Facebook is running one of the largest auctions on the Internet and it enables anyone to buy advertising space on Facebook. The auction doesn’t work like a traditional one: the highest bid is not always enough to win it. The Facebook ad auction is designed to maximize advertiser value while optimizing the Facebook consumer experience.
A well-performing ad – e.g. high click-through rate and positive ad engagement – with a combination of high enough bid will allow you to win the auction and get your ad shown on Facebook. Generally, the more relevant Facebook predicts an ad will be to a person, the less it will cost for the advertiser to show the ad to that person.
What Facebook's auction system does
- Advertisers can maximize ROI when they bid at a level that signals their true value for the desired outcome
- People see ads they find interesting and relevant (relevance score)
- Advertisers reach people who are most likely to react positively to their ads
- Your auction performance depends on your stated bid, optimization goal, expected CTR or expected conversion rate, and relevance to people in your target audience. The total bid is derived from these and used to enter the ad into the auction.
- Budget Pacing enables Facebook to adjust your bids dynamically to ensure smooth delivery of ads throughout the lifetime of your campaign.
Note: if you bids are simply high enough to spend the whole budget, the bid amount doesn't actually make a difference. This is thanks to Budget Pacing, which automatically adjusts your high bid down in order to spend your full budget evenly & optimally on the cheapest conversions.
See Facebook's explanation about how much you will actually pay.
The levers in Facebook bidding
There are many ways to bid on Facebook. Read more about them here:
- The different Bid Strategies allow you to choose whether you want to limit your bid by a maximum or average limit, and other selections
- Depending on that selection, you can define a numeric Bid Cap or Cost Cap
- The Conversion Window determines which attribution window (1–28 days post-click, 0–28 days post-view) is used when counting which conversions to go after, and which you are willing to pay for (with the Bid Cap)
- The Optimization Goal determines what you are bidding for, and therefore who Facebook optimizes delivery towards
- For some Optimization Goals, you also specify a Conversion Event, telling which event you are bidding for
- The Billing Event determines how you pay for conversions
- Having said all of this: if your budget limits delivery (you don't spend your budget fully), the bid amount doesn't actually make a difference, thanks to budget pacing