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Sold To The Man At The Back – How The Facebook Ads Auction Works

May 24, 2018

Hit the publish button on your Facebook ads and off they merrily head for approval before going live straight to the audience you chose, right?

 

Well, it's not quite that simple.

 

Did you know that (unless you are using something called 'Reach & Frequency' bidding which probably only applies 5% of the time, so I won't go into it here) all your Facebook Ads go through an auction process?

 

If your answer to that is ‘no’ or ‘auction, what auction?!’ this could be one of the main reasons your ads are failing...

 

Don’t worry though, you aren’t alone. A surprising number of people advertise on Facebook without fully understanding how the process actually works.

 

Particularly amongst those who haven’t ventured out of the realm of boosting posts, it’s taken for granted that once your ads have been approved, they go straight out to the audience you've selected until the budget has been exhausted.

 

The reality is very different.

 

Your ads go into an auction, not just with other competing advertisers in your local area, but hundreds of thousands of other advertisers worldwide who are targeting the same people as you.

 

When deciding whether to show an ad or not, Facebook have two priorities:

  • “Creating value for advertisers by helping them reach and get results from people in their target audiences

  • Providing positive, relevant experiences for people using the Facebook family of apps and services”

In order to balance these potentially conflicting priorities, Facebook uses a formula to decide which ads will be shown and to who.

 

This graphic below (taken from Facebook’s own Blueprint course, which I highly recommend to anyone starting out) shows how Facebook calculates whether your ad will be shown to a user:

 

 Image credit: Facebook

 

That's nice and illustrates how Facebook tries to balance its two priorities on both sides of the equation, but what does it all mean?

 

BID

 

This is fairly self-explanatory – it’s based on your own bid strategy and the budget that you set. Most people leave their ads on auto-bid but FB marketers – especially when trying to scale campaigns – will play around with the other option of manual bidding, which I wouldn’t recommend for beginners.

 

ESTIMATED ACTION RATES

 

Every adset in an ad campaign is optimized for a different action that you’ve chosen, whether that’s clicks, engagement, purchases, or any of the other options available to you. This factors into account how likely the person seeing the ad is to take that action that you've optimized for.

 

This is why, even though the audience size you have selected for an ad might be 500,000 people, if Facebook thinks only 50,000 of those people are likely to click your ad then it won’t show it to the rest (hence why the frequency or number of times people see your ads will rise even though it hasn’t reached the whole audience).

 

Estimated action rates are calculated based on an individual user’s history of clicking/engaging, etc with ads as well as your own historical ad data - so if your ads have a low CTR (Click-Through Rate) this is where it will hurt you.

 

USER VALUE

 

This assesses how much value your ad is providing to the person seeing it (and it’s for this reason you get penalised for having too much text in ad images because this makes them look spammy and like something that fell out of a local paper).

 

User Value is where Relevance Score (which you can see on each individual ad in Ads Manager once they’ve reached 500 people) comes into play.

 

This is a RELATIVE metric which only measures how relevant and engaging your ad is compared to others targeting the SAME audience.

 

It’s also not the be-all and end-all but a lot of people get too hung up on having high relevance scores.

 

As FB themselves say, “It's not a number that's actually factored into how our delivery system handles your ad. Because of this, improving an ad's relevance score shouldn't be your end goal since doing so will not directly lead to any improvement of ad performance.”

 

In fact, if your ads are performing in terms of more important metrics such as whether your ad is leading to purchases/has a high CTR/low CPC, you can pretty much ignore relevance score.

 

It’s only a indicator of how well your ad is targeted, something that can potentially help raise or lower the overall costs of your ad.

 

The other factor in determining User Value is Ad Quality.

 

This basically means that if your ad is getting a lot of negative feedback (people x’ing out of it, reporting it as spam, clicking that they don’t like it) its value will be decreased.

 

Ad Quality also takes into account whether a person has historically been interested in similar ads in the past.

 

---

 

So, now that you know the formula, how does the process of the ad auction actually work?

 

When a user opens up their news feed, they instantly become available for ads to be shown to them.

 

The auction begins, Facebook standardises the results of the formula above to account for different optimization events (i.e I might be targeting an audience with a conversion ad whereas you might be targeting the same audience for a click), the total value is calculated and then the winning ad with the highest total value is shown.

 

Pretty clever how Facebook does all that (as well as deciding which posts from friends, family and other business pages to show you) in a matter of seconds, isn't it?

 

Now, how can you use this knowledge to your advantage? By using the second half of the formula above to beat advertisers with open wallets who are bidding higher than you!

 

Ensuring your ads have high quality and relevance means that you can beat people in the auction even if they are prepared to pay more than you, which is something of a leveller if you are competing against bigger companies and brands.

 

This is one of the great things about Facebook Ads; any business, no matter how large or small, can find success on the platform.

 

It just takes a bit of hard work and, yes, an investment in terms of money.

 

 

I'll wrap up here with an answer to the last question you've probably got – how does Facebook decide how much you are charged for your ads?

 

The Total Value calculation above determines who wins the auction, but not the cost.

 

Basically, the way it works is that all you are charged is the minimum amount that you would have needed to bid to win the auction.

 

Here's a very simplified example of this in action (not taking into account User Value or Estimated Action Rates):

 

Advertiser A bids £0.25

Advertiser B bids £0.50

Advertiser C bids £0.50

Advertiser D bids £5

 

In the auction, Advertiser A is likely to get very few impressions of their ads. B and C will get a good number of their ads shown at prices somewhere between £0.26 and £0.50. Advertiser D will get even more impressions - but rather than paying the full £5, they will probably come in at somewhere between the £0.30 to £0.75 range.

 

As a rule, this means you are charged less than you actually bid.

 

It also means that it’s almost pointless making very small bids like Advertiser A, as you will end up losing auctions that you could ultimately have won for only a tiny bit more.

 

It's for this reason that the minimum most Facebook advertisers will budget an adset for is £5/$5 per day or else they will unnecessarily lose auctions.

 

So there you have it, now you understand a lot more about how the Facebook ads auction works and how you can get the best out of it.

 

Questions about any of the above? Make sure to ask.

 

Thanks for reading and I wish you the best of luck in all your future Facebook ad auctions!

 

Gil is a Facebook Advertising specialist who works with a variety of businesses across the world to help them grow via Facebook. Fortunately, today was one of the five days a year it was hot and sunny in Belfast, so he wrote most of this from a lounger in his garden.

 

Catch up with Gil and the latest news, tips and tricks on his Facebook page Run DMG here.

 

 

 

 

 

 

 

 

 

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