Outbid Your Competitors with the Right Facebook Bid Strategy

Date
Apr 5, 2022
Apr 5, 2022
Time
18 mins
On this page
Facebook bid strategy

The right Facebook bid strategy can make or break your campaign. Here’s how to select the perfect Facebook bid strategy to set your ads up for success.

The right Facebook bid strategy can make or break your campaign. But with all of the choices out there, it can be hard to figure out the best strategy for you.

In this post, we'll break down all the Facebook ads bidding strategies there are and provide actionable tips and best practices for each.

Let's get started!

How does bidding for Facebook ads work?

Before we get into the details, you first need to understand the basics of how Facebook ad bidding, delivery, and ad auctions work.

There are around 2.9 billion users on Facebook (yes, billion) and around 10 million advertisers. If you think about this from Facebook's perspective, there's only a finite number of ads they can show to a finite number of people.

So how does Facebook decide who sees what ad and when? Through the Facebook ad auction.

You can think of Facebook ads like a giant auction house. You're competing with other advertisers for the most coveted prize of them all—to get your ad seen and engaged with. And each action is a precious resource.

There are a few different actions you can bid on with Facebook ads:

  • CPM bidding. When using CPM (or cost per mile) bidding, you're dictating the amount you want to bid for 1,000 impressions.
  • CPC bidding. With CPC bidding, you're defining how much you want to bid for each click on your ad.
  • Conversion bidding. In the case of conversion bidding, you enter in the amount that a particular conversion is worth to you.

Just like a normal auction house, the person who has the highest bid typically wins the sale. However, even if your bid is twice that of your opponents, Facebook will only charge you for how much it takes to win that bid.

For example, let's say you're competing against an advertiser for a click action. You've set your bid to $10, while the other advertiser has set their bid to $3. Since your bid is higher, You'll win the bid. However, you'll only have to pay $3.01 since that's the lowest amount it will take to win the bid.

How do you win a Facebook bid?

Of course, having a budget and strong bid is essential to winning a Facebook bid - that much is true. But several other factors are just as crucial as your bid.

  • Your ad relevance. Since Facebook's ultimate goal is to make its users and advertisers happy, Facebook wants to make sure it's showing quality ads in each person's newsfeed. It does so by calculating ad relevance statistics. Ad relevance is an overall term that covers 3 particular data segments:
  • Quality ranking. Your ad's quality compared to other advertisers competing for the same audience.
  • Engagement ranking. Your ad's engagement rate compared to other advertisers competing for the same audience.
  • Conversion rate ranking. Your ad's expected conversion rate compared to other advertisers competing for the same audience.

Scoring high in these categories (as well as bidding correctly) will nearly guarantee that your ad will be selected over those with lower scores in these areas.

  • Estimated action rates. In addition to ensuring your ad is relevant, Facebook also wants to ensure that the person you're targeting is likely to take the action you desire—be it clicks, views, or what have you. To do so, it factors in your estimated action rate. That is the probability that a person viewing your ad will take that desired action.
  • Bid. Finally, your overall bid comes into play here, which is the overall amount you're willing to pay for your desired action. There are several different types of bid strategies, each with its own pros and cons. We'll be explaining them in just a minute.

In short, in order to win a Facebook bid, you'd need to ensure that your ad is of good quality, is targeted to an interested and engaged audience, and that your bid will be high enough to compete with other advertisers.

Manual bidding vs. automatic bidding on Facebook

There are two main categories of bidding strategies—those that are automated and dictated mainly by Facebook and manual bids that you have complete control over as an advertiser.

Facebook has recently separated these two main categories into 3 different subsets - spend-based bidding, goal-based bidding, and manual bidding.

Spend-based bidding allows you to focus more on spending your entire ad budget to get the most results possible. This includes the lowest cost and highest value bid strategies we'll see below.

Goal-based bidding, on the other hand, is all about meeting your specific goals at a target cost you have defined. Goal-based bidding strategies include the cost cap and minimum ROAS bidding strategies.

Manual bidding aims to give you the most control over your bid by setting a hard cap rather than letting Facebook decide how much a bid is worth to you. Bid cap is the only manual bidding strategy available.

