This post covers both the basics and the advanced aspects of bidding and delivery on Facebook & Instagram. It is relevant for you who want to improve your knowledge about Facebook advertising, or just want to make sure you are up-to-date with the latest news.

The post here is divided into three parts, which gradually become more advanced and technical. As always, you can sign up for our newsletter at the bottom of this email and get updated when we post new relevant content.

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Intro

Your Facebook bidding strategy and choice of "optimization for delivery" have a huge influence on your results. If you want to beat your competitors and win customers, it's not just about having the most attractive ads outwardly, it also requires that you target your ads correctly with the right technical prerequisites.

If you do not use the correct campaign settings all the way through, you risk both:

• Paying too much to have your ad shown
• Keeping your campaigns from being as profitable as they could be
• As well as reaching out to too small a part of your potential reach

Or worst of all – Not getting any delivery on your ads.

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Part 1

Facebook bidding & auctions in a nutshell

The first thing you as an advertiser need to know about Facebook bidding is that you are working and paying for an auction-based platform. The platform is largely driven by common supply and demand conditions, however, Facebook needs to set a limit on how many ad spaces are offered, so as not to degrade the experience on Facebook & Instagram for users, including your customers. As an advertiser, you will therefore experience fluctuating costs associated with delivering your ads, depending on how competitive advertisers are bidding to show their ads to the same target group. Facebook has different placements spread across their platforms and networks, some more effective than others, and some cheaper than others:

Overview of possible ad placements via Facebook Ads Manager.

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Since it is an auction-based platform, it will be most costly to show your ads in the placements where there are the most other advertisers. Therefore, it can sometimes pay off to get some cheap exposure in some of the less attractive placements. Conversely, you can also make your campaigns more profitable by cutting out the placements that do not create sales or cheap traffic.

Note: Although Facebook is an auction-based platform, it is not always the highest bidding advertiser who wins the auction. Here are the 3 primary factors that contribute to your ad delivery and the price you end up paying to have your ads shown:

1. Your bid
2. Relevance score (Quality ranking, engagement rate ranking, conversion rate ranking)
3. Estimated action rate – You can read more about these factors in the upcoming blog post.

It is also important to know that the amount you bid in the auction is actually not what you end up paying. The amount you bid is just what you are willing to pay to win the given auction. Facebook will always let you pay the lowest possible amount to have your ads shown. This means that if your competitor bids 0.45 DKK and you bid 1 DKK, you only end up paying 0.46 DKK. That is, the same/a penny more than the second highest bid.

Illustration of a Facebook auktion:

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Part 2

Now for the technical – Optimization for delivery

Depending on the type of campaign you are running, you can choose to optimise the delivery of your ads towards a specific desired outcome. This is really practical and effective, as you can improve your results in this way. Below you can see the 10 most optimal and frequently used delivery options, with a simple explanation attached:

• Impressions: Here you get the cheapest views, but you reach out to the least attractive users in your chosen target group. You get your ads shown to the users there is less competition for, and which other advertisers do not bid on. You get, what we in Danish say, “the leftovers”. However, this option makes sense if everyone in your chosen target group is already relevant to reach out to, such as your lower funnel segments. For example, all users who have added a product to the cart on your webshop.

• Leads: You will use this delivery option if you are doing lead advertising on Facebook and/or Instagram. When you optimise against leads, Facebook helps you reach the right users to acquire as many leads as possible within your budget frame. I still see in 2019 that many companies use clicks to the website, to then fill out a lead form. With lead advertising, you can significantly shorten the registration process for users as a company, and take advantage of Facebook's lead gen tool to your advantage. Whether you need to collect email permissions, phone leads, or something completely different.

• App Downloads: Do you have an app? Then this delivery option is super relevant for you. With optimization against "app downloads", Facebook delivers your app-install ads to the users who are most likely to download your app. This is of course based on the behavioural history in relation to previous app downloads from the individual users.

• ThruPlay: This is a new metric for campaigns with video views as the goal. With ThruPlay, Facebook delivers your ads to the users in your target group who are most likely to spend 15 seconds or more on your video ads. If you have a longer purchase journey, you can use this option to identify the users with the most interest in your products/services. It could, for example, be very relevant for many B2B companies.

