Highest volume, cost caps, bid caps, what? Here's what they mean (and don't mean).

I tweeted something this Friday that started a GREAT discussion about Facebook bid strategies.

But it also showed that it isn't as straightforward to understand Facebook's ad bidding strategies as you would think. Highest volume, cost caps, bid caps, what?

So I decided to explain the three bidding strategies below 👇

Highest Volume or Value

This is the standard bid strategy that you use if you don't specify a bidding strategy. It's also the one most accounts use.

With the highest volume or value strategy, Facebook tries to get as many purchases or as high a return as possible for your daily budget. If you're setting a $500 daily budget, Facebook tries to get as much as possible out of those $500 every day.

The problem is that Facebook always spends $500 - every day, no matter what. Even when Facebook can't find any great prospects in your audience. Either because ad prices are too high on a given day, or maybe your audience isn't online. So you're wasting money.

Also, some media buyers think it's difficult to really scale with this strategy. Imagine that you can spend $40K profitably some days, but only $5K other days. Maybe because your profit really thrives on sunny days. Where do you set your budget? $40K and accept unprofitable days on non-sunny days, or $5K and miss out on $35K worth of budget on the good, sunny days?

To fix this, some prefer using one of the two other bidding strategies 👇

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Cost per result goal

I think the cost per result goal is the bid strategy people on Twitter call cost caps. Cost per result goal. Cost cap. Close enough.

But as you can see in the screenshots, it's not putting a cap on anything. It's creating a target cost per result.

So in the above example, Facebook tries to find leads at an average cost of 6 kr. ($0.84). Some leads will be more expensive than the target, and some cheaper. But over time, Facebook aims at hitting an average cost per lead of 6 kr.

But this creates a problem. What if a lead isn't profitable for you above 6 kr.? Then you're losing money on those leads where you're paying more even though the average lead only costs 6 kr.

And that brings us to bid caps. Bid caps is the only way to ensure you never pay more than 6 kr. per lead.

Bid cap

To explain the bid cap, I need to explain a bit more about what the bid is. Facebook decides which ads to show in your feed through an auction. The winner of the auction is the ad with the highest total value of three factors:

• Bid: What you're willing to pay for the outcome, e.g., a lead or a purchase. Facebook handles your budding automatically if you don't specify a bidding strategy.

• Estimated action rates: How likely is it that the viewer will engage with or convert from your ad?

• Ad Quality: A measure of quality based on ad feedback and more.

It's this bid factor above that you put a cap on with a bid cap. It's not the cost per result.

A high bid isn't enough to win the auction. It's the total sum of the factors that determines the winner. So an ad with a lower bid but a higher estimated action rate and quality can win the auction over ads with higher bids. This ensures that you're not just seeing ads from the highest bidders, but ads that are relevant to you.

With a bid cap, you make sure you can't pay more for a lead (or another outcome like a purchase) than your bid cap. But you can pay less. When you win an auction, you're actually paying the second-largest bid. So even with a bid at $100, you only pay $80 if the second-largest bid was $80. And you can pay even less if your action rates and ad quality makes you win the auction despite higher bids.

Let's go back to the scenario where you spend $40K profitably some days, but only $5K other days. With a bid cap, you can ensure that you're only paying less than your bid per outcome (e.g. lead or purchase). So if you can spend $40K and only pay less than your bid per outcome, you do that. If you can't, you spend less - maybe $5K.

So with a bid cap and a high budget, you're not capping your upside. But your limiting your downside - spending $40K of budget on unprofitable days.

Sell More During Black Friday!

Is your website ready for Black Friday?

Now is the time to optimize your website before Black Friday arrives.

In my new CRO Best Practices Notion book, you learn 78 best practices for designing a high-converting online store. Each best practice teaches you how to design a specific part of your store to sell the most.

At $150, it's only $1.92 per best practice!

Don't sleep on this. Each best practice can potentially increase your conversion rate by +10%. Just imagine what a 10% increase in sales can do for your business!

Get it here before it's too late to optimize your site before Black Friday.