Even if you’re a veteran user of Facebook Ads, there is always something new to learn. The truth is, new and experienced Facebook Ads media buyers always need to stay on top of adjusting, pivoting, and driving better ROI for their business or clients. Otherwise, you risk wasting your money, time, and other resources on Facebook Ads campaigns that simply don’t deliver. But how do you know what the right strategy is and what’s working for you? Continually testing your Facebook and Instagram ads is vital, for starters. However, it isn’t only testing your ads that are important to your success. Facebook Ads bidding and pricing is another critical element of success.
And unfortunately, nailing this component of Facebook Ads is often overlooked. With the update of IOS14.5, Facebook Ads management is more challenging than ever. That means the need for more control has become of paramount importance.
Not to mention, continually educating yourself about the Facebook Ads bidding and pricing strategies that will serve you best. And if you’re here to do just that with this guide to Facebook Ads bidding, you’re already well ahead of the pack!
Everything You Need to Know About Facebook Ads Bidding and Pricing
In today’s post, we’ll break down all of your top questions and considerations for Facebook’s Ads bidding and pricing.
This includes things like:
- Bid cap bidding
- How bid caps work
- Target cost bidding
- Cost cap vs. bid cap
- Lowest cost bidding
- Overcoming common challenges with Facebook Ads bidding and pricing
…and so much more!
So, ready to get started? Let’s dig in!
Bid Cap Bidding For Facebook Ads: An Overview
So, exactly what is bid cap bidding?
Let’s turn directly to Facebook themselves for an explanation of this strategy:
“Bid cap is one of Facebook’s bid strategy options, meaning it tells us how to bid in the ad auction. When you use a bid cap, we’ll set a maximum bid across auctions (rather than allow Facebook to bid dynamically based on your cost or value goals). Bid cap is meant for advertisers who have a strong understanding of predicted conversion rates and can calculate the right bid.”
While this proves to be a successful strategy for many marketers, it isn’t without its challenges. For example, it requires regular bid changes since you can’t control the cost per action you see in reporting.
How Do Bid Caps Work on Facebook Ads?
Marketers who use internal bidding or lifetime value models often opt for bid cap bidding over cost cap bidding (more on that soon). It helps them control how much Facebook can bid in auctions, and keep a closer eye on their ad spend this way.
As for exactly how it works, Facebook also shares a great example that’s worth reading:
“A skincare company has conducted extensive research and determined that new customers that purchase a specific line of products spend $135 on average each year. This corresponds to a profit of $41 for the company. While the team is eager to acquire new customers, they don’t have a set budget. They decide that as long as they spend less than $41 to acquire a customer, it’s best to continue advertising. Since the team knows what value they can expect from a new customer, they don’t want to bid more for conversions than this exact value. The bid cap bid strategy will work well for them, and they cap the bid at $40.”
Understanding Cost Cap Bidding
Now that we’ve discussed bid cap bidding, let’s move on to cost cap bidding and how it works.
Here’s how Facebook explains this strategy:
“The cost amount you provide is an average amount we try to deliver against over the campaign lifetime, while dynamically bidding as high as needed to maximize results. This means that the average cost per result may exceed the set amount.
For example, a retailer optimizing for purchases may set their cost amount to a cost per purchase that will, on average, keep them profitable.”
We mentioned before that iOS has made Facebook Ads bidding and pricing more challenging. When it comes to cost cap bidding, you’ll want to ensure your ad set is scheduled to run for a minimum of three days if you want your ads to be seen by iOS 14 users.
Bonus: best practices for bid caps
- Cost cap should only be used when using Ad Set Budget Optimization, NOT CBO (Campaign Budget Optimization.)
- When using Cost Cap Bid Adjustments, the media buyers’ audience should remain the exact same, so the same Lookalike audience, the same interest, the same creative etc. The only difference should be the cost cap bid adjustment.
- Spend increments: Cost caps should be increased by $2 for each incremental test to determine which cost cap drives the best results. So, let’s say for $40 cost per customer acquisition is the default. The next cost cap bid adjustment should be $42, then $44, then $46.
When Should You Opt For Cost Cap Bidding?
Next, let’s talk about when to choose cost cap bidding over bid cap bidding. Most notably, this strategy is preferable when you want to keep your cost per action (CPA) roughly the same regardless of market conditions. As such, it can help limit complexities in managing bids while simultaneously maximizing your campaign results.
