Expert Advice

Facebook Ad Bid Strategies: Lowest Cost and Target Cost

By 15th March 2018 No Comments

Advertisers often complain about cost stability and an inability to scale. There are Facebook ad bid strategies that may improve these results.

Are you not getting the cost per event that you’d like? Are you having trouble maintaining a stable cost when raising your budget? Bid strategies could help.

Let’s take a closer look at these bid strategies, how they work, and how you might use them.

What Are Bid Strategies?

Facebook distributes ads based on an auction format. The costs that you spend to reach a user will depend, at least partly, on the bid that you make to reach that user.

In most cases, Facebook automates bids (this is the default option). But advertisers can choose to manually bid in an effort to better control their costs. The primary goal of a manual bid is to get cost per desired action (typically a conversion) down.

Facebook offers two bid strategies that can help advertisers achieve lower or more stable costs: “Lowest Cost” (the default) and “Target Cost.”

These two options perform very differently.

Lowest Cost Bid Strategy

Facebook designed the lowest cost bid strategy, formally known as “automatic bidding,” to get you the lowest possible cost per optimized event while spending the entirety of your budget.

Facebook Ads Lowest Cost Bid Strategy

BENEFIT: The primary benefit of the “Lowest Cost” bid strategy is efficiency. Facebook tries to get you the lowest cost per event in the short-term.

DRAWBACK: The primary drawback of this bid strategy is that achieving those low costs may be short-lived. Results may be unstable as you spend more or competition increases.

Lowest Cost: Set Bid Cap

You can also set a bid cap if you want to control how much Facebook will spend for an event while using the lowest cost bid strategy.

Facebook Ads Lowest Cost Bid Strategy Bid Cap

Note that when using a bid cap, Facebook may struggle to spend your budget if you get cute and try to set it too low. However, setting a bid cap can help prevent an ad set from overspending for an event.

For example, if a particular conversion is worth no more than $2 for you, it prevents a cost per conversion of $2.50 or more. In that case, not spending your full budget may be a good thing.

When setting a bid cap, keep in mind that this is the most you want Facebook to bid for a single event. Since a bid is the most you’ll spend for that single event, you’ll usually spend less than that. So a bid cap can stand to exceed the value of an event to your business.

How to Set a Bid Cap

Facebook recommends using an average cost per result from prior campaigns as a starting point. Also consider the most you can pay for an event (not target, but maximum) while turning a profit.

Finally, Facebook recommends a daily budget that is at least five times higher than your bid cap. This is because Facebook needs at least 50 events (the learning phase) within a week to properly optimize.

After completing the learning phase, you may decide to raise the bid cap if you’re having a difficult time getting the distribution that you want.

Whether you set a bid cap depends mostly on the results you’re seeing. Facebook doesn’t know the value of an event to your business. If you need to prevent Facebook from overspending for an event, this gives you control. At the same time, you may want to set a higher bid cap to increase distribution on a high-value event.

Target Cost Bid Strategy

The target cost bid strategy, formerly known as “manual bidding,” is only available for the following campaign objectives:

  • App Installs
  • Conversions
  • Lead Generation
  • Catalog Sales

Facebook recommends using this bid strategy for achieving more stable results as your spend increases.

Facebook Ads Target Cost Bid Strategy

In theory, this is the bid strategy you should use when planning to raise your budget as your costs should scale better.

When using this bid strategy, you are required to set a target cost based on the chosen conversion window (7-day click or 1-day view by default).

What should you use for your target cost? As a starting point, use the amount you’d like to average on a cost per event basis. Find the lowest possible costs by lowering this amount until you are no longer able to spend your entire budget.

BENEFIT: The primary benefit of this bid strategy is cost per event stability. Especially useful when scaling.

DRAWBACKS: You may see higher fluctuations in cost until the learning phase is complete (50 events in a week) using this approach. You might also find that your overall cost per event is higher when compared to using “lowest cost.”

Additionally, Facebook will always try to get you a cost per event around your target cost, even if they could have found you lower costs. This can result in significant waste if you don’t set this target cost judiciously.

What Should You Use?

As always, it depends. There is never a universal strategy for all situations.

Most advertisers should stick with the default “lowest cost” without a bid cap. But consider applying a bid cap to prevent Facebook from spending more than the highest cost that would still be profitable.

In theory, you should use “target cost” when planning to run a long-term campaign or look to scale and raise your budget. This would establish a more stable cost per event. When doing so, experiment with the lowest target cost possible that will lead to spending your budget.

I say “in theory” because it’s very easy to overspend and get poor results with the “target cost” option. In my opinion, this option is best for the smallest group of advertisers who are the most sophisticated and dealing with the highest budgets.

Scaling Facebook Ads for Success Training Program

These bid strategies will be part of the discussion within my upcoming training program, running on March 27 and 29 (hosted by my friend Andrew Foxwell). The goal is to help you understand how best to scale your advertising efficiently, strategically, and without waste.

Those within Power Hitters Club – Elite, the highest level of my exclusive membership, will get automatic access to this training. If you read this post after the dates of the program, you can sign up for PHC – Elite to get access to the replays.

Your Turn

What’s been your experience with these bid strategies? What do you use and when?

Let me know in the comments below

The post Facebook Ad Bid Strategies: Lowest Cost and Target Cost appeared first on Jon Loomer Digital.

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