Quantifying The Reach-Efficiency Tradeoff In Facebook Advertising
Any marketer that has tried running paid advertising campaigns on Facebook knows it is one of the most complex auction-based ad marketplaces that exist today. Constantly moving targets, rapid ad fatigue, and lack of transparency around the effects of bids and budgets on performance make it difficult to optimize these campaigns. However, sophisticated optimization strategies […]
Any marketer that has tried running paid advertising campaigns on Facebook knows it is one of the most complex auction-based ad marketplaces that exist today. Constantly moving targets, rapid ad fatigue, and lack of transparency around the effects of bids and budgets on performance make it difficult to optimize these campaigns.
However, sophisticated optimization strategies are impossible without understanding the mechanics of how ads are served on Facebook. To this extent, we examined performance of over 500 Facebook ads over a 3-month period in order to shed some light on how the Facebook ad marketplace works, and discover what metrics are key in driving performance.
Since there is variation in how ads are served on Facebook depending on pricing strategy, the following learnings will apply best to cost-per-click (CPC) or optimized cost-per-mille (oCPM) campaigns.
Bids, Budgets & Facebook Campaigns
Any discussion on Facebook campaign mechanics necessitates a brief preface on the relationship between bids and campaign budgets.
Facebook campaigns often spend to the budget limit as long the bid is sufficiently high. This behavior differs from that of paid search and programmatic display campaigns where ad inventory is usually the bottleneck. In order to assess the effect of bidding on Facebook campaign performance, budget also needs to be adjusted continuously so as to not constrain volume.
Another effect of having a marketplace that is not inventory-constrained is that ad placement can change rapidly from day-to-day or even hour-to-hour, resulting in unpredictable spikes in performance and volume. However, now that the marketplace is starting to mature somewhat, performance seems to have become somewhat less volatile, making certain analyses possible.
Effect Of Bidding On Reach & Frequency
Unique impressions (reach) and impression frequency (average daily impressions per individual) are important metrics for evaluating performance of any CPM campaign. On Facebook, it becomes particularly important to separate these metrics, as there is currently no method of frequency capping a Facebook campaign with the exception of inventory purchased through FBX.
To examine trends in these metrics, we looked at 500+ ads within 200+ campaigns across multiple advertisers, a combination of CPC and oCPM campaigns targeting various segments. Data for each ad was normalized so that the type of campaign or ad does not impact the overall trend.
Examining reach and frequency, we find that they both increase with bid up to a certain level.
However, at higher bid levels, this relationship breaks down after reach is maxed out. The following points are the key takeaways from the chart above:
- Both reach and frequency increase linearly with bid up to a certain level.
- Reach increases approximately 90% for every 100% increase in bid, while frequency increases around 17%.
- Reach plateaus or even declines at high bid levels.
- Frequency accelerates its growth at high bid levels, resulting in further growth in impressions beyond the reach limit.
Unique impressions declining at high bid levels may point to Facebook routing its high-price, high-competition inventory towards ads with the highest bids in order to maximize its revenue under conditions where reach is already maxed out.
Effect Of Bidding On Click Volume & CTR
Click volume behaves similarly to unique impressions at lower bid levels, showing that reach impacts click volume more than does frequency.
However, click volume does not drop off as rapidly as reach at high bid levels due to Unique CTR (unique clicks/unique impressions) being boosted by increased frequency. Takeaways from this chart are the following:
- Click volume is influenced by reach more than frequency
- Unique CTR generally decreases with increasing bid due to reach expanding to wider, less relevant audiences.
- Unique CTR recovers at high bid levels due to maxed reach and increasing frequency.
CTR, omitted in this chart, is approximately equivalent to Unique CTR / Frequency, and declines continuously with increasing bids.
Summary & Tips For Facebook Advertisers
These results show that paying attention to frequency and unique impressions is crucial to running a successful Facebook campaign. Beyond the point where unique impressions plateau, frequency starts inflating rapidly with no increase in clicks, leaving little reason to raise the bid further.
Reach being inextricably linked to frequency means that marketers need to be aware of the tradeoff between scale and efficiency. Increased frequency means greater costs when bidding CPM, and increased ad fatigue for both CPM and CPC. Understanding this relationship between reach, frequency, and CTR, along with achieving the right balance based on campaign goals, will be key to a successful Facebook advertising strategy.