• Link Clicks: Here you achieve a cheap CPC, high click rates and you get many clicks. You reach out to the "click-eager users". However, it is rare that the "click-eager users" are also the strong-buying users. We can categorize them as "window shoppers". We do not use this optimization option at Algorize. (This optimization is often associated with a high rejection percentage/bounce rate).

• Conversions: Here you reach out to the users who are most likely to perform the conversion event you have set as the goal for your campaign. When you run a conversion campaign. With this optimization option, you will hardly achieve the cheapest views, most exposure, or the cheapest clicks. On the other hand, you will experience the best return. However, it requires a lot of activity on the specific conversion to get the maximum benefit from the optimization option. If you have enough pixel data, you can advantageously move the conversion you are seeking one step up in your funnel. So instead of optimising against purchases, you can optimise against additions to the cart or views of your products. Facebook generally recommends 50 conversions within your conversion window before you have enough data to optimise against the given event.

• Landing Page Views: Here Facebook sorts after people in your target group who spend more time on landing pages after clicking.

• Daily Unique Reach: Here you get out with your ads max 1 time per day. It is a good opportunity in your retargeting flow, where you want to hit as many in your target group as possible, without spamming them with too many ads a day.

• Post engagement: Here you reach users who are most likely to like, share, and comment on your ads at the lowest possible interaction price.

• Value: Here, Facebook delivers your ads to users in your target group to maximise the total order value per purchase, thereby delivering the highest return on ad spend (ROAS). Of course, it's not always the case that you will experience the best return with this optimization option. However, with clients who have a lot of purchase data in their ad account, we find that this optimization option can make a significant difference.

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Part 3

What's new? Facebook bidding strategies with Campaign Budget Optimization

In 2019, Facebook introduced the budget management option Campaign Budget Optimization (CBO). This is something Facebook has further developed throughout 2019, and it has begun to become a very exciting opportunity for advertisers. Previously, manual bidding strategies were chosen at the ad set level. This has changed and is now managed at the campaign level with Campaign Budget Optimization activated.
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This development is in line with Facebook making Campaign Budget Optimization the standard for budget management on Facebook. With Campaign Budget Optimization, Facebook itself distributes the budgets across your target groups based on the algorithm and history (existing data) in the account. At Algorize, we see better and better results with the use of CBO, in this way advertisers can spend less time allocating budgets, and focus elsewhere to improve results.
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A simple way to test CBO is by duplicating an existing and active campaign, from which you allocate, for example, 25% of the budget from the original campaign. From there, you continuously monitor whether the CBO campaign creates better results, for example, through more volume and better conversion prices. You have the option to set a minimum and maximum ad spend per target group/ad set, so that you still have control over the consumption with CBO.
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The following bidding strategies are especially relevant for you who run conversion campaigns. Not all bidding strategies are available for all types of campaigns.

You activate Campaign Budget Optimization at the campaign level in the ad manager, while choosing your campaign objective.

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Bidding strategies explained:

• Highest value or lowest cost: Highest value or lowest cost: Facebook designed the bidding strategy "highest value or lowest cost" to give your campaigns high volume with the lowest possible conversion price or the highest possible revenue value. At the same time, the bidding strategy ensures that your ads are delivered with a distribution that ensures your entire planned budget is used. It is the easiest of the 5 bidding strategies to manage because it is an automatic bidding strategy. It is also the bidding strategy that most advertisers should stick to. However, there are exceptions and situations where it makes sense to test the following bidding strategies.
• Advantages: The primary advantage of the "highest value or lowest cost" bidding strategy is efficiency. With this, Facebook's algorithm attempts to deliver your campaign and enter auctions in such a way that you get high volume in conversions with the lowest possible conversion price or the highest possible revenue value in the short term.
• Disadvantages: The disadvantage of this automatic bidding strategy is that the results with the bidding strategy can be fluctuating as well as short-lived. By this, it is meant that the results can be unstable if you try to scale your ad spend or if the competition for your target groups intensifies.

