The Differences Between Facebook Ad Bidding Strategies
A common question for marketers who are just starting out is how to bid on Facebook Ads. Knowing the differences between each bidding strategy will help you optimize your costs for your chosen strategy and objective. The truth is, the right bid strategy can help local businesses compete with larger competitors and still produce great results. Here’s a breakdown of Facebook Ads bidding for small businesses.
The right bidding strategy can help small businesses compete with the larger companies that have deeper pockets.
There are three primary categories for bidding options.
Spend-based bidding
Goal-based bidding
Manual bidding
Each of these categories should be chosen based off of your ad’s performance goal and primary KPI. Whatever you base the success of your ad off of is what should determine the bidding strategy you choose.
Spend-Based Bidding
This categorizes two bid strategies - both of which are automated.
Maximum results
Maximum conversion value
Maximum results is the default choice for lowest cost ads. If you have never changed the bidding strategy for your ads, this is the strategy you automatically chose. This strategy is meant to produce the most amount of results for your budget. This strategy is best used when you are looking to drive the most amount of volume and are not as particular about your performance metrics.
The lowest cost option can also lead to higher costs per action, lower click-through-rates, and a decrease in performance metrics. If you are not concerned about customer acquisition cost, this option is for you.
Maximum conversion value is the option to choose if you want to optimize for more value. This option prioritizes higher-value actions and users who are more likely to complete those actions. This strategy works best if you have multiple products or services available for sale in one landing page or ad campaign.
The only things that will prevent this strategy from being successful is lack of distribution and lack of value detailed in your pixel. In other words, your campaign needs to have a large variety of users to choose from that are projected to convert for your high value actions (audience size). You will also need to attach a monetary value to each action within your pixel, so Facebook can understand which actions will produce the most revenue for your site.
You can check the Facebook Bid Strategy Guide for more in-depth information.
Goal-Based Bidding
These two strategies work best when you are focused on your results and your return.
Cost cap
Minimum ROAS
The cost cap allows you to set a limit on how much you are willing to spend to produce each result. This allows you to set your desired cost per action and aim to produce the max amount of results possible that are below that threshold. The only thing that you need to keep in mind about this strategy is that your ads may spend a lot slower depending on your audience and your campaigns may take longer to leave the learning phase.
The minimum return on ad spend (ROAS) allows you to set the benchmark for how much you want to make back on every dollar spent. If you set a benchmark for $5 return on ad spend, Facebook will try to produce the results necessary to ensure that for every dollar spent, you make at least $5. This is a great way to guarantee that you breakeven and make a profit.
The only two things you really need to keep in mind for the minimum ROAS strategy is that if your ads are not meeting your desired return, Facebook will stop all ad spend for that campaign. This campaign will also remain in the learning phase longer, as Facebook needs to find users that are most likely to convert on the actions that will produce the necessary amount of revenue.
The other element to the minimum ROAS strategy is that you will also need to include values for each action within your pixel, so Facebook can understand how much return each action produces.
Manual Bidding
The last bidding strategy is manual bidding. This strategy allows you to place a cap on each individual bid made. This is not the same as placing a cap on your cost per action, it is more similar to placing a cap on your cost per impression.
The way Facebook Ads work is you have hundreds of advertisers fighting for the attention of one individual user at a time. If you try and compete with larger companies for the same user, your costs will skyrocket. If you’re a small business, chances are you cannot afford to bid a dollar everytime you want to show your ad to a user that is likely to convert, especially if they end up not converting.
The highest bidder wins, and the winning ad is placed on the user’s timeline. From there, it is up to the user and the ad to decide whether or not that user converts. That is why conversion ads are so expensive, and why bidding strategies are so important for small businesses to practice. Every large company has the money to outbid smaller businesses on every user in their audience, so every user in their audience that is most likely to convert is already being won over by a larger company.
The bid cap allows you to counteract that. You place a cap on how much you are willing to bid on each user and Facebook will not spend more than that. It’s a great way to keep your costs down, but can affect other elements like your learning phase, results, and ad spend.
Another thing you have to keep in mind is that you may have to frequently change your bid cap, especially if you are finding that your ads are not producing results or are not producing enough quality results. You may also need to increase the size of your audience, so that Facebook has a wide variety of users to choose from.
Overall, bidding strategies can be a fantastic way to give small businesses a fighting chance to run cost effective Facebook Ads, especially if conversions are your objective. All it takes is the right strategy paired up with the right KPI’s, and of course, the right expertise to know how much to set each cap at.
