Would you like to do bid optimization to get a higher return on investment in Facebook marketing? If you have a limited budget, there is actually no need to do any manual bid tuning as Facebook has solved that problem already. This is called pacing.
Pacing is a core part of the Facebook automatic optimization which ensures that return on investment (ROI) is maximized for the advertisers. Every Facebook campaign is automatically using pacing.
How pacing works
The bid value that you give for an ad set is not the actual bid used in auctions. Instead, it is first modified by quality factors, such as relevance score and the estimated conversion rate — to reward good quality creative and well-defined targeting. After that, Facebook's pacing adjusts the bid so that you spend your budget optimally: not too high, so that you don't spend all of your budgets too fast and miss out on later conversions; and not too low, so that you would not spend all of your budget. This ensures you use your budget optimally towards the cheapest conversions.
With the "Lowest Cost with Bid Cap" bidding strategy, you actually give your maximum cost as the Bid Cap: the incremental price you are willing to pay for the most expensive conversion. For example, if your net profit margin is $10 per purchase, you could be willing to pay at maximum $10 per purchase conversion — since up until that number, you are making a profit from every conversion. Pacing then tunes the bid between zero and the bid cap such that the ad set gets the best results, such as the most views, clicks, or conversions based on the goal, with the given budget every day.
Note: this graphic relates to the "Lowest Cost with Bid Cap" bidding strategy. With the "Target Cost" strategy, Facebook aims to provide you an average Cost per Action of exactly the value you set.
Without pacing the ad set would spend the whole budget in the beginning of the day for more expensive ads and miss the better opportunities in the end of the day. Thus by adjusting the bid, pacing maximizes the advertiser's profit for a given budget. The adjusted bid is not visible to the advertiser.
If your goal is to get the best results with the given budget, the Bid Cap does not matter, as far as it is high enough not to limit the pacing. Combined with the Vickrey–Clarke–Groves (VCG) auction mechanism, pacing helps all advertisers to get fair access to their target audience.
The pacing algorithm learns the optimal bid over time. Any manual changes to bids and budgets affect the learning. Due to this, frequent manual changes should be avoided.
Note that many other aspects also affect the bid, such as bidding type, optimization goal selection, and quality score. When these are combined with pacing, the ad set gets the most valuable ads compared to the price.
For more information on Pacing and Bid Optimization, see Smartly.io's Approach to Facebook Ad Performance Optimization in our blog.
There are two different cases based on your goals.
1. Limited budget: give me the best results
In this case, pacing maximizes the profit of the campaign. Just make sure to use high enough Bid Cap such that it is not a limiting factor. With oCPM, each ad set should also get enough daily conversions, with an ultimate minimum of 25 conversions per day.
This is also the ideal case for our Predictive Budget Allocation that minimizes the total campaign CPA by reallocating the budget between the ad sets. Due to pacing, Predictive Budget Allocation is also optimizing the bid since budget affects the true bid via pacing.
2. Unlimited budget: give me the most delivery with given CPA/ROI goal
In this case, you define your bid based on the true value. If the budget is not spent, the pacing does not affect your bid.
The true value should be estimated as an average lifetime profit for the audience. Note that the average value should be calculated preferably over hundreds of historical checkouts. Tuning the bid based on a few recent conversions is unstable and likely to perform poorly. As an example, if your average lifetime profit per registered user is $5, bid $5 for oCPM registrations to get the best results. You can then use Smartly.io s Bid Optimization to automatically adjust your bid up or down, to reach your average CPA goal.
Alternatively, you can use the Target Cost bidding strategy to give Facebook your goal average CPA. Note that you might pay a premium, as Facebook first and foremost promises to keep your CPA stable, even when you scale up.
For both of the cases, make sure that you are getting enough conversions (some 25 weekly, or 50 lifetime conversions should be enough), especially if bidding for the oCPM actions. If not, consider using a higher conversion point in the funnel, or increasing the audience size.
Pacing automatically optimizes the bid when the ad set budgets are limited. It is enabled for all Facebook campaigns by default. Using it together with our Predictive Budget Allocation will maximize the total profit of the campaign. Use Predictive Budget Allocation with Budget Scaling to scale your campaigns when they are below your CPA targets.
Furthermore, on top of this bid optimization (Pacing) that Facebook automatically does, we at Smartly.io have developed a feature called Bid Optimization which, when enabled, automatically optimizes bids based on the target CPA.
Blog Post: Bid Optimization: Pacing on Facebook Explained
Facebook Help Center: About the delivery system: Pacing
How Facebook spends your budgets
Facebook always aims to spend your budgets optimally in the time given to them.
Facebook will try to estimate what the best times to spend your budget are. For example, if your timeframe is multiple weeks, Facebook might estimate that a specific week or weekday is better for delivery than others, and spend the budget unevenly.
If you change a lifetime budget in middle of the lifetime, the new budget must be at least 10% higher than what the campaign has already spent in its lifetime. The same goes for the Campaign Spend Cap. Facebook will then spend the remaining lifetime budget optimally in the time remaining.
Read more about lifetime budgets in Facebook's Help Center.
Facebook reserves the freedom to spend up to 125% of your daily budget on any given day. If Facebook thinks that your results will be good on a Thursday, or that there is less auction competition on a Thursday, it might spend up to $250 even if you have set a daily budget of $200. Facebook will make up for it on other days of the week: the total spend over a full calendar week (from Sunday to Saturday) will be no more than 7 times your daily budget.
If you change your daily budget in the middle of the day, Facebook aims to spend "a prorated amount" on the rest of that day. For example, let's assume your budget was $500 in the morning, and Facebook already spent $300. That's 60% of the budget spent in the morning. You then change your budget to $250: Facebook will aim to spend 40% of that $250, meaning $100, in the remainder of the day. You would end up spending roughly $400 in total. However, as explained in the previous paragraph, Facebook reserves a freedom to spend less, or up to 25% more.
Read more about daily budgets in Facebook's Help Center.