Using Facebook’s Ad Auctioning Algorithm To Succeed Across Facebook

Introduction

When advertising across Facebook and Instagram, it is important to understand how the backend of Facebook works, so that you can use this to your advantage in succeeding across Facebook & Instagram ads. 

One of the most important things to understand in the backend of Facebook is the concept of ad aucitioning. This will completely change how you think about advertising across FB & IG. 

What Is Ad Auctioning? 

Campaigns on Facebook have a certain structure to them. Explaining this structure will help us explain how ad auctioning works, so this part is important. 

Campaigns are structured in the following way, from top to bottom: 

• Campaign objective and settings
• Ad set (audience settings, placement settings)
• Ad (copy and graphics/video to be used)

In the ad set stage, your audience is chosen. Within a campaign, you can have several ad sets, and thus, several different audiences. Right before your ad is delivered to the public, ad auctioning takes place between your ad and other advertiser’s ads. However, this auctioning takes place at the ad set level, not the campaign or ad level. The audience settings and placement settings you have chosen will determine which advertiser’s you are competing with in an auction. This means that you won’t necessarily be competing with advertiser’s in the same industry. 

An ad auction is essentially the stage or point in time where your ad competes against another advertiser’s ad. By understanding what Facebook looks for in deciding the winner in an auction, we can better plan our efforts to succeed in achieving lower cost per acquisition and lower cost per result. This is because Facebook’s main aim, unlike other advertising platforms such as Google, is to deliver the best possible ad to the user who will best receive that ad, for the lowest possible cost. This is a complete contrast to CPC advertising across Google Paid Search where you compete based on bids and price, and higher competition drives higher prices. On Facebook, higher competition doesn’t necessarily drive higher prices. In fact, because of the way auctioning works, higher competition means there will be more value for users, which means costs for advertisers will be lower, since Facebook works on a user-value based system, and awards advertisers providing the highest value for their users. 

Let’s get into the ad auctioning formula and how you can use this to your advantage to succeed across Facebook & Instagram ads. 

Auction Formula

The formula that determines the winning ad in an auction is written as: 

[Advertiser Bid] x [Estimated Action Rates] + [User Value] = Total Value. 

The ad with the highest total value in an auction will win, and will generally pay less for an impression the more valuable their ad is to the user. Can you now see how higher competition will result in higher value for users as advertiser’s compete to create better ads, which will result in lower costs for advertiser’s? 

This is one of the reasons I believe Facebook Ads will become better, not worse, as it becomes more saturated. 

Let’s now define each of the terms in the auction formula so that we can begin to understand what we can control to ensure we have a better chance of winning auctions. 

Advertiser Bid

When you advertise across Facebook, you must choose a specific bid strategy to use. Facebook will bid for you, according to the settings you have chosen, which will impact how, when and who you compete with in the ad auction, which obviously will have an impact on  your results. 

There are two main bid strategies you can choose from: 

• Lowest cost bid strategy: this tells Facebook to aim for the lowest possible cost per optimisation event (which could be a purchase, landing page view etc depending on your campaign objective and ad set settings). 
• Target cost bid strategy: this tells Facebook to aim for the average cost to be within a 10% range of the cost control you enter. 

Using the first option will result in your cost per event fluctuating more, which also means that it’s easier to win in the auction stage because you aren’t adding any cost control measures and instead allowing Facebook to be flexible in delivering your ad at different costs. 

Using the second option will result in a tighter and less fluctuating cost per event, however, you may lose out in some auctions due to this. 

You need to decide what is important; winning as many ad auctions as possible or achieving events within a specific cost range per event. The answer you choose should be dependent on your business needs. 

Estimated Action Rates

Each ad has an optimization event, often an action you want a person to take, such as clicking to a website or installing an app. Estimated action rates represent how likely Facebook thinks someone is to take that action.

Facebook bases their estimates on the user’s previous actions and your ad's historical performance data. This helps Facebook deliver your ads to the people most likely to give you the result you care about.

Regardless of which action you choose to optimize for, Facebook converts all advertiser values to an estimated CPM (eCPM) to allow Facebook to rank ads with different optimization goals and bids. CPM is cost per thousand impressions: **the total amount spent on an ad campaign, divided by impressions, multiplied by 1,000. This allows you to compete against advertisers with different optimisation goals. 

The only way to use estimated action rates to your advantage is to: 

• Run your campaign for a longer period of time AND if you plan on starting a new campaign every month, simply change the name of the current campaign and make the necessary changes within the current campaign, rather than starting a new one. This will ensure Facebook is using your ad’s previous historical data to determine estimated action rates, rather than you starting a new campaign and Facebook not using any of the data from your other campaigns. In other words, the longer your campaign stays active, the better it’ll perform and the less you’ll pay for it.
• Ensure you’re hitting users who you believe are likely to take action on your ad. This comes back to basic marketing concepts: ensuring your target audience is correct and ensuring you delve into market and customer research and then using this data to create audiences on Facebook to utilise. 

