Previously, we started our advanced Facebook marketing series with an article on event-based lookalike audiences. Rather than just scratching the surface, like most articles and guides on the internet, we’re going into depth to help marketers and businesses progress in their field. Today, we’re focusing on lowest-cost cap bidding. What’s a bid cap? What’s a cost cap? How does it affect how you advertise?
Before anything else, let’s clear up a few misconceptions and define the different cost controls available through Facebook advertising.
Once you set a bid cap, Facebook will never exceed this amount with a single conversion. Behind the scenes, Facebook does all the calculations to ensure your cost per conversion never goes past what you’re willing to pay. If you set a bid cap of $10, your cost per conversion shouldn’t ever increase past this point. As soon as the platform can’t guarantee a cost per conversion of $10, your bid is removed from the auction (or Facebook doesn’t attempt to bid in the first place!).
Meanwhile, cost caps are slightly different because they allow the bid to fluctuate. Rather than setting a cost per conversion limit with each auction, the idea is to allow variation in bids so that the average cost per conversion comes out as expected. Using the same example as above, some conversions will cost more than $10 and some will cost less. Ultimately, though, the overall cost per conversion shouldn’t ever increase beyond your $10 target.
The third cost control method available on Facebook is called target cap, and this is where the algorithm looks for results that are as close as possible to your chosen cost. While bid cap doesn’t focus too much on how far you stray from the $10 limit, target cap looks for opportunities that are close to this value.
In truth, you could ask this question to 20 different marketers and get a split decision in return. Before comparing the three cost controls above, we should mention that not all businesses are actively controlling their costs at this stage. There’s actually a fourth option, and this is to push for the lowest cost.
Whenever you create a new campaign on Facebook, the default setting is no cost control; in other words, you’re saying that your margins and goals aren’t important because you purely want to seek conversion at the lowest possible price. If you don’t change these default settings, Facebook will bid for the cheapest opportunities in auctions and this means you pay as little as possible.
However, it’s important to note that Facebook doesn’t compare from one day to the next. Instead, it seeks the lowest possible cost in the present market. It doesn’t actively think ‘well, these prices are three times higher compared to yesterday, so I won’t bid on anything’. Instead, it seeks the cheapest conversions in the given market. Essentially, you’re telling Facebook to win an auction for the lowest possible price.
Behind the scenes, it works in much the same way. Traditionally, Facebook identifies potential buyers. From here, it segments based on the factors laid out by the business; this can include margins, goals, and price. If you choose no cost control, Facebook will segment accordingly and push for the ones who will convert cheaply. Only when you introduce cost controls do you ask Facebook to consider your goals and be more careful when participating in auctions.
The biggest difference between no cost controls and cost controls is whether or not your ad is delivered. As we’ve just seen, lowest-cost cap bidding means that your ads are delivered every single day, regardless of the market. Even if the market is three times more expensive than earlier in the week, Facebook is pleased that it managed to find the cheapest conversion now. On the other hand, using a cost control doesn’t automatically mean that ads are delivered.
If you choose bid caps, for example, your ad is only delivered if the system estimates that you can get the conversion for the cost you’ve outlined. Facebook actually looks at conversion rates and pixel data to determine the impressions required per conversion. Then, only the auctions likely to lead to conversions within your goal are targeted - something that doesn’t happen with lowest-cost cap bidding.
You might wonder why people choose lowest-cap cost bidding if the process is as described. For some, it’s a lack of historical data that forces them down this route. For any cost control measure to work, you need conversion data for the specific event you’re targeting. This could be for add to cart, sign up, leads, purchase, or another event. The Facebook algorithm uses historical data to learn and become more effective at ad delivery, even when this data is drawn from a different campaign. Over time, the algorithm learns about:
Often, we see new businesses get disappointed with the cost controls and claim that they aren’t effective. In reality, they don’t have enough historical data for Facebook to learn and progress. Therefore, new businesses and new ad accounts need a period of no cost control to build a backlog of data. With a new account, we can’t expect results from cost controls.
How do you know when it’s time to move across to cost controls? According to Facebook, you should be receiving a weekly total of 50 conversions. Once you’re achieving this number of conversions per week, you can then start to experiment with cost controls and have ads considering your goals rather than just cost alone.
After reaching the 50-conversion target, we recommend choosing a cost control mainly because it allows for scaling and larger budgets. As you start to increase your budget, keeping no cost controls is dangerous because Facebook will always use the full budget with no regard for goals and cost per conversion.
For some businesses, they’re unsure of cost controls and so split their campaign into several smaller campaigns. This way, success is spread between ads and there’s no need to ever move away from lowest-cost cap bidding. Unfortunately, the problem with this is that the Facebook algorithm relies on data. It’s much better to have all this data in one campaign to continually improve results.
How do you choose a cost control for your Facebook campaign when the time finally comes? Sadly, we don’t have a magical universal answer. As we said in the introduction, ask 20 marketers what cost control they prefer, and you’ll get a mixed response. It all comes down to your strategy and what you’re trying to achieve.
For some marketing teams, the aim is to stick to an average cost per conversion. If you don’t mind each individual conversion fluctuating somewhat, use the Lowest Cost with a Cost Cap option. Some conversions will fall below the cap, and others will go above. Over time, they level out and should sit nicely at your desired cost cap.
Bid cap is a stronger option for those who know the exact true lifetime value of conversions because Facebook doesn’t look for conversions above this amount. For example, you might find that this value is $20. In this case, set the Lowest Cost with a Bid Cap to $20 and Facebook will stick to this amount for all conversions.
Which one do you choose? Again, the answer is that it depends on whether you have a specific cost in mind for each individual conversion or if you are more interested in meeting an average conversion cost over a specific period. The key is that you have options.
Cost controls for Facebook are an interesting topic, and the concern is that many businesses lack the understanding to make a strong decision. Hopefully, with this next installment in the advanced Facebook marketing series, you now have the tools to get the Facebook algorithm working in your favor.
Remember, it’s always best to start with no cost controls. You might get frustrated with how it works, and you might want to implement cost controls, but they won’t be effective until you’ve built a backlog of data. If you already have this data after advertising on Facebook for some time, go ahead and test the cost controls (while keeping your goals in mind - don’t just choose one at the flip of a coin!).
With cost controls, you tell Facebook your situation in terms of profitability/conversions in addition to your goals. Facebook then uses this information to bid on the right auctions and contribute to your advertising performance. Keep an eye on ROAS when using cost controls and take a proactive approach to ensure the algorithm is always working for you rather than against you.