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How Does Facebook’s CPC Bidding Work?

December 15, 2016 | Wayne St. Amand

At Brand Networks, we’ve seen recurring confusion among social advertisers around bidding strategies and the role they play in Facebook’s ad auctions. In particular, cost-per-click (CPC) bidding has been a source of head scratching for many, due in part to Facebook’s API update that changed the way it defined clicks.

Optimizing your Facebook advertising campaigns can be overwhelming for even the most well-versed social pros. With 10 marketing objectives to choose from, audience and placement considerations, ad types and more, it’s understandable that you may be unsure of the best way to set yourself up for advertising success on Facebook.

The following will take you on a journey through Facebook’s ad auction, the role-bidding strategies play, and how Facebook’s CPC bidding works.

Understanding Facebook’s Ad Auction

Facebook’s ad auction has two goals:

1. To help you, the advertiser, reach your target audience in the most valuable way possible, and

2. To maximize the user experience by showing users ads they’re interested in and ones they’re most likely to engage with

Here’s how the auction works:

When a Facebook user within your target audience is eligible to see an ad, Facebook holds an auction to determine which ad is shown to that particular user. With over 3 million advertisers on Facebook, you aren’t the only one trying to reach the individuals in your target audience, who are surely also included in the target audiences of other advertisers, even if their targeting specs are not the same as yours.

To figure out which ad is displayed, Facebook gives each ad a “total value,” which attempts to balance the value of the ad for you, the advertiser, and for the individual Facebook user who might be exposed to the ad.

To calculate the total value, Facebook looks at three factors:

1. Your bid, or how much you’re willing to pay for the desired action

2. The ad’s relevance score, and

3. The user’s estimated action rate

facebook's ad auction

Facebook’s CPC Bidding Explained

As we’ve noted, one of the three factors Facebook considers during its ad auctions is your bid. This represents the amount you’re willing to pay for the desired action. In the case of CPC bidding, you’ll only pay for action-oriented clicks that take users new destinations, typically off of Facebook (called link clicks). It’s also possible to use CPC bidding to drive clicks to Facebook Messenger, or into a separate Canvas.

Remember, Facebook’s current definition of CPC bidding doesn’t include engagement clicks (i.e. liking a page, commenting, etc.) like it once did. While this led to impressive metrics and low costs in many instances, you were often paying for less than desirable actions. This devalued your bid and resulted in Facebook’s change. Now, only accounting for action-oriented clicks, you may notice higher than average CPCs and lower click-through rates, but overall, you’ll be generating more effective and efficient ad distribution.

Here’s a complete list of advertising objectives you can optimize for within a CPC-based campaign:Traffic: clicks to destinations off of Facebook or to Facebook Messenger or a Facebook Canvas ad

  • Lead Generation: clicks to complete a lead capture form, typically focused on email address collection
  • Conversions: clicks to your website or app to purchase things online or to complete other forms hosted on a web destination
  • App Installs: clicks to install an application
  • App Engagement: clicks to deep links inside applications already installed on a user’s mobile device
  • Video Views: clicks to destinations off of Facebook or to Facebook Messenger or a Facebook Canvas ad — as part of a video ad

Every time someone carries out one of the above actions, you pay. It’s as simple as that.

Pro Tip: When deciding between manual and automatic bidding, make sure you’re weighing the benefits and drawbacks of each. On the one hand, automatic bidding allows Facebook to optimize your ad spend on your behalf, leaving less work for you. Manual bidding, on the other hand, can offer you an added degree of control over your spend and pace in many cases.

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With a constantly evolving advertising ecosystem as intricate as Facebook’s, there will always be something new to learn. While that makes for an exciting industry and marketplace, it can also create confusion for those trying to leverage the world’s largest social channel.

Regardless of the change, one aspect of Facebook that will remain constant (at least for the foreseeable future) is its auction and the fundamentals that comprise it, including bidding strategies like CPC. Having a comprehensive understanding of these will not only ease your concerns, but set you up for long-term success.

To learn more, tune in for our live Ad Age webinar on Thursday, December 15:
Facebook Advertising: Advanced Strategy for Social Success in 2017

REGISTER NOW

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