Now that we've got a grasp on how the auction works and how to win one, we can dive into the fun part—the individual bid strategies themselves.

Lowest cost bidding strategy

First off, let's start with the lowest-cost bid strategy. This is one of the more straightforward bid strategies that works exactly like you'd think—giving you the most conversions possible at the lowest cost.

Facebook even goes as far as to make this bid strategy the default when creating your ad sets:

lowest cost bidding

This bid strategy is the recommended starting point for beginners and those looking for an easy campaign setup. While you might be inclined to start off with this option, you need first to consider the goal of your campaign.

With lowest cost bidding, Facebook will optimize for the most conversions without regard to a minimum cost. This can inevitably lead to lower-quality conversions and higher CPA prices.

If your end goal isn't necessarily tied to revenue (such as page likes or post engagement), this could be a great option to keep the budget down as those actions are not typically associated with direct income.

When trying this bidding strategy with lead generation, however, make sure to track the conversions coming through your campaigns throughout their journey to ensure they end up becoming customers and that your ROAS remains positive overall.

All in all, the lowest cost bid strategy is a game of quantity over quality. If you're looking to get a large number of conversions and aren't too picky about the quality or don’t have strict CPA requirements, this bidding strategy is a good choice.

However, for those with more revenue-driven goals or ad experience, it's likely that your ad spend would be better spent on one of the other bid strategies below.

Highest value bidding strategy

Next up is the highest value bid strategy. In complete contradiction to the previous bid strategy, highest value bidding is designed to bid more to get the maximum value from a conversion.

highest value bidding

Facebook does this by using machine learning to determine how much ROAS a person in your audience might generate, using past purchase history and engagement data. It then chooses to bid more on people it thinks will have a higher conversion value (revenue).

The theory behind this strategy is that if you spend more to find people who will buy more, you'll have a better chance at creating a campaign with a high ROAS. This makes it a go-to bidding strategy for eCommerce advertisers or those with revenue-driven goals that do not have hard CPA caps.

If you're thinking to yourself, "This seems a bit too good to be true.." you may be right. One of the caveats of the highest value bid strategy is that it comes with a bit of work and certain eligibility requirements.

To start off, you'd need to have the Facebook Pixel or SDK installed. We won't be covering the installation in this article, but you can read our guide, which breaks down each step for you if you need to set one up.

In addition to that, you'd need to meet the following eligibility requirements:

  • Your Facebook Pixel or SDK needs to:
  • Send and optimize for Purchase events with tracking values.
  • Have at least 2 distinct values triggered over the last 7 days.
  • For mobile app tracking (SDK), it must:
  • Have generated at least 15 attributed optimized click-through purchases with values over the last 7 days.
  • Have app events configured in Events Manager, with value optimization turned on for the events you want to optimize for value.
  • For web tracking (Facebook Pixel), it must:
  • Have generated at least 30 attributed optimized click-through purchases with values over the last 7 days.
  • Have web events configured in Events Manager, with value optimization turned on for the events you want to optimize for value.

In short, you must have campaigns that have recorded different purchase conversions (with different values) in order to be able to use this bid strategy. That's because Facebook uses this data combined with the data it has on your audience to determine best who to bid for and how much.

Facebook also recommends that you have a variety of purchase values and a variety of products in order for the highest cost bid strategy to function at its best. This means that eCommerce advertisers with few store products will have a hard time getting the most value out of this bid strategy.

Cost cap bidding strategy

If the last two bidding strategies were opposites, cost cap bidding lies somewhere in the middle. With cost cap, you set the desired CPA that you want to maintain for as long as possible.

For example, if you're looking to generate free trial sign-ups that have a static value, you can use cost cap to generate the maximum number of conversions while keeping a (mostly) flat CPA.

cost cap bidding strategy

There is one major item to note here: your cost cap is not a guarantee but a target.

During the learning phase, Facebook is trying to optimize your campaign for the best performance internally. You will almost certainly see the CPA fluctuate as it tries to find the best way to generate conversions at your ideal rate.

In order to ensure this campaign runs smoothly, you'll also need to set a realistic cost cap. If you haven't yet achieved a CPA of $20, setting a cost cap bid won't magically make it happen. We recommend analyzing your previous CPA averages by campaign goal and setting a modest CPA cap.

