Understanding the Facebook Ad Auction
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Facebook Advertising for Beginners

Before we can start learning how to master Facebook ads, we need to understand how and why Facebook decides who see’s what content.

Here’s what you’ll learn in this lesson:

  • The two things Facebook must balance (and why they matter to you)
  • How Facebook decides if your ads get shown
  • The importance of cost versus content when showing your ads

How Do Facebook Ads Work?

The Two Things Facebook Cares About

Facebook cares about the content people see. Bad content means people will spend less time on the platform. Fundamentally, they are focused on balancing the following:

  1. Serve ads to make money
  2. Making people spend more time on Facebook by serving relevant content

Facebook collects billions of data points from each user, understands how they interact with content, knows they’re interests and how often they are online. All of this data is fed into their advertising platform.

That’s Facebook’s biggest dilemma. How do you balance the needs of advertisers versus the needs of users? This is especially true when it comes to new platforms.

The changes in What’s App’s privacy policy was meant to combine data profiles of What’s App users with Facebook users by creating a more complete profile of each user. Facebook is doing this to open up more advertising opportunities, and ensure when ads do rollout, people only see relevant content.

But users have expressed anger over these changes. Some countries have even tried to block it from happening.

The same thing happened when Facebook started to allow ads on Instagram. People expressed anger over these changes. But in the end, people didn’t care because the ads they saw were interesting and engaging.

This is the problem Facebook must deal with every day. How does Facebook continue to make billions of dollars by increasing and expanding advertising, while also serving relevant content so people keep spending time on the platform?

The Solution – Balancing Ads and Content

Facebook’s solution to balancing content people want to see, with advertisers desire to serve ads is through Facebook’s Auction Model.

Traditional auction models are based solely on price. If advertiser A bids $5 to show an ad and advertiser B bids $3, advertiser A would always win.

You can see how this could be problematic. Advertisers with the biggest budgets would always win. Low-spending advertisers would never have a chance. It wouldn’t matter what type of content was shown – bigger bids always win. Bad content would permeate throughout Facebook, causing people to spend less time on the platform. That in turn reduces the effectiveness of Facebook ads.

Because of Facebook’s fear of losing users and ad revenue, Facebook auction model is different than a traditional auction – bid and budget aren’t the only factors that influence delivery. We’ll explain this in detail in the next section. But it basically means that Facebook focuses on what will create the most overall value for advertisers and users, rather than which advertiser is willing to pay the most.

How the Facebook’s Auction Works

The auction takes place every time a user logs into different Facebook properties. That includes Facebook, Instagram and the wider internet through the Audience Network. Basically you are competing for a chunk of space on Facebook.

Facebook looks to see if that user who is online matches the targeting group selected by the advertiser. If that person matches that criteria, the auction starts.

Total Value Score And How it Impacts Cost

For Facebook, bid costs are easy to calculate. But how do you determine whether an ad is relevant to a user? Once you understand how Facebook calculates relevance, you’ll have greater control over your ad costs.

So let’s dive into a little known score that help determine Facebook ad costs.

facebook total value score
From Facebook.com

To determine relevancy, each ad is assigned a what’s called a Total Value Score. If an ad’s Total Value Score is high, your ad will be shown more oftern at a lower cost. A low Total Value Score is a major reason why your ads aren’t showing, or why costs are high.

You are probably wondering what makes up a Total Value score. Don’t worry, we’ve got you covered.

There are three factors that influence your Total Value Score:

  1. Bid amount
  2. Ad quality and relevance
  3. Estimated action rates

1. Bid Amount

Bid amount is how much you’re willing to pay for people to see your ads. Go the previous lesson to see a more detailed analysis on bidding, specifically around manual and automatic bidding.

facebook audience bidding

Bid amounts are added at the ad set level.

2. Ad Quality and Relevance

Facebook wants to serve content that people will like. Ensuring relevancy and quality content is vital to Facebook’s continued success.

Ad quality and relevance are broken into three parts:

Advertising Account History

Each Facebook profile includes relevant information about your Ad Account’s effectiveness – in other words, the historical performance of your ad account and pixel matters a lot. Low interest in your ads means Facebook will increase the cost to serve your ads. This historical performance is included in the calculation of Facebook’s Total Value score.

Negative Feedback

People give negative feedback through ads by hiding or choosing not to see ads from you. Increased negative feedback will increase ad delivery costs.

Not only will higher negative feedback impact your ad campaign, it will negative impact your entire ad account by increasing the cost of all your ads. That’s why it’s so important to ensure the right audience see’s your ads.

Relevance Score

Relevance Score is a score based on feedback, engagement and actions tied to each ad. The more positive interactions, the higher the relevancy score. Ads are given a relevancy score after the first 500 impressions. Poor early results can kill an ad’s Relevance Score and increase your ad serving costs.

facebook advertising relevance score

Relevance Score helps you do two things:

  • Know when to refresh ad creative. Falling Relevancy Score means people are no longer interested in your ad.
  • Determine which ad creative is more relevant. You can use the score to test your creative and determine which message, image or video resonates most with your audience.

3. Estimated Action Rates

Estimated action rate is a measure of how likely a person is to take actions required to get the results you’re optimizing for.

So how does Facebook calculate this?

Facebook bases Estimated Action Rates on previous actions that target user has taken, the likelihood they will convert and your previous Ad Account performance.

For example, let’s say you’re running a campaign to download an ebook, and you’re targeting people interested in online advertising. Just because they care about online advertising doesn’t mean those users are likely to download the ebook. From the pool of people you target, Facebook tries to find people who are most likely to complete your action.

When an auction occurs, Facebook raises the value of the ad targeting that user – Facebook is actively making it easier for your ad to appear in that user’s feed.

Facebook Total Value Score

As an auction occurs, Facebook combines all this data into the Total Value score. The ad with the highest score wins and is shown to that user.

This is important – it means the highest bid doesn’t always win. In fact, the ad with the most relevant content will usually be shown first. Less relevant and lower quality ads are shown less frequently and cost more to deliver.

You now understand in detail how Facebook bidding works. With this knowledge you can start lowering your advertising costs.

The next section outlines other ways you can lower advertising costs.

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