As for making the most of this strategy, in their best practices for cost cap bidding, Facebook explains:
“When cost (average cost per optimization event) is an important metric to evaluate performance, we recommend using cost cap to optimize around that cost. Cost cap helps you maximize conversion volume while controlling your cost. For example, if you’re looking to scale your business by driving as many subscriptions or purchases as possible, and are trying to stay around a certain cost per optimization event, we recommend that you use a cost cap. Once an ad set has exited the learning phase, we’ll try to keep costs around your cost cap, but an exact spend amount is not guaranteed.”
However, like other bid strategies, it isn’t without its challenges. For starters, Facebook’s “learning phase” can take longer with this option.
What is the learning phase, you ask? Here’s how Facebook explains it:
“The learning phase is the period when the delivery system still has a lot to learn about an ad set. During the learning phase, the delivery system is exploring the best way to deliver your ad set – so performance is less stable and cost-per-action (CPA) is usually worse. The learning phase occurs when you create a new ad or ad set or make a significant edit to an existing one.”
Why Does Your Bid Strategy Matter?
A bid is a bid, right? Not exactly. The truth is, different bid strategies work better than others depending on the type of ads you’re sharing, your goals, your budget, and a number of other factors.
When marketers set out to run Facebook Ads, they have different measurable business outcomes in mind. Perhaps they want to increase sales, boost website traffic, get more clicks, or any other number of digital marketing goals. These key performance indicators match certain bid strategies better than others.
And what does that mean for you? It means that choosing the best Facebook Ads bidding and pricing strategy is incredibly important if you want to get the specific results you’re hoping for with your campaign!
So, that brings us to what we know is your next question…
Cost Cap Vs. Bid Cap?
Cost cap averages out your bids to meet the desired cost-per-acquisition. Meanwhile, a bid cap places an artificial hard limit on what you’re willing to spend for each auction item being sold in order to maximize profit while still engaging customers with competitive pricing points that will bring them back again soon after their initial purchase.
This means that if you want to maximize your profits while still being able to use either bid or cost caps, then it’s important to understand the price points on each individual acquisition goal so they line up with one another. For example: If I have a high-end product requiring more money than what’s available in my budget but low-end ones can be purchased below cost due to their volatile nature (they vary depending upon demand), balancing both will require adjustments; however, when looking at overall performance across different goals over time, the success of our campaign is better with cost cap bidding.
The better option, as you can probably guess, depends on your goals. However, for most purposes, cost cap bidding comes out on top.
Understandably, many buyers or clients have a strict budget in mind and they’re fearful of investing too much in Facebook Ads and not getting a great ROI. To help manage these fears, it’s useful to get a clear understanding of each unique business’ cost of acquiring a customer, as well as how that cost will pay off in the long run.
As a media buyer, you and your client need to fully understand how much they’re willing to spend in order to get a customer to purchase or submit a lead. With this number in mind, we encourage you to choose cost cap bidding over bid cap bidding for the best chances of Facebook Ads success.
So, while cost cap bidding scares some buyers off because it requires a bigger investment (in many cases) it tends to pay off in the long run. However, it’s still a beneficial strategy because it tells Facebook “we want to acquire customers for “X” but we are willing to pay a little bit more if necessary.
This additional wiggle room is often the difference between a great ROI on your Facebook Ads and one that’s less than impressive.
Key Factors to Consider When Choosing Between Cost Cap and Bid Cap
But now, let’s get into even more factors to help you choose between cost cap and bid cap to make sure you end up with the right option for you.
- Cost vs. Conversions: For more campaigns at a lower cost? Opt for a cost cap. For fewer campaigns but with more certain conversions? Go for bid cap bidding.
- Your testing results: Be sure to test both strategies to discover which one works best for you, rather than solely relying on what works for other people.
- Control vs. convenience: Cost cap tends to be lower maintenance and more convenient, but you’ll have less control. Bid cap bidding gives you more control, but it also takes more work to manage.
- Your targeting focus: Cost cap is ideal for a broader targeting focus, while bid cap bidding is better suited when you have a more particular audience in mind.
- Your upper spending limit per ad: Need to keep an upper limit on your spending limit per ad? In that case, it’s usually best to choose bid cap over cost cap.
