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Facebook Bid Types: Maximizing Effective Reach

When my grandfather retired, he took a part-time job driving cars to an auto auction on behalf of a local used car dealer. He’d tell me stories about the process; how they’d bring a car up to the stage and how other dealers and private owners would bid on the vehicle in question. In my head, I imagined that the process was just like I saw it on TV: a fast talking auctioneer, lots of commotion, and a loud “SOLD!”, after which the highest bidder would go home with the prize.

Within the online advertising space, literally millions of auctions are happening instantaneously, every single day, as advertisers place bids in an attempt to “win the prize” of their choosing. And one of the best parts about Facebook’s bidding system is the variety of “prizes” that a user could seek – ultimately changing communications with a target audience, and often for the better.

Bid Types

Strictly speaking, if your prize is to drive impressions, you work with the CPM bid type (“M” translates to “one thousand” in Roman numerals, so CPM means “Cost per Thousand Impressions”). Or, if you’re looking for users to click on your ads, CPC (Cost-Per-Click) is the bid type for you. Finally, if you’re looking to drive conversions — whether on mobile or desktop — either oCPM or Cost Per Action (CPA) bidding is a smart choice. As a result of this bid type selection, Facebook could serve your ads to different sets of users within that targeted audience — something known as your “Effective Reach.”

Effective Reach

Take an audience of US females, aged 18-24. Were you to select the CPM bid type, your ad could potentially be shown to all users in this target audience, because you’re telling Facebook that the prize you’re bidding on is their impressions. Were you to use the CPC bid type within this exact same audience, the Effective Reach (the users who will actually see your ads) will probably be different. Through your bid type selection, Facebook knows exactly what you’re looking to win in this auction – clicks.

Accordingly, your ads are shown to the sub-set of your audience that Facebook has identified as statistically more likely to click on an ad, based on previous behavior.  Thus, by selecting CPC as your bid type, and clicks as your prize, Facebook’s algorithms will do their best to seek out those users who are more likely to accomplish that goal – driving a click.

Effective reach: The difference between CPM and CPC

The same goes for action-based bid types like Optimized CPM and CPA. So, if you’ve picked CPA bidding for Mobile App Installs, Facebook will choose those users who are more likely to install apps on their phone, and serve the plurality of your impressions to these users. Or, if you’re using oCPM bidding for the Offsite Purchase Conversions, Facebook will target your ads to people who have a greater propensity to buy.

Custom Audiences

In the world of performance marketing, it’s a rarity that you’d bid solely on impressions, since you’re really looking for the end user to perform a downstream action, like a purchase. And if your true goal is Mobile App Installs, bidding simply on clicks might be a approach that’s a little too “up-funnel.” Let’s say you’ve uploaded a Custom Audience that’s made up of 5,000 of your best users. Bidding CPC or oCPM/CPA would potentially cut down on the amount of users who see your ads, because those people might not be “known clickers,” or “known action takers.” However, because you’ve already pre-qualified your Custom Audience as people who you want to see your ads, you can use CPM as your bid type.

Narrowing Bids

On the flip side, let’s say that you’re targeting an absolutely massive audience of 6,000,000 people, but are ultimately looking for an aggressively low Cost Per Action. Bidding via CPA with the exact price you’d be willing to pay for that action will ensure that your ads are only shown to the sub-set of users within that giant audience that will drive more actions within the price range you’re aiming for.

Winning

In the end, you’re just another buyer looking to win that auction and take home your prize. But knowing how different bid types impact the effective reach to your target audience will help you plan out future campaigns and capture the most qualified clickers and action takers Facebook has to offer. And with 1.28 billion monthly active users, the odds are in your favor.

3 Responses

  1. Thanks for this post. What value does Nanigans bidding add over the default OCPM for marketers of app installs and offsite conversions?

    • Karthik,

      As you know, Facebook’s oCPM bidding algorithm helps you seek out the users who are more likely to achieve that action *within* a given audience. The Predictive Lifetime Value algorithms built-in to Nanigans’ Ad Engine allow you to find the ideal oCPM-based bid for the audience itself.

      Short story longer: Ad Engine accrues data down to the Audience-Segment level to figure which of these set of users are more likely to drive positive ROI, or more affordable app installs/website leads. Once we figure out what we should be willing to pay to get a Facebook Action from that audience, we’ll pass that onto Facebook in the form of our ideal oCPM Bid for that audience. From there, Facebook seeks our the users who are more likely to accomplish that Facebook Action within that subset of the targeted audience – a.k.a. the Effective Reach.

      Let me know if you have other questions on this – I’m happy to help!

      Erik

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