The Beginner's Guide To Advertising On Facebook Ads pt4

The Beginner's Guide To Advertising On Facebook Ads pt3


How Does Facebook's Ad System Operate?

As you can probably already tell, Facebook has a lot of users and this creates a lot of ad inventory. After all, when a user loads many different pages as they check out different types of content on Facebook, these pages can be used to show ads. This is what makes up Facebook's ad inventory.

Bidding System

Facebook will look at your targeting criteria and match it up with all the other targeting criteria of other advertisers. Once they find advertisers targeting the same type of people, they would then look at what is the maximum amount of money you're willing to spend for every click. These are then compared against other bids in a real time auction that plays out every single second.

The good news? You may be outbid for ad inventory, but there's a daily spending cap. So, if your competitor already maxed out on their ad spend, technically speaking, your cheaper ads could show up.

However, you're taking a big risk here. You're assuming that there will still be inventory left over.

If the market you're targeting is so narrow and so tightly defined, there might not be much of ad inventory to fight over. In that situation, you can bet that your competitor will basically suck up all available inventory and your ad won't show.

Increasing Your Maximum Ad Spend Per Day

Given these realities, it's no surprise that Facebook constantly encourages advertisers to boost their daily ad limit. 

Put simply, it's saying that if you just raise your maximum ad spend limit per day, you can beat your cheaper competitors. But this doesn't necessarily mean that you will always be paying the top rates.

The practical effect is that you're locking in on inventory. Of course, this all depends on how motivated your competitors are and how targeted your traffic is.

Different Forms of Paid Ads

Please understand that the ad bidding and auction system that I described above applies to all ads. It doesn't matter whether the ad appears on a mobile device or is actually a promoted story, which is part of users' news feed. These are all paid ads. Accordingly, they all have to go through the bidding system.

Factors that Affect Per Click Value

Cutting close to home, which key factors does Facebook consider that directly influence the amount of money you're going to have to pay per click?

Please understand that there are many factors involved. But the bottom line is intensity and volume of competition.

If your competitors are highly motivated, they will basically have a big budget across the board and try to beat you in every market, at every time frame. However, with everything else being equal, the most important factor that affects pricing is the country of origin of the traffic.

Other key factors that affect your per click rate is the type of audience you're looking for. If there are a lot of advertisers competing over that same audience demographic, expect to pay a lot more.

Also, where the ad is placed on a typical Facebook screen has a big impact on how much you're going to pay. The more prominent the ad, the more expensive it would be. By "prominent," I mean that these are parts of the screen that people normally click on.

Finally, your click-through rate plays a big role. If a lot of people ee your ad but very few would click through, you're going to get charged more.

How come? Facebook suffers a big opportunity cost showing your ad. If it showed an ad that got a lot more clicks, it could make more money. That's the bottom line.

To push advertisers to post more effective ads, click-through rate is factored in to per click price determination. This means that if you put up an ad that performs really well, your per click rate goes down because Facebook is actually making more money off your ad. It doesn't have to show it a ridiculous amount of times for it to get clicked.

On the other hand, if your ad sucks so much that very few people would want to click it, you can bet that Facebook will charge you your maximum ad budget every day. In many cases, Facebook would even stop your ad because it just performs so badly that it's not worth running.

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