you will need to start with no cost controls initially and switch once you get some conversions. Working with cost controls when you have no data is pretty much the same as working with not cost control. The ideal number to use cost control bids are when you have at least 50+ conversions per week. It can work with less as well, but this is the starting number you should aim for. 

 

What’s the difference between the types of cost controls and which should you use? 

It will be a waste of time if I explain each cost control options in detail as Facebook explains it better here on their guide. Currently there are three different cost controls. Bid cap, cost cap, target cap. With cost cap, you are telling Facebook that you never want your cost to be higher than a specific price. In this method, you can expect your cost cap to be very close to the actual results you are getting. This means that if you tell Facebook your cost cap is $20, it will aim to keep the cost per purchase at or under $20. Some conversions might be higher than $20, and some lower than $20, but your overall cost should be up to $20 cost per conversion. 

With bid caps, on the other hand, Facebook will not bid in an action higher than your bid cap. So in this case, if your bid cap is $20, it will never bid more than what it predicts for you to get a $20 cost per conversion. In other words, if it doesn’t think it can get a cost under $20 per conversion, it will not participate in the auction. You can expect a lower cost per conversion, but more work in adjusting bids to get more delivery. 

Target costs are more aggressive and are meant for larger campaigns that want to scale. Facebook will always bid around your cost and will maintain an average cost close to the goal that you set. The disadvantage of target cost is that you will miss the low-cost conversions that bid cap/cost cap can deliver, but you will receive more conversions and higher volumes in terms of delivery. Essentially it’s an aggressive bidding approach designed to give higher volumes for advertisers and bid more aggressively in auctions, thus paying a higher price per conversion. I personally work more with bid caps as their overall results perform better. They do require a little more work in terms of adjusting bids, but the outcome is better.

 

In summary

The topic of using cost controls (bid caps) vs. no cost control (lowest cost) has been long debated among advertisers. Some swear by using automated bids, while others claim to perfect manual bidding. The use of cost control allows you to tell Facebook what your goals are and how much you can spend per conversion to be profitable. This information is used to dictate  which auctions you participate in and is designed to align your delivery based on your campaigns’ performance. To learn the difference between cost controls, you can refer to the full guide provided by Facebook. I personally recommend using bid caps as performance is more reliable and ROAS tends to be better. 



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