Facebook just changed the way bidding is selected – so where did the oCPM go? The answer is that it didn’t go anywhere. The bidding interface has just been changed to be easier to use in future, and the algorithms used are still exactly the same. This blog post explains in three steps how the bid optimization should be done now.
Editor's Note: We wrote about our approach to ad perfomance and bid optimization in a newer blog post here.
Why Should You Care About This and Not Use Facebook's Automatic Bidding?
Facebook’s automatic bidding is great tool for beginners, making bidding very easy and providing reasonable results out of the box. However, as you learn more about the auction system’s behavior it will be more and more recommended to manage bids manually. Manual bidding is especially good for two reasons:
- Only you know how much you are willing to pay per converted user
- You will be in control of balancing price versus delivery volume
Did you know?
The only difference between paying per impression and paying per action (when using same target action and bid value) is the risk distribution between you and Facebook. When paying per impression you have small risk of paying over your target value if Facebook predicts conversion rates wrong. When paying per action you are moving that risk to Facebook, but in exchange they give you slightly lower delivery volume as they are now more careful on how much you are paying in auction.
Step 1: Select Optimal Target Action for Bidding
In a nutshell, optimal target action for bidding is one that is as low in your conversion funnel as possible and has enough daily conversions per ad set (an ultimate minimum of 20 conversions per day per ad set) to provide a predictable conversion rate.
Selecting action from bottom of the funnel is always preferred, because it tells Facebook in more detail what actions you want the users to take. It is better to optimize towards users who are likely to purchase from your website instead of users who are just likely to click on any links in your ad or browsing the website without ever purchasing anything.
Stable conversion rate is required because that allows Facebook’s bidding algorithm to reliably predict users’ probability to convert. There’s always random variation involved and a larger sample reduces the margin of error. We can illustrate this with the conversion amounts presented in image below (Image 1): in this example there are 4 checkout conversions and 30 product page visits per day. One more checkout conversion changes the conversion rate by 25%, while one more product page visit causes a change of only 3.3%. Thus, more daily conversions → more reliable data for Facebook → better optimization → better ROI.
As mentioned in our previous blog post, a common rule of thumb is to have minimum of 20 conversions per day per ad set. However in this case more is better as long as the target action for bid represents your true goal. In our case example we would recommend selecting Product Page visit as the target action.
Image 1. The sales funnel
Step 2: Set Correct Bid Value According to Delivery and Target Action
After selecting the optimal target action for each ad set, you must also define a corresponding bid value. For the action on bottom of the funnel this is simple: use the real value that you are willing to pay per action. For actions in other parts of the funnel you must estimate the conversion rates and calculate suitable bid levels based on them.
Using the earlier example, the image below (Image 2) illustrates the conversion funnel in percentages and the corresponding target cost per action (CPA) for each step. Assume that the ultimate goal is a purchase (Checkout) and we are willing to pay maximum of 20€ per purchase in order to meet our ROI targets.
A correct bid for a Product Page visit, which was selected as a target action in the previous step, is approximately 2.7€. The value has been estimated using the conversion rates between the funnel steps: on average 60% of all visitors visit on a product page, and 8% make a purchase. Thus, the conversion rate from the Product Page to purchase is 8/60 = 13.3% (see the image 2). As we are willing to pay maximum of 20€ per purchase, we can pay maximum of 0.133 * 20€ = 2.67€ per Product Page visit.
Image 2. The sales funnel and target CPAs
Step 3: Adjust Bid Based on Results
After performing the steps one and two, you can let your campaign run for a while and then check back on how it is performing. Now that you have data telling how the bidding is working, you can refer back to the tips #2 to #4 from the previous blog post in order to keep optimizing the performance. Here’s a quick recap of the tips:
- Increase bids to increase delivery. Recommended if an ad set is not delivering enough impressions, or if results are good but your whole budget has not been spent.
- Decrease bids if delivery is good but the actual cost per action is higher than what you are willing to pay.
- Optimize the creatives and audiences to improve relevance score and boost performance.