We learned earlier that Facebook uses a competitive auction based on advertiser bid, an estimated action rate, and the ad quality to determine the best ad to show to a person at any given point in time. Let's now take a closer look at the advertiser bid part of the equation, and this is the amount an advertiser's willing to pay for someone in their target audience, to achieve a specific result. Like a customer visiting their website, downloading their app, or signing up for their newsletter. Your advertiser bid is determined by how much you're willing to spend in your campaign budget. Let's talk about how to optimize your bid. Your campaign's long term success relies are on not spending more on advertizing than you make in profits, which we learned in lesson one. So it's important to never bid more than the action you trying to get a customer to take, is worth to you. And that's why it's a good idea to only bid up to the true value of an action. Let's think about the flower business Calla & Ivy, imagine that Imra the owner plans a campaign to generate sales for new flower craft kits she just added to the website. Imra knows that she makes 20$ in profits on every flower kit sale, and she also knows that people who buy a flower kit, often become repeat customers of her. On the basis of this information, Imra decided that every flower kit purchased is worth a bit over 20$ to her accounting for those potential future sales. She decides she bid $15 in the auction for conversion focus campaign, it's under $20, and it leaves a bit of potential profit for her. In addition to choosing what your bid should be, you also have to let Facebook know how you want them to bid for you in the ad auction, and to do that you have to choose a bid strategy, sounds complicated? Well don't worry, Facebook has a tool to help. When setting your campaign budget in Selecting Campaign Budget Optimization, you can choose one of multiple campaign bid strategies. If you're just starting out and want to get a sense of how much it will cost you to get a specific result, like an app download, we recommend you go with the default bid strategy called Lowest cost. The lowest cost bid strategy tells Facebook to bid with the goal of getting you the lowest possible cost per desired action, while also spending your entire budget by the end of the campaign. It means you don't have to set a bid as Facebook will use its machine learning tools to spend your whole budget, as efficiently as possible, let me show you how you can think of this. So every time you set up a campaign, you determine a time for which your campaign will be running, you also specify who you want to target with your ads. Over the time of your campaign there'll be many opportunities to put an ad in front of your target audience, and let's represent those opportunities with dots. These opportunities will have a different price depending on how many advertizers, are competing for this opportunity. In other words, it will be more expensive to put an ad in front of your target audience, if more advertisers are bidding for the opportunity to put an ad in front of that same target audience. The lowest cost bid strategy, is by identifying the cheapest opportunities to place your ads while still achieving your results in the time frame you set. While the lowest cost bid strategy can produce costs that fluctuate more, Facebook still aims to get you the lowest cost results available. If over the time of your campaign auction competition decreases, costs may go down, if auction competition increases, costs may go up. The lowest cost bit strategy takes all of the data into account when placing your ads and it helps you get the most results for your budget. It also means that by the end of your campaign, you'll have a better idea of the lowest likely amount that you can spend to get a specific action. And it will make it easier to plan you campaign budgets moving forward. The lowest cost bit strategy can be a very good choice if you have a limited budget and want to achieve its many results as possible for that budget, let's go back to Calla & Ivy. When Imra opened up a new pop up store in Amsterdam and set up an ad campaign to reach people locally to generate awareness of the new location, the lowest costs bid strategy was the strategy she used. She had a limited budget to market the new store, and she wanted to reach as many people as possible for that budget. The lowest cost bid strategy, achieved that for her. Once you have more experience in advertising on Facebook, and want tighter control off your bids and costs, you may want to have a look at other bidding strategies that you can choose from the drop down menu. It is important to note that the more precisely you control your ad placement, the more constraints you place on Facebook's delivery system to achieve the lowest costs. And this means that all of your budget may be spent, and you may lose out on less expensive actions as a result. Let's now briefly go over the other bid strategies that do give you more control. The three bit strategies Facebook offers are called lowest cost, cost cap and bid cap and we just talked about lowest cost and we'll now go over cost cap. The cost cap bid strategy allows you to set an average amount you're willing to pay for a desired outcome, like a conversion on your website, this amount is known as cost control. The Facebook delivery system will try to stay under this average amount, while still getting you the lowest cost actions. Cost controls apply to your average cost per desired outcome, and this bid, type goes after the cheaper results first and then the expensive opportunities. And some of the opportunities cost more than your cost control, but Facebook may still go after them, because others were sufficiently below. In other words, they will go after the cheapest results first, but will go after more expensive opportunities once they've exhausted all the cheaper ones. And over the lifetime of your ads set your average cost should be at or below your cost cap amount. This bid type is best when you want to maximize cost efficiency, but also need to keep costs within a specific threshold. And given the cost control you've set, you also may not spend your entire budget with this bid type. And these are the main differentiators between cost cap, and the lowest cost bit type. Here's an example for Calla & Ivy where the cost cap bid strategy is a good choice. Imra has a website where people can buy her hand bound bouquets and roll in a subscription service and find the flower craft boxes. The website is relatively new and Imra is interested in attracting visitors to it, Imra knows that some of the visitors will ultimately buy something, but not all of them. She calculated that on average, a visit to her page is worth about $2 to her. So when setting up an ad campaign to generate more page visits, Imra decided to use the cost cap strategy with a 2$ cost control. This allows her to maximize the number of page visits for her budget, while keeping the average cost per page visit at $2. The final bid strategy is called bid cap and it works a bit differently. While the cost cap strategy controls for the average cost per desired outcome over time, the bid cap strategy limits what Facebook can bid in every single auction. For this bid type, you set what's called a bid control and Facebook will aim to get the most results for you without bidding more than your bid control. This means that if you set a bid control of $5 and a hundred optimization events become available for bids at $5 and 1 cent, Facebook won't enter your ad into those auctions to try to get them. In comparison, we'd likely go after all of them if we had chosen the cost cap strategy and set of cost control of $5. And we recommend a bid control over cost control only if you must tightly controlled the cost of every single optimization event you get. You can set your maximum bid under Bid Control in the Optimization & Delivery section, at the ad set level. And here is an example of when the bid cap bid strategy, might be a good choice for Calla & Ivy. Remember how Imra knows that for every flower and craft box she sells online, she makes $20 in profit? Well Imra decided that she really doesn't want to have a lose money on the sale of these boxes. She believes that at this point, her business cannot really deal with the loss. So she decided to use a bid cap bid strategy for her campaign, focused on sales of these boxes. She said her bid cap at $20, so Facebook will not pursue any conversions more costly than $20. And that way she knows that she won't be selling any of these boxes at a loss. That was a lot to cover, for now we recommend sticking with lowest cost, and that way Facebook will spend our whole budget as efficiently as possible. And once we have a better sense of how our brand and our products are performing for a given audience and we increase budgets, we might want to consider switching to one of the other two bid strategies.
