How to Optimize Bidding on Facebook?

Markus Ojala

PhD, Chief Data Scientist at Smartly.io

Marketing

On Facebook, advertisers can bid and pay directly for the final conversion goal, for example, purchases. As such, conversion optimized bidding is one of the most useful and simple features in Facebook marketing. In this blog post, we share our learnings on how to select bid amounts and optimization goals to maximize the results of your Facebook marketing.

Choosing the Bid Amount

Bidding in Facebook is simple: optimize towards the final conversion step (like purchase) and bid your true value for the conversion. However, choosing both of these is more complicated than it may sound. For starters, what does true value mean? It is the average life-time profit that you’re getting per conversion during a one day click-through, without view-through attribution window. Whew.

Did You Know?

  • Bidding the final goal with true value works well in most cases.
  • The bid amount is the maximum that you're willing to pay for any single conversion, not your average target CPA.
  • Only one day click-through, without view-through conversions are counted, so you can bid higher to compensate for the late conversions.
  • Smartly.io’s optimization features are built to complement Facebook’s own algorithms. 

Things to Know About True Value Bidding

  • The bid amount is the maximum that you're willing to pay for any single conversion in the target audience, not your desired average cost across all conversions. Paying this makes the conversion still profitable.
  • The maximum bid should be the life-time value that you get per conversion to maximize the total delivery and profit.
  • The Vickrey–Clarke–Groves auction system that Facebook is using guarantees that this is the best approach for all advertisers.
  • You pay less than your maximum bid, because that’s how the VCG auction works. Actually, your bid only determines whether you win the auction or not. The competing bids determine the final price. That is, you get all the conversions that are expected to be profitable. We have seen that often the average price is around 50% of the maximum bid, but it can vary a lot based on the competing bids.
  • Facebook bidding differs from Google AdWords where average bidding is the most common option.

Only one-day post-click conversions are counted, so you can increase the bid accordingly. 

  • One-day post-click attribution counts only those conversions that happen in the 24 hours since the user has clicked an ad. There can also be view-through conversions where the user has not clicked the ad but has later directly converted. Or conversions that happen multiple days after the click.
  • To adjust your bids, you should evaluate the proportion of one-day post-click conversions vs all conversions. This is easily done, e.g., by using Smartly.io’s reporting and comparing conversions with different attributions. For example, if 70% of the conversions come during the one-day post-click window, you should scale the bid by 1/0.7 = 1.43, i.e., bidding 43% higher than what is the true value for a single conversion.

We often see that advertisers are bidding way less than what would be optimal for them. In many cases, increasing bids based on the above suggestions is the most effective way to increase delivery and profit. If you do not know the true value of a conversion or have a budget constrained campaign where pacing is actually controlling the true bid, you can also use Facebook’s automatic bidding.

Choosing Your Bid Optimization Goal

The second step in Facebook bidding is choosing the optimization goal. You must have heard guidelines like “get about 30 conversions per day for oCPM to work better”. These are general rules of thumb that should affect the audience, bid and budget selection as a whole, but are not always the optimal way to select the bid optimization goal.

Together with our customers, we have recently performed about ten A/B tests using ad studies to find out how bid goal selection affects the ad set’s performance. As a summary, we observed that it’s almost always better to optimize towards the final conversion goal, like purchase, than some intermediate step like link clicks or add to carts, even if you would be getting just 5 daily purchases. Optimizing, e.g., towards link clicks can increase the delivery and number of clicks, but usually leads to fewer purchases and therefore a higher cost per purchase in the end.

Facebook is continuously improving their conversion optimization algorithm to maximize the results for advertisers. In practice, this means that there is less and less need for any manual bid optimization. Bidding the final goal with true value works well in most cases. Due to this, our approach to Facebook performance optimization relies on Facebook’s own algorithms for the bid part and building solutions that bring value on top of Facebook’s features.

Choosing Audiences and Budgets

Although the topic of this blog post is bid optimization, it should not be considered separately from target audiences and budgets. The target audiences you select have a big impact on the true value of customers. For example, travel advertisers probably have good insights on the lifetime value differences of a single tourist vs. a family vs. a business traveller.

Ad sets should have different bid amounts if their audiences have different life-time values. The more conversions an ad set gets, the better Facebook is able to optimize towards conversions. If your ad set is getting only a few daily conversions, you can consider the following tricks to improve performance. 

  1. Increase the audience size or combine multiple ad sets
    1. In general, audience splits based on demographic, placement and other simple features only decrease the performance of the campaigns, as Facebook can use this data directly in their predictions. Consider combining all of these splits back into a single ad set.  
    2. The splits can be useful if you know that the true values, and their corresponding bid amounts, are really different.
  2. Increase the budget and allocate it optimally
    1. As a rule of thumb, an ad set is well calibrated when the bids have true values and the budget-per-bid ratio is more than 20.
    2. Use our Predictive Budget Allocation to optimally allocate the budget between the ad sets.
  3. Increase the bid amount and change the bid optimization goal 
    1. Follow the best practices as described earlier in this post: increase the bid amount to true value and your bid optimization goal. 

Let us know if you have any recent tests that support or contradict our best practices written here. We’re continuously learning and improving our tool and recommendations - collaboration with you can help us get better results together!

Markus Ojala Markus Ojala

PhD, Chief Data Scientist at Smartly.io