Facebook bid strategies are the real game-changers in the advertising world.
Having the right Facebook bid strategy in place will get you optimal leads, whereas a wrong bid strategy won’t get you the results you expect.
This article will tell you how Facebook bid strategy works, some tricks to win bids, and explain each type of bidding. In the end, you will have a clear understanding of which bid strategy is the best for your ad campaigns.
So let’s get started!
How Does Bidding for Facebook Ads Work?
Facebook ads bidding system starts with an auction wherein all the advertisers’ bid for an ad spot.
But bear in mind – Facebook ads bidding isn’t like an eBay marketplace auction where the more you win, the more is the conversion.
When it comes to bidding, Facebook uses the Valkrey-Clarke-Groves auction model.
Let’s take an example to understand the model better.
Suppose there’s an ad spot and only two advertisers bid for it. Let’s call the bidders A and B.
Bidder A bids $3 for the ad spot, and B bids $6. From the cost point of view, it’s evident that bidder B will win the auction. But $6 isn’t what B will pay for the ad spot.
Here’s where the Valkrey-Clarke-Groves auction model comes into the picture. Facebook will sell the spot to bidder B in ~$3.01, that’s slightly above A’s bid.
So to win a bid on Facebook, you don’t have to pay what you bid. You have to pay slightly more than the second-highest bidder.
But the bid amount is just one of the three factors in winning bids. Facebook also tries to bring relevancy and quality into the picture.
3 factors that drive Facebook ads bidding
- Your Bid: The maximum amount of money you’re willing to pay to win a bid
- Relevance Score: Calculated as a ratio of positive and negative interaction your previous ads had with the audience (likes, comments, and shares)
- Estimated Action Rate: A secret recipe of Facebook where if it thinks your ad might receive the action you’ve bid for, you get an added advantage in bidding
How do you win a Facebook bid?
Optimizing ad copies, A/B testing graphics, and changing ad headlines are obvious ways to win bids and lower the CPC. We are not here to discuss those.
Here are two unique ways to stay on top of your competitors most of the time and win a bid.
#1. Take a different approach when building your target audience
Let’s assume it’s Christmas time, and you have a product for newborn babies that is in some way related to Christmas as well. Maybe a Santa costume for babies.
Now your ideal target audience will be moms and pregnant women all across Facebook. As babies can’t buy for themselves 🙂
But when you have such a product, where competition is tremendously high, you will have to pay a lot to win ad spots during bidding.
To avoid this, you can have a different approach while building your target audience.
Apart from being moms, they’re still women, right?
So one of your ad sets could have a target audience as Women of age 25 to 35 having a specific interest that a mom/pregnant woman would have.
The interest could be a certain person, some passion, a TV series, etc.
Keep testing various interests and target women instead of moms to get the best results.
So this way, you can get rid of competition, lower the bid rates, and win a bid with ease.
#2. Build a retargeting ads stack
The idea behind retargeting stack is simple.
In the initial phase of your advertising, you can take a hit on the higher bidding cost (pay high and win bids), but after that, you retarget these people. Keep showing them highly relevant ads.
According to Hubspot, a customer needs around eight touchpoints with a specific brand before making a buying decision.
So what you can do is keep showing your audience retargeting ads one after another. The more relevant the ad gets, the more bids you will win.
Follow these two tricks and keep winning bids one after another.
Types of Facebook Bid Strategy You Must Know About
There are four types of Facebook bid strategies:
- Lowest cost
- Cost cap
- Bid cap
- Minimum ROAS and highest value
Note: You can leverage these bidding strategies if you have the CBO (Campaign budget optimization) switched on.
Let us now see what they offer and their use cases.
#1. Lowest cost
Lowest cost is the default Facebook bid strategy. No matter what campaign objective you choose, the campaign bid strategy will be set to the lowest cost until you change it.
The main motive of this bid strategy is to spend your entire daily budget and get as many results as possible at the lowest cost.