• Cost cap: With "cost cap" as a bidding strategy, you as an advertiser take control of your conversion prices. In practice, you tell Facebook how much you are willing to pay for a conversion. From there, Facebook's algorithm tries to deliver as many of the desired conversions without exceeding your benchmark/maximum conversion price.
• Advantages: Cost cap is the most effective manual bidding strategy for volume increase.
• Disadvantages: Risk that you will not get your ads delivered if Facebook assesses that they cannot deliver conversions to your campaign at the benchmark you have set as cost per action. Therefore, it is also recommended that you do not try to "cheat" the algorithm by setting a lower cost cap than what your business can actually afford to pay for a conversion.

• Minimum ROAS: This is one of the newer bidding strategies on Facebook. It is a bidding strategy we at Algorize find very interesting, as many of the companies we work with have a specific ROAS goal as one of the primary KPIs. Theoretically, the bidding strategy makes sense to use if you have a specific ROAS goal that you need to achieve. The strategy focuses on getting the most revenue value out of your budget, and the algorithm thereby knows which auctions to focus on. With the use of this strategy, we recommend opening up your conversion window to 7 days click and 1 day view. This way, the algorithm has more data to work from.
• Advantages: Theoretically the best bidding strategy to get the most revenue and return out of your ad spend.
• Disadvantages: As with other manual bidding strategies, you risk not getting delivery if you set your ROAS goal higher than what Facebook assesses they can deliver. Therefore, it requires that you are inside the account and have some historical data that you can set your ROAS benchmark after. Additionally, the strategy is only available for selected "optimizations for delivery" (Part 2).

• Target cost: Facebook recommends using the bidding strategy in connection with achieving stable conversion prices, especially relevant in connection with scaling and budget increase, to avoid too fluctuating results. Target cost is only available for the following campaign objectives:
  – App downloads
  – Conversions
  – Lead ads
  – Sales from product catalog
• Advantages: The primary advantage of the bidding strategy is that it delivers stable conversion prices, which is especially useful when scaling.
• Disadvantages: Your target cost remains the same, which means that you can miss out on cheap conversions, as the algorithm tries to deliver results to your set target cost as consistently as possible. This happens because Facebook in practice only looks for conversions that are close to your target cost. Thus, you potentially miss conversions that are below your target cost.

Example of how target cost works:

You set your target cost for a conversion/new customer to be 100 DKK. In such a case, Facebook will exclusively focus on keeping your average conversion price between 90-110 DKK and may thereby bypass some of the very cheap conversions. It is an advanced feature that requires you to know what you are doing.

• Bid cap: Bid cap has been an option as a bidding strategy on Facebook for a longer time and works differently than the other manual bidding strategies. With Bid cap, you do not set a limit for how much you will give for a conversion, but instead, you set a limit for how much you are willing to bid in an auction to get your ads shown. It is based on CPM and not conversions. Facebook will still try to deliver as many conversions as possible in practice, however, without bidding more than your bid cap in auctions, which can set some limitations.
• Advantages: With bid-cap as a bidding strategy, you can better control your bid in the auctions than with some other bidding strategies. This can especially come into play and become relevant during special days like Black Friday, where the number of advertisers on the platforms increases significantly. This can thus become relevant in a case where the supply of ad spaces does not always match the demand. Therefore, it can be a very useful bidding strategy to ensure the delivery of your ads when it matters most.
  
  Are your ads not delivering? In that case, you can set your bid cap 2×3 higher than what your CPM is at, in this way you ensure to win the auctions and get your ads shown. However, you do not have to pay the price you are willing to bid, as we saw earlier in "Illustration 2 – Simplified Vickrey-Clarke Groves auction".
• Disadvantages: The disadvantage is that if you set your bid cap too low, you will not receive any delivery at all, as you do not win any auctions. Additionally, in our experience, it is not the most appropriate bidding strategy in connection with optimising the return on campaigns.

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Final thoughts

One thing to be aware of when using the manual bidding strategies is the risk that you will not get your ads delivered if the algorithm assesses that Facebook cannot deliver profitable results to your campaign based on the too low benchmark you have set.
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Furthermore, there is no universal strategy for all situations, but automatic bidding with "highest value or lowest cost" is what most advertisers should stick to, while manual bidding strategies are relevant for you who have a lot of experience with Facebook advertising, enough data in the account, and technically understand the advantages and disadvantages of the different bidding strategies.

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