The Auction System
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How to Lower Facebook Advertising Costs

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 has billions of data points from each user, understands how they interact with content, know they’re interested and how often they are online. All of this data is fed into how the advertising platform works.

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, creating a more complete profile of each user. Facebook is doing this to open up more advertising opportunities, and ensure when ads do rollout, it’s relevant content.

But users have expressed anger over these. 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 the intrusion of ads.

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 advertising placement

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.

Two factors determine whether your ads show, and at what position: your bid and your ad score.

The next section we take an in depth look at the secrets behind Facebook’s bidding algorithms.

After that we look at how Facebook scores ads, and how you can increase your score to lower ad costs.

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