Something to also pay attention to with this bidding strategy is your delivery. Since cost cap works by optimizing for a sustained target cost, over time, it will eventually run out of steam and be unable to find further conversions for that price as there is a finite number of users it can deliver the ad to.

At this point, you'd need to either set a higher cap or update your ad's audience and creative elements to find more conversion opportunities.

Bid cap bidding strategy

The bid cap bidding strategy can be thought of as cost cap's older, stricter brother. When using bid cap, you set the maximum amount you want to pay for each auction without going over it.

For example, let's say you sell very low-cost items—perhaps a collection of graphic tees for $10 each. You know that you need to make at least $7 every sale, so the maximum amount of money you can spend to remain profitable is $3.

Bid Cap allows you to set your maximum bid to $3 to ensure each and every conversion is a profitable one.

bid cap bidding strategy

While this bidding strategy can be of great use, it also hinges on a crucial factor: what target is actually achievable.

Just as with the cost cap bidding strategy, ensuring you're setting a cap you can reach is integral to how this strategy operates. If you set your cap too low, your ads will have fewer impressions, or worse—none at all.

Facebook bid cap vs. cost cap

Cost cap and bid cap are incredibly similar, so it can be hard to tell the two apart at first glance. All in all, it comes down to the flexibility of your CPA. Facebook even has an infographic to help break down the differences between the two:

bid cap vs. cost cap

With the bid cap bidding strategy, you're drawing a harsh line in the sand. If you set your bid cap to $3, and the cost to win a specific auction is $3.50, you'll lose that auction. This can help keep those with thin profit margins from going over their strict budget.

Cost caps give you a little more wiggle room and are better for those with more flexible CPA requirements. Instead of focusing on a very hard figure, it looks at the big picture. The specific cost you pay for a particular conversion may be lower or higher than what you set, but the average CPA will be within your target range. That's more suited for those who need a reliable CPA and do not have as small of a profit margin.

Minimum ROAS bidding strategy

Last but certainly not least is the minimum ROAS bid strategy. Minimum ROAS (or return on ad spend) is used to ensure a minimum return on your overall budget.

For example, let's say you have a budget of $100, and you want to make sure you at least make $150 for your effort. You would be looking for a 150% return, which means a ROAS of 1.50.

minimum ROAS bid strategy

If you think that this strategy sounds eerily familiar to the highest value bidding strategy, you'd be right. But there's a little more nuance to these options than you'd think.

With highest value, you're telling Facebook to bid more for opportunities that will lead to higher revenue than others. You're not telling Facebook how much you need specifically, just that you want to bid more for them.

With minimum ROAS, you're giving explicit instructions that you need to make at least X amount for your campaign budget. This method gives you more control over your budget and revenue.

Minimum ROAS also comes with the pitfalls of a more controlled bidding strategy. That means, if you have an unattainable goal, your campaign will see fewer or no impressions. Setting an achievable goal is once again critical to using this particular Facebook bid strategy correctly.

You'd also need to meet the same eligibility requirements as the highest value bid strategy as it pertains to Pixel/SDK installation and previous conversion data.

Like the bid cap and cost cap strategies, minimum ROAS is best suited for those who have revenue-based goals as well as historical data and CPA benchmarks that can help them to determine the correct ROAS figure.

What is the best Facebook bid strategy for you?

If you're feeling a little weary, don't fret. Facebook bidding strategies can be one of the more complex topics in the ads world. But by now, you know enough about each of them to be able to make an informed decision about the best one for you.

When deciding which bid is best for you, ask yourself the following questions:

  • What's my skill level with Facebook ads? If this will be your very first Facebook ad, selecting the most complicated bidding strategy is an easy way to waste your ad spend. Several of the choices mentioned today also require you to have historical data, which a beginner would not have.
  • What's my campaign objective? Each Facebook campaign can (and should) have a different objective and a different bidding strategy based on its goals. If you're more interested in page likes, post engagement, or video views, you likely don't want to spend a ton of money on them. Since purchase conversions mean sales, advertisers are willing to spend more money to have higher quality results.
  • How flexible is my CPA? Companies that sell low-ticket items typically have a very small window of profitability before the cost of advertising exceeds their return. On the other hand, companies that sell homes or high-cost services have more flexibility as the profit vastly exceeds their costs. Knowing what budget you have available for each type of goal is the best way to determine which bid strategy is best for that specific campaign.

