What is the right bid cap/cost cap that you should be setting for your business on Facebook?

When you look at the Facebook ads manager self-service platform for the first time you may feel a little intimidated by the bid strategy models displayed and wonder what they actually mean and as a result you try and refer the Facebook strategy guide but it doesn’t really tell you how much to bid and what strategy is to be followed for a particular business.

Facebook offers two types of bidding strategies;

  • Cost cap – Best for getting volumes
  • Low cost (with or without bid cap) – Best for controlling bids in the auction when a bid cap is set

The Low cost bidding strategy is an automated bidding model which can get expensive and campaign managers should not be deceived just by the name of it. If you do not set a cost control which in this case is a bid cap, campaign costs can run extremely high and it may affect the overall profitability of the campaign. But if you do set a manual bid cap then profitability of any campaign can be adjusted.

The second method of Cost cap will give high volumes but the spends may be slower than when using lowest cost; if you do not have strict CPA goals and care more about spending your budget, try lowest cost. The learning phase may take longer to exit than the other bid strategy, during which time, costs may exceed your cap; however, delivery should stabilise after exiting learning.If you typically observe conversions over a much longer window than seven days post click, you may observe stronger fluctuation in spend and CPA, but performance should stabilise over time.

Facebook has clearly mentioned that bid cap and cost cap amounts are not the same thing. Do not confuse these with Google bid caps too. Google bidding is based on clicks which eventually leads to a larger action (lead, conversion etc), but Facebook bidding is based on the amount you’re ready to pay for the final action itself.

So then what is the right strategy for your business? What is the right bid cap that you should be setting? What is the cost cap amount for your business? There are no straight answers to this, but yes Facebook still gives results at a very low cost as compared with other ad platforms when done correctly, hence many advertisers still prefer Facebook as a go to platform.

So let’s attempt to get answers to all of these questions!

  1. What is the right bid strategy for your business?

 If you’re starting out a fresh campaign and do not know what cost controls to set (bid cap or cost cap), the Low cost model without a bid cap would be your best bet. Please do not set cost controls right away, this will result in under delivery of campaigns if you bid too low. Facebook will initially try to learn about the audience and creative engagement rate metrics (quality, engagement and conversion) and provide the lowest cost possible but with time, the CPA generally increases and affects profitability. Say you’ve run this campaign for a period of 7 days with a similar window of attribution, you will have enough data to arrive at a cost cap. The cost cap amount is equal to your average CPA or cost per result.  This gives you a good benchmark for your business to work with and to optimize from there.

2. What is the cost cap amount that you should set?

Assuming your average CPA is at INR 200, your cost cap should be set anywhere >INR 200. Normally, +25% i.e. INR 250 should be a sweet spot. Not matter how large the amount you set, you’ll be paying only one paise higher that the competing advertiser in that auction.This amount can now be used to update the existing bid strategy of the current campaign from low cost to cost cap with a cost control set at 250. All new campaigns should be created with this benchmark in mind.

Do not set a cost cap to low but you should set it high enough to get quality performance from your campaigns. With the right amount set it will give Facebook an opportunity to deliver as well as maintain campaign goal quality.

3. What is the right bid amount?

 If you decide to run a Low cost bid strategy with a bid control, start with a bid of INR 10 and keep increasing it in multiples of 10 (10,20,30….) until Facebook shows you the estimation of your campaign goals you want to achieve on a daily basis. In the example below, for a bid of INR 200, I can reach 26K people from my audience daily and get up to 12 conversions.

So, we hope to have helped you from a lot of guess work in setting Facebook cost controls and saved those wasted $$$ in ad spends from extremely high costs. Let me know in the comments below if you have questions or share your views on how you control costs on Facebook.