The Facebook Auction Explained

Understanding how the Facebook algorithm works can be a bit complicated. From how ads are served to why they’re served to specific people, there’s a variety of different factors that goes into Facebook choosing the best ad to show to a person at any given point in time. Don’t worry, understanding how the Facebook auction works can better prepare you for greater impact.

What exactly is the Facebook auction?

Just like old auctions where goods were sold to the highest bidder holding a paddle, the Facebook auction works the exact same way. When there’s an opportunity to serve an ad to a prospect, in the background the auction is determining which ad to show to that person. This happens simultaneously billions of times each day on the Facebook platform.

Who’s competing in these auctions?

Advertisers from small ice cream shops to major retailers are all advertising to their target audience. Meanwhile, users on Facebook fall into a variety of target audiences based on their demographics, affinity, interests, current browsing data, and past history. When there’s the perfect opportunity for an ad to be shown, the advertisers that are targeting that audience officially enter and compete in the auction against one another for that impression.

How is a winner chosen?

A winner is chosen by having the highest total value, which is a combination of three distinct factors:

1. Bid: a bid is the amount that an advertiser is willing to pay for their desired action, such as a purchase or lead. Bidding strategies range anywhere from a target cost, bid cap, lowest cost, or cost cap.

2. Estimated action rate: the probability that the person the ad shown to will engage in the desired action. Not everyone on Facebook classified as an “engager” or a “purchaser,” ads are served to those based on how likely they will be to complete the desired action.

3. Ad quality: determined by the ads relevance to its audience, the landing page experience, and expected interaction rate. The higher quality an ad is, the lower the costs will be and likewise lower quality will have higher costs.

Together, these three distinct factors decide who will win that one placement in the action. Keep in mind that increasing the bid to bully out your competitor doesn’t mean that the auction will automatically be won, these three work together to provide the best user experience.

The Facebook auction is a complex system designed to, in less than a millisecond, decide what ad will be shown to the perfect person in perfect timing. Now that you understand the Facebook auction, you’ll be able to craft the perfect campaign to reach your target audience in the most cost-effective way!

More Insights from Dunham Institute: “How to Grow Your Audience and Impact on Social Media”

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