If you're looking for a quick overview of the use cases and pros/cons, we've made a handy infographic just for you.

Facebook bid strategies - pros and cons

Feel free to print this graphic or save it to your desktop to reference at any time.

How to optimize your Facebook bid strategy

We've talked a lot about how to set your campaigns up for success. But now it's time to face the ugly truth...

...sometimes things just won't go as you planned.

As we covered at the beginning of this article, there are several components that go into the Facebook ad auction that ultimately decide how successful you'll be. But what do you do when things go wrong?

Before you delete your ad campaign entirely, try a few of these optimization tips to improve your Facebook ads bid strategy.

  • Check your ad quality. Before going any further, check to ensure your campaign's creative elements are engaging and interesting. Changing your bid strategy won't have much effect if you have a low-quality ad. Be sure to check your ad quality ranking and aim for an average or above-average score.
  • Review your ad relevance. In addition to having a visually appealing ad, you also need to be targeting the right person. After all, trying to sell golf clubs to someone who only has a passion for football isn't the best use of your campaign budget. Make sure you have solidified your target audience and use Facebook's ad relevance diagnostics to get insight into your performance.
  • Use more than the minimum required bid. Everyone wants to get the best deal—but in some cases, playing it safe can restrict your growth. If you're using a very low bid, try to increase your price to the middle of the recommended bid for that particular goal. This will help give your ads a competitive advantage over those who are paying the bare minimum.
  • Test multiple bidding strategies and amounts. Scientific progress requires experimentation, and the bidding system follows the same rules. If you've been trying the same bid strategy over and over with lackluster results, try switching it up and experimenting with a higher bid or another strategy. This process can be frustrating as you'd need to duplicate ad sets and set different bids with each, but it is one of the most powerful optimization hacks on this list.

If you're still confused as to which strategy is right for you, that's okay. Many Facebook ad campaigns are created by business owners who are good at their craft but not necessarily experts with the technicalities of ads.

It almost makes you wish for some sort of magic wand that would help you experiment and find the best bidding strategy for your unique goals.

Luckily, Madgicx has that wand in stock, just waiting for you.

Scale your bidding strategy with Madgicx’s Bid Testing tool

Madgicx's Bid Testing tool makes it easy to experiment with different bidding strategies so you can easily find the optimal bid for your ads.

We do so by finding ad sets with the best potential and testing different bid values to discover which settings give you the best ROAS. Instead of having to duplicate your ad sets or campaigns over and over, our platform has intuitive controls that allow you to set multiple bids with a single click.

Madgicx bid optimization

We also understand that being able to analyze your results easily is just as important as being able to create your test in the first place.

That's why we created a powerful dashboard that helps you compare your experimental strategies with your control variant side by side.

Madgicx bid testing analytics

Not only that, but Madgicx does the heavy lifting by automatically selecting your top 2 winning ad sets for you. This means that you don't have to be a Facebook ads pro to find the right Facebook bidding strategy for you.

If you want to learn more about how to set up this feature in your Madgicx account, check out our knowledge base article and video here.

Key takeaways

We've covered a lot of ground in this article, including how Facebook Ad bidding works, all 5 of the available bidding strategies, and how to optimize your bidding strategy when things go wrong.

Starting off on the right foot by creating a campaign with compelling creatives, a relevant audience, and the right budget is integral—but having a well-rounded bidding strategy is the last piece of the puzzle you need to achieve success with your Facebook ads.

Date
Apr 5, 2022
Apr 5, 2022
Tory Wenger

Tory is a digital marketing specialist and the current Marketing Manager of Breadcrumbs.io. She's been featured in various high-profile marketing blogs like Hootsuite, AdEspresso, and Databox and holds certificates for both Google and Facebook Ads. In her spare time, she gardens and paints from her house in the Florida panhandle.

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