User Value

User value considers relevance and ad quality. The more relevant your ad is to your audience, the more competitive it's likely to be in ad auctions. Also, the more relevant Facebook predicts an ad will be to a person, the less it may cost the advertiser to show it to them, all other things being equal. Signals for user value come from how people interact with organic and paid content, as well as ad quality and post-click experience. Therefore, in order to improve user value, we need to improve: 

• Relevance
• Post Click Experience
• Ad Quality

We will explore what these three mean so that we then have the information to improve user value. 

Ad Relevance

Facebook assigns you an ad relevance score, which estimates how well your ad is resonating with the people you want to reach. The higher your ad’s relevance score, the better it’s considered to be performing. This score ranges from 1 to 10, with 1 indicating a low relevance and 10 indicating a high relevance. This score is given once an ad has more than 500 impressions. 

Relevance scores are based on: 

• How well your ad is performing
• Positive feedback (which includes any actions taken on your ad or landing page after a user clicked your ad - this is why data tracking is so important)
• Negative feedback (e.g. someone clicks “I don’t want to see this” on your ad)

By encouraging positive feedback in your copy and on your landing page, you can improve ad relevance and thus increase user value, increasing your chances of winning in ad auctions. 

Post Click Experience

User value can sometimes be difficult to predict because inputs are dynamic and always changing. Facebook’s goal is to deliver the best possible experience for our community. For this reason, ads that link to web pages with poor user experience will likely carry low user value. But what makes a poor user experience?

Here are a few things to remember to achieve a better landing page user experience and thus improve post click experience, user value and win more ad auctions:

• Slow Load Time: advertisers with fast website performance may see higher click rates for certain audiences and at a lower cost
• Poor content experiences: Facebook’s system also learns what makes for negative ad experiences and applies those learnings to improve the user experience. In addition to a web page's loading time, Facebook also takes into account content on landing pages that's prohibited by their Advertising Policies. Facebook states that the following on any landing pages will result in poor post click experience and thus poor user value scores: 
• “A disproportional volume of ads relative to content.
• Sexually suggestive or shocking content. See our policies about sensational content and adult content.
• Malicious or deceptive ads that include prohibited content as defined in our Advertising Policies.
• Pop-up ads or interstitial ads that block people from engaging with the web page.”

By ensuring your landing page has a faster loading time and better content experiences, you can increase post click experience, user value and thus increase your chances of winning ad auctions. Note that there are also other ways to improve your landing page experience. Implementing a software such as Hotjar will help you find how to improve your user experience. 

Ad Quality

Ad quality is determined by Facebook through two measures: 

• Your target audience’s history of level of interest in content similar to yours (this is determined by their level of interaction with similar content in the past)
• The relevance of your ad content to the users you target
• Overall ad quality, determined by ad interactions, both positive and negative

You can therefore do two things to improve ad quality. 

1. Ensure you’re targeting users who have likely shown interest in content similar to yours in the past. You can do this by utilising Facebook’s Core Audiences feature (see here to learn more about core audiences). 
2. Ensure you copy and graphics/video are as high quality and engaging as possible. 

Check out Facebook’s guide on how to use ad relevance diagnostics. See here: https://www.facebook.com/business/help/436113280262012?id=561906377587030&helpref=faq_content

eCPM & Competing Against Advertiser’s With Different Optimisation Goals

Advertisers optimise their ads for different things i.e. landing page views, impressions, purchase conversions, etc. As mentioned earlier, Facebook converts all advertiser value to eCPM when calculating estimated action rates. Facebook does this to ensure they can fairly compare ads with different optimisation goals. 

There are three eCPM formulas for different optimisation goals: 

• When the optimisation goal is impressions, the formula used is: eCPM = advertiser bid per impression
• When the optimisation goal is clicks, the formula used is: eCPM = (Advertiser bid per click) x (estimated click-through rate) x 1000
• When the optimisation goal is actions (besides clicks i.e. video views, mobile app installs, website conversions, and page post engagements), the formula used is: eCPM = (Advertiser bid per action) x (Estimated click-through rate) x (Estimated conversion rate) x 1000. 

An Example In Action

To illustrate the concept above, let's walk through an example of three ads with equal estimated action rates, but optimized for different outcomes. Ad 1 is optimized for impressions, Ad 2 is optimized for clicks and Ad 3 is optimized for conversions. As the table shows, all bids are standardized to an effective CPM (eCPM) bid, and they're ready to be ranked once Facebook factors in their user value.

Note that eCTR is shorthand for estimated clickthrough rate, and eCVR is the estimated conversion rate. You can also think of eCTR as the estimated probability of clicks and eCVR as the estimated probability of the conversion action following a click.

Conclusion

To conclude, by improving advertiser bid, estimated action rates and user value, you can win more bids and achieve lower costs per optimisation event, which means you spend less and make more money. 

Feel free to reach out to us if you’re interested in social media advertising and need someone to help you out. See below.