Understanding Facebook Ads' Bidding Platform

April 7, 2015
 Facebook Ads Bidding

Since we posted this infographic a couple of weeks ago, some of our readers have had a few questions about bidding on Facebook, oCPM and the whole works. So we thought we'd write about it.

Bidding on Facebook ads shouldn't have to be complicated. To me it still feels a little bit like gambling sometimes, but if you run Facebook ads then it is absolutely necessary. In order for you not to have to wrack your brain, we’re here to help you tell your CPC from your CPM and oCPM.

Why is bidding important?

If you advertise on Facebook, regardless of what ad creation path you choose, you will have to deal with Facebook’s auction system and compete with other advertisers for your ad to be delivered to your audience. So it’s best to know a thing or two about how it works.

It’s probably easier to use Facebook’s self-serve ad tool, which has relatively limited bidding options, instead of going full throttle and using Power Editor. However, Power Editor can give you much more control over your spend and your performance, especially if you’re running Direct Response campaigns. If you put in a little extra work (and it’s not much), you are more likely to get better returns.

How Facebook’s ad delivery system works

There are a couple of things worth mentioning before we dig deeper into the actual bidding details:

(1) Facebook optimizes your ads to show them to the most relevant people regardless of the bidding type you use. Facebook calculates the probability of an action or a click for each impression, and then tries to show the ads to those who are more likely to take action. Why? Because #profit.

(2) Besides the bid, Facebook takes past performance into account when delivering ads. All your ads are run at the beginning of your campaign, but Facebook quickly learns which ones work and which don’t, and shows the ones that don’t less often. This is why you see some ads with all the impressions and clicks, and others with practically none.

(3) Facebook has a pacing algorithm that decides how your ads will be shown throughout the day – if you bid too high or too low, the pacing won’t maximise the value you get from the ads (you’ll get low quality clicks or exhaust your budget very quickly), so it’s best to be honest about how much you are willing to bid.

What are the different bidding types?

So now that we got that out of the way, let’s look at the different ways you can bid:

  • CPC – Cost Per Click – You will be charged every time someone clicks on your ads.
  • CPM – Cost per 1,000 Impressions (1,000 is mille in Latin) – You pay for every 1,000 views of your ads.
  • oCPM – Optimized CPM - You choose an objective for your campaign and Facebook optimizes the delivery of your ads to meet your objective.

CPC and CPM are the two standard ways of paying for online advertising, and are quite straightforward.

For CPC you set how much you’re willing to pay per click, and Facebook charges you each time someone clicks (never going over your maximum bid.

For CPM, you decide the maximum you are willing to pay for people to see your ads regardless of how many times people click. This can also mean that you might get fewer clicks.

Optimized CPM is similar to CPM, but you don’t set a bid – you set the value that the objective is worth to you. For example, if you’re running a campaign to get more page likes, set that as the campaign objective. If you want to use oCPM and each Page Like is worth $2 to you, then set the value at $2 and Facebook will decide what the best bid is to get more users who are likely to convert (to like your page). This way you don’t have to worry about how much you bid.

You can use oCPM to optimize for Clicks, Reach, Social Impressions or Actions. We think Actions are what oCPM should be all about (we generally run Facebook ads for conversions), so we don’t really use the other three.

oCPM challenges

oCPM might seem ideal to most people, but naturally there’s a catch: it doesn’t always work if your target audience is smaller than 500,000 or if you don’t have many conversions per day (fewer than 50-100). Also, if the value you set is too low, Facebook won’t be able to choose the right bid to get those likely converters.

Additionally, if you’re an e-commerce business running Facebook ads for website conversions, oCPM won’t work if you don’t have a Facebook Conversion Pixel installed (good news: they are quite easy to install!).

So when to use CPC bidding?

 Clueless dog

                ...said everyone who has ever run Facebook ads.

Sorry to disappoint, but NO ONE KNOWS! The key to successful bidding is testing to see what works and what doesn’t, but here are a few suggestions to start with:

  • When you have few ads and a limited budget, and you want to minimize the risk – but be honest about the maximum you are able/willing to pay per click, because most often than not, that is the amount you will pay.
  • When your goal is website conversions, but you haven’t installed Conversion Pixels.
  • When your audience is below 500,000 or your ads generate a low daily conversion volume.
  • When you have something specific to promote (a product, an event) to a relatively limited audience.

And when to use CPM bidding?

  • If clicks are not that important to your campaign objectives.
  • If you just looking to create brand awareness and to keep your brand/event/product name out there.
  • If you’re using Website Custom Audiences. When your Website Custom Audience grows large enough, then you can move to oCPM or CPC.

What about oCPM bidding?

  • When your audience is larger than 500,000 and your goal is a specific action or type of engagement (Page Like, App Install, Website Conversion, etc).
  • When you have frequent conversions.
  • If your goal is Website Conversions and you have a Facebook Conversion Pixel installed.

Don't forget:

  • The key to success in Facebook ad bidding is trial and experimentation. What might work in some cases might not work in others - we’ve seen companies using oCPM successfully regardless of audience size.
  • Don’t try to cheat the system – if you bid too low, you’ll get low quality clicks. Bid your true value!
  • Keep track of your CPA (Cost per Action).