Whether running your own ad campaign or relying on a 3rd party service, knowing the basics of Facebook advertising can both dramatically increase your return on spend, as well as protect you from getting burned. To begin, it’s useful to have a basic understanding of how the Facebook ad platform works.
Buying ads on Facebook takes place primarily on a cost-per-click (CPC) basis. That means you specify how much you’re willing to pay for a click against a specific target (user age, country, region, gender, interests, college or professional network, etc.), and Facebook then compares your bid with others and ultimately shows the ad of the highest bidder.
As in any auction, the highest bid wins – except, this auction has one added degree of complexity…
While you’re bidding for clicks, Facebook is backing things out to a cost-per-impression. To do this, they determine your “click-through rate,” or percentage of users that will click your ad, and multiply that by your CPC bid to determine their effective cost-per-impression. For instance, if you have an ad that you’re bidding $1.00 per click on, and it gets a 0.1% click-through rate (CTR), that averages out to $0.01 per impression. Another bidder may have an ad with a $0.60 bid but a 2% CTR, averaging out to $0.012 per impression – as such their ad will be shown before yours.
Effective bidding then means finding and adjusting your CPC bid such that your CPC*CTR is competitive enough to get you the volume of clicks you desire.