When you leverage lowest cost, you might get results like the graph below.
The above graph shows that the rates at which you get the desired cost per action are scattered and have no definite range.
That’s because when you apply the lowest cost bidding, you’re basically telling Facebook to win bids how it sees fit. You aren’t putting a budget restriction for the desired action.
So when the competition is more, the rates will go high and vice versa.
The trend line (dotted line) you see in the graph states that your cost per action will increase over time due to increasing ad fatigue. It’s not always a sure thing, but you will see a similar trend in most cases.
When to use the lowest cost bid strategy?
You should use lowest cost bidding if:
- You’re aiming to spend all your budget
- Want a large volume of results
- Don’t have a strict cap on cost per action
- You aren’t aiming to achieve some specific goal out of your ad (like getting a ROAS of 1.300)
Pro Tip: Stick to lowest cost bidding when you’re just getting started with Facebook ads, or you want to create brand awareness or get more views.
#2. Cost cap
As you saw above, if you don’t control the bid, the results fluctuate. That’s because you’re advertising to real people in the real world.
Their behavior on the platform is affected by real-time events like news, politics, currently Omicron, etc. Here’s where cost cap comes into the picture.
Suppose your Facebook ads are usually profitable, but wherever there’s a fluctuation in cost (due to real-world events), they just become unprofitable for some reason.
So you can put a cost cap of $X on your campaign, and if Facebook thinks it won’t be able to get you conversion at that cost, it won’t spend your budget.
You’re basically restricting Facebook to go beyond a set price so that you can get rid of those unprofitable results when the market fluctuates.
Here’s what Facebook has to say about the Cost cap.
The main idea behind cost cap bidding is that it will take out those spikes which occur when your cost per action fluctuates massively.
Let’s now understand it better with a graph.
Source: Facebook
Let’s say you set a cost cap of $2. This means you’re telling Facebook that you don’t want to bid more than $2 for the required action.
What Facebook will do is start with the low-hanging fruits first. It will try to achieve the desired action for less than $2 first.
But when it can’t find conversion at a lower cost, it will go slightly above $2 as well. So in this process, Facebook will try keeping your average cost per action as $2.
That means that the cost cap you enter will be the average cost per action for your ad campaign.
When NOT to use cost cap bidding strategy
When you’re starting a new ad campaign on Facebook and don’t know what your cost per result would be, leverage lowest cost bidding rather than cost cap.
In the initial phase of advertising, cost caps absolutely get in the way of Facebook’s ad optimization process.
When your campaign is new and going through the learning phase, you will see fluctuation in results, which is ok. You do not want to have cost caps in place during the learning phase.
That’s because you have no idea what to set your cost cap value. If you set it too low, the campaign simply won’t run.
Even if you get the right cost cap anyhow, you will be spending a lot of time in the learning phase, and you’re much more likely to get stuck in the learning limited.
All because you’re restricting Facebook from doing the optimization process right from the start.
When to use cost caps
Cost caps are much more useful for mature campaigns where you:
- Have quite a lot of data to analyze
- Know what your cost per action should be
- Know that there’s a lot of fluctuation in the niche and want to get rid of it
#3. Bid cap
With Bid cap, you put a restriction on Facebook at the time of bidding.
Source: Facebook
Consider you’re running an ad campaign, and you put a bid cap of $2.
This means you’re telling Facebook not to bid in auctions where it thinks you might end up paying more than $2 for winning an ad spot.
So Facebook will try winning bids that cost you less than $2.
But if it’s not able to achieve that, your campaign will simply be turned off (which will happen many times), and Facebook won’t be spending your budget.
Therefore you see that the graph line is below your set bid cap.
When you have a bid cap in place, you most likely will see interruptions in getting final results as Facebook will be turning your campaign on and off.
This leads to Facebook not spending the daily budget completely.
In bid cap bidding, Facebook avoids the risks of entering bids where it thinks you won’t be able to win an ad spot at the set bid cap.
