— March 13, 2018
Marketing on Facebook is as much an art as a science. Most importantly, it’s an opportunity to curate a marketing program for full-funnel success, using a variety of ad formats and optimization tools. Among the myriad tools available to advertisers, creating relevance is a key component in achieving optimal results for your budget.
In this first article in a three-part series, we’ll explore the basic concepts of the Facebook auction. In our last two posts, we’ll describe a framework advertisers can adopt to help create and execute A/B tests (ad studies) aiming to improve campaigns for relevancy—and in turn, drive better return on investment.
The Nuts and Bolts of the Facebook Auction
Facebook ads are paid messages from businesses that are written in their voice and help reach the people who matter most to them. Ads (or orders) are placed into an auction within campaigns, and the auction works to create the most value for advertisers in response to objectives and goals. The auction also supports the best experience for people browsing on Facebook properties.
To start building and launching Facebook ads, you need:
- Business Goal: campaign objective (Brand Awareness, App Installs, Product Catalog Sales, etc.)
- Audience Reach: core audiences (age, gender, etc.), custom audiences (first-party data)
- Budget: Lifetime and Daily budgets pace daily allocations differently
- Bid: target maximum amount advertisers are willing to pay per result
- Creatives: variations such as video ads, Instagram Stories ads, Carousel ads, etc.
Once you submit your ad, it goes to the ad auction, which helps get it to the right people. At a high level, Facebook describes the ad auction in these terms:
“We try to show your ads evenly throughout the day so that the people most valuable to you in your target audience are more likely to see them. The more relevant we predict an ad will be to a person, the less it should cost for the advertiser to show the ad to that person.” — Facebook Blueprint
When marketing on Facebook, every auction opportunity to serve an impression to someone is won or lost in response to the Total Bid—a combination of:
- The bid value + expected rate of action (results) (eCPM)
- Ad Relevance
The Total Bid applies across all campaign objectives using the formula:
An ad that’s high quality and very relevant can beat an ad that has a higher bid, but is lower quality and has less relevance.
To put it another way, Ad Relevance determines winning ad impressions within a balance of two things:
- 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
Putting It Together
We’ve covered several key concepts, which we can sum up in a few points:
- Create value for advertisers’ outcomes by helping them reach people who matter most in response to specific goals
- Positive and more relevant experiences are rewarded with higher ROI
And, the most important: an ad that’s high quality and very relevant can beat an ad that has a higher bid, but is lower quality and has less relevance.
Determining the Total Value
As we’ve learned, the auction is supportive of producing the most results for advertisers, and ads that win in the auction and get shown deliver the highest total value—in other words, the highest Total Bid.
Total value isn’t how much an advertiser is willing to pay us to show their ad—the bid alone doesn’t win the auction. It’s important to note that it’s a combination of three major factors:
- Estimated action rates
- Ad quality and relevance
High relevance and quality is as much an audience targeting challenge as it is an ad creative one.
For example, advertisers can cast a wide net and target nearly everyone on Facebook and Instagram. Not everyone wants what the advertiser is offering, however; as a result, Ad Relevance will likely be negatively impacted.
This negative impact can come from two possible sources:
- An algorithmic calculation, as Facebook reviews the advertisers goals vs. target audience and message, and then downgrades the ad because it’s not very relevant to targeted people
- Actions by people on Facebook signalling that they’re not interested in the ad served to them (e.g., hiding the ad or not engaging with the ad)
Creating a campaign is fairly simple, from a workflow perspective. Creating a relevant campaign, however, is what requires the most attention and care.
How to Check Your Work
To empower advertisers to success, our Customer Engagement teams encourage building and incorporating an A/B testing framework which scientifically validates audience, optimization actions, and ads—a Scope of Test.
When advertisers design and implement such a framework, the ROI results are typically positive and improved over the long term in comparison with advertisers that don’t take opportunities to A/B test and refine their strategies.
In our next article, we’ll lay out exactly how to conduct a proper Scope of Test. Stay tuned!