- Cost-effectiveness vs. predictability: Most marketers are hoping to walk that fine line between cost-effectiveness and control. While cost cap bidding might be more cost-effective, bid cap bidding offers you more control. So, depending on your priorities between the two, you’ll find one option that suits your needs best.
- Your campaign timeframe: The length of your campaign will also affect which strategy suits you best. For example, long-term campaigns tend to suit cost cap bidding. On the other hand, a tighter time frame suits bid cap bidding best.
Lowest Cost as Facebook’s Bid Strategy Option
Another strategy we need to discuss in greater detail is known as the lowest cost bidding.
Here’s how Facebook explains this form of spend-based bidding:
“Lowest cost is one of Facebook’s bid strategy options, meaning it tells us how to bid in the ad auction. When you use the lowest cost bid strategy, we’ll aim to get the most results possible from your budget.
For example, an event planner could use the lowest cost bid strategy to get as many people as possible to attend an upcoming music festival, where the cost per attendance doesn’t matter.”
On the other end of the spectrum, we have what’s known as highest value bidding:
“Spend your budget and focus on highest value purchases. For example, a florist may use the highest value to sell as many bouquets as possible, while focusing on selling more expensive bouquets to maximize value.”
Planning to give this bidding strategy a try? Here are a few things to keep in mind with lowest cost bidding:
- This strategy is ideal if you care about spending your full budget.
- Opt for this strategy if you want to most possible results for your campaign
- Lowest cost bidding works well for those who don’t have strict cost per action (CPA) requirements (also, keep in mind your CPA can still fluctuate throughout your campaigns with lowest cost bidding)
- Those who have specific goals (for example, a 120% return on ad spend) tend to prefer other strategies over the lowest-cost bidding.
Common Challenges in Choosing a Facebook Ads Bidding Strategy
Marketers often face a dilemma when they’re choosing between Facebook Ads bidding and pricing strategies. We know there’s always a balance between cost and control, and that tends to be the biggest consideration for their final decision.
To overcome this challenge, we recommend getting very clear about the goals of your campaign. At the same time, consider how much time and effort you’re willing to put into managing these campaigns.
So, let’s do a quick recap of the challenges and benefits of different strategies to help with your decision. But remember, it’s still a good idea to test different strategies to find out what works best for you!
After all, there’s always that one unicorn campaign that ends up thriving with a surprising bid strategy! So, don’t just assume one bidding strategy is right for you without exploring your options first.
Opt for cost cap bidding if…
- You want to maximize your results while still staying within the benchmark CPA
- You want to get the most volume for your ad spend
- Keeping your CPA at or below a certain amount regardless of market conditions is important to you
As for challenges to keep in mind, remember this strategy is prone to a longer learning phase and more cost fluctuations at first.
Opt for bid cap bidding if…
- You want to maximize your results while staying with your bid cap
- You want more control of your bids in an auction
- Ideal for marketers who use internal bidding or LTV models
Keep in mind, with this strategy, doesn’t control the cost per action you see in reporting. It will also require more frequent bid changes.
Opt for lowest cost bidding if…
- You want to maximize results (delivery and conversion volume) for your set budget
- Your goal is to get the lowest possible cost per optimization event
Blue Water Marketing: Our Facebook Ads Bidding and Pricing Strategy
We’ve talked about the pros and cons of different Facebook Ads bidding and pricing strategies. But as Facebook Ads experts, can you guess which one we prefer? For almost every client, we like using cost cap bidding over the other options once we’ve determined a winning audience and winning creative asset for that client.
And keep in mind, with the rising costs of Facebook Ads and the need for a bigger investment to stand out from the competition, spending “test” money to ensure the success of your ads is more important than ever. So, that old adage, “You’ve got to spend money to make money” really rings true here…
Regardless of the strategy you choose, Facebook Ads bidding and pricing is a lot of work. And even this comprehensive article only scratches the surface! But you don’t need to figure it out on your own. The media buyers at Blue Water Marketing would love the opportunity to provide you with a free campaign audit.
Our team has managed hundreds of thousands of dollars in Facebook Ads this year and understands how frustrating it can be to determine why things aren’t going right. We have a process that we have developed over the years that has a step-by-step approach to creating, optimizing, and scaling. We’ll take that same process and evaluate your Facebook Ads campaign in order to set you up for more success in the future.
Want to book your free audit? Click here to get started.