— June 23, 2018
Facebook ads are distributed through an auction. The advertiser that bids the most to reach a certain target market will win, and have their ad served.
However, the vast majority of Facebook advertisers let Facebook do all the bidding for them. As a result, they are unaware of this process and simply accept whatever price Facebook gives them.
But you don’t have to; you can take control of the bidding process. There are 2 Facebook ad bidding strategies that you can use and before we get into how you set a bid cap, let’s quickly go over them:
Lowest Cost Bid Strategy
Lowest cost bid strategy is the default and the one that most Facebook advertisers use.
With this strategy, Facebook will optimize your campaigns to get you the lowest cost per event. What that event is, depends on the campaign objective that you select when you create your campaign. Here’s the full list:
For example, if you select Traffic, Facebook will optimize your campaigns for the lowest cost per link click. If you select lead generation, Facebook will optimize your campaigns for the lowest cost per lead.
Target Cost Bid Strategy
Facebook’s Target Cost bid strategy works a little differently. Instead of trying to generate the lowest cost per event, this bid strategy optimizes for a more stable cost per event, even as you scale.
Target cost is only currently available for the following 4 campaign objectives: Conversions, Lead Generation, App Install and Product Catalog.
How to Set a Facebook Ad Bid Cap
You can only set a bid cap whilst using the Lowest Cost bid strategy. When you select Target Cost, you need to tell Facebook what an acceptable cost per event is, but it does not act as an upper limit like a bid cap does.
With the Lowest Cost bid strategy, a bid cap is completely optional. If you do not set one, Facebook will simply try to achieve the lowest cost per event possible, even if that cost is very high.
A bid cap helps you prevent Facebook from bidding too much for a particular event. If there’s only so much you’re willing to pay for a sale or a lead, you can tick the bid cap checkbox and enter that number:
The screenshot above shows a £10.00 bid cap. This means that Facebook will not bid more than £10.00 for any individual conversion with this campaign.
As I mentioned at the beginning of this article, Facebook ads are distributed through an auction and this means costs can vary widely. In the run up to major holidays such as Christmas, there’s a lot more Facebook advertiser competition and this can lead to large increases in cost.
Setting a bid cap like the one shown above would prevent my costs from skyrocketing near the holidays.
Best Practices For Setting a Bid Cap
When you set a bid cap, it’s important to remember that the number you enter is the upper limit of what you’re willing to pay. It is not your target cost.
I have entered £10.00 in the example above, but if Facebook can generate conversions for £3.00 or less, they will. That’s what the Lowest Cost bid strategy is for.
So don’t set a bid cap that is too low. If you do, Facebook will struggle to serve your ads and you’ll generate very few impressions.
I would recommend starting with the most you are willing to pay for a particular event. If you cannot afford to pay more than say $ 50 per lead, you can use $ 50 as a bid cap to start with and adjust downwards from there.
If you’ve been running a campaign for a while, and have a good idea of what your average cost per event is, you can probably afford to set a lower bid cap.
Continuing on from the previous example: Let’s say the maximum you’re willing to pay is $ 50 per lead, but your average cost per lead from Facebook is $ 25. In that case, a bid cap that is 20%-30% larger than your average cost is reasonable. And you could set a bid cap of $ 30-$ 35.
Facebook also recommends that you set a daily budget that is at least 5 times your bid cap. This is because you need to generate around 50 conversions per week, for Facebook to be able to properly optimize your campaigns.
If you don’t have the budget to spend that much, or if you’re only looking for a small number of weekly conversions, you might be better off not setting a bid cap.
Like all things Facebook advertising, this is something you can and probably should test.