And the prediction side of Facebook isn’t as good as its optimization side, so you most probably see that your campaigns take a long time to get results.
Many ad experts are attracted to bid caps and start using them in the first place because bid caps can help reduce the cost per action initially.
But we don’t recommend using it when you’re planning to run an ad campaign for a long time, which is the case most of the time.
The best-case scenario to use a bid cap is when you have a business that needs to make a real-time profit no matter what.
Use a bid cap if you can’t afford to make a loss in the short run, and you’re analyzing campaigns daily.
1 major issue with bid cap
One of the most prominent issues with the bid cap we’ve observed is budget spending.
When you put a bid cap, there’s a high possibility that you won’t be spending all of the budget you’ve allocated to a campaign.
Let’s say you have a $100 daily budget for an ad campaign.
Now, at the end of the campaign, you see that Facebook has only spent 30% of your budget, and you’ve not got the results you wanted.
Many experts then try adjusting their budget, thinking that if I increase my budget to $300, Facebook will spend 30%, i.e. $90 (~100 USD a day), that’s what you want to spend.
Such experts will always find themselves in this budget-balancing game.
Therefore from a budgeting standpoint, it’s quite difficult to do that.
The other problem is that you can’t predict the market sentiment and be sure about how much Facebook will spend on your campaign with a bid cap in play.
One day it could be 30% the other it could be 60%!
#4. Minimum ROAS and highest value
When you select Minimum ROAS as the Facebook bid strategy, it will target a minimum return on ad spend you want to achieve.
For example, if you want a return of $130 over a spend of $100, you can set the minimum ROAS as 1.300.
As the image above says, the bid strategy controls your ROAS while getting you the highest value for your budget.
You might be wondering, what is highest value?
The idea behind highest value is that it will help increase your ROAS even if your cost per action slightly increases.
What it does is – instead of just optimizing for lowest cost per action that it does by default, it also optimizes for ROAS.
Meaning, that Facebook might show your ads to people it thinks are slightly less likely to buy, but these people might spend more than the average customers spend on your store.
Facebook bid cap vs. cost cap
So the first primary difference between bid cap and cost cap is:
You should use a bid cap when your main aim is to increase profitability over consistency. On the other hand, cost caps will bring you comparatively consistent results.
The other significant difference is in their working.
When you set a bid cap of $25, Facebook will never bid more than $25; it will always bid under the set cap and will give you an average cost per action that’s less than your set bid cap.
Whereas if you set a cost cap of $25. Facebook will bid below as well as above $25 and give you an average $25 cost per action at the end of your ad campaign.
What bid strategy you should rely on – Manual bidding vs. Automatic bidding Facebook
When you let Facebook do the bidding for you (Automatic bidding), there’s no cap on how much it will be spending per action.
It will try getting you leads at the lowest cost possible, but you might get leads at $5, some at $30, and others maybe even $50. The cost will depend on the competition at that point in time.
But when you switch to Facebook ads manual bidding strategy and take control in your hands, you can put caps (bid cap and cost cap) on how much you want Facebook to spend per action.
This will give you more control over ad expenditure, but you will restrict Facebook from being completely flexible.
Pro Tip: The best way to run a campaign is by leveraging both Automatic and manual bidding.
How?
When running an ad campaign for the first time, go with Automatic bidding and let Facebook do the bidding for you. This way, it could learn about the ad better.
But when your ad set is out of the learning phase, and Facebook has enough data to analyze important KPIs like cost per action, conversion rates, etc, go ahead and try putting caps for effective results.
What is the Best Facebook Bid Strategy for You?
The simple answer to this question is – no one bid strategy might work for your ad campaign. You will have to test various bidding strategies to know what works for what kind of ads.
If you’re running Facebook ads for the first time, it’s better to go with lowest cost bidding strategy.
That’s because Facebook needs data to analyze what the best cost per action could be for the ad you’re running.
After Facebook has enough data, you can then switch to manual bidding and take the control in your hands to maximize profits.
