How Does The Facebook Ad Auction Work?

As one of the largest digital advertising platforms, Facebook owns a network of apps, services, and websites with billions of users. The advertising opportunities in this network are plenty and brands could promote themselves using a variety of ad formats in different placements.

From In-feed ads on Facebook and Instagram to Messenger ads, each of these placements have their own unique characteristics and let you approach your potential customers at different angles. Facebook’s advanced advertising features and massive user base clearly makes for a giant clientele of millions of businesses that compete for those ad spots, and a modern auction system is the best way handle this competition.

Digital advertisement auctions are pretty common among major marketing channels, but they’re different than the image you probably have in your mind of an auction. There’s no auctioneer here and the highest bidder doesn’t necessarily win. Every advertising platforms handles auction differently, but the core principles are the same: When there’s an opportunity to show an ad to someone, an auction is held to determine which ad is shown to that person. Advertisers bid for this opportunity and the one with the best combination of bid and ad quality (based on the platform’s standards) wins the auction.

Digital ad auctions are the primary part of programmatic advertising, and I have to say the marketing industry is really lucky this system is invented. They massively streamline the process of self-serve advertising by letting you run ads across large networks and platforms without having to negotiate with each one individually. Facebook ad auctions are a great example, where you find the opportunity to put your ads in your preferred placements across Facebook, Instagram, the Audience Network, and Messenger all in one place.

One of the most important parts of running a Facebook Ads campaigns is defining the audience who will see your ads in the placements you pick. Audience targeting is one of Facebook’s strongest suits since you can get really granular with it and define your preferred target audience down to the smallest details. It also heavily influences your Facebook advertising costs. When there’s an opportunity to show an ad to someone, an auction takes place, and all the advertisers who have that person in their target audience will compete in it.

The participants in an auction don’t necessarily have the exact same target audience. For example, an e-commerce business that sells camping accessories targets all camping lovers and another one targets male users in Wyoming. A man who’s interested in camping and lives in Wyoming will fall into both of the target audiences and those businesses will compete in an auction to show their ads to that man.

As mentioned earlier, each advertising platforms has its own unique way of handling a digital ad auction and defines factors other than the bid that influence the outcome of auctions. The reason why digital advertising auctions are different than traditional ones is that ads are part of a virtual experience.

The winners are not going to take some prize home. People are going to see their ads in their every day visit to the platform, so it’s crucial they find them relevant and helpful. Advertisements are there to attract customers after all, and if the only determiner was the bid, people would be less likely to see ads they care about, resulting in a waste of money for advertisers and a poor user experience for recipients. Facebook incorporates three factors to determine the winner of ad auctions:

• Bid: Obviously one of the most important factors is advertisers’ bids. Your bid is the maximum amount of money you’re willing to spend on an ad opportunity and get your desired action. You won’t necessarily be paying the exact amount you’ve bade if you win the auction. For instance, if the second-highest bidder has set their bid to $2, and you set yours to $3, you’ll only have to pay $2.01 as the winner, not the full amount. Billions of Facebook ad auctions take place every day, and depending on the size of your target audience, you’ll be frequently competing in a lot of auctions during the lifespan of your campaign. Luckily, you don’t have to present for every auction and Facebook will handle it for you. All you need to do is set a budget and bidding strategy, and the automated system tries its best to get the desired outcome with them. There are four bidding strategies available on Facebook: Lowest cost, Cost Cap, Bid Cap, and Minimum ROAS.
• Estimated action rates: Facebook estimates the probability that showing an ad to a person will lead to the desired outcome of the advertiser. This is done automatically behind the scenes, and if the algorithm deems your ad capable of driving desired actions, it will give it priority in the auctions.
• Quality/Relevance score: This is measure of quality of your ad and how much you target audience finds it relevant. Your score is determined based on multiple factors, including user feedback (how much they hide or view your ad), and automated assessments of your ad. Facebook will check your ad for any low-quality attributes like engagement baits and poor post-click experience. The score your ads get directly influence their performance in auctions and of course, your advertising costs. If you get a very low score, you might not win auctions even with bids higher than your competitors. So make sure to use high-quality creatives, engaging copies, and focused landing pages to get a good score. A Facebook Ads spy tool could be of great help with this matter.