How to scale Facebook ads from $50 to $50k/day— Understanding Facebook Algorithm.
It’s easier for anyone to achieve high efficiency on $50 — $100 daily spend. Scaling it to $5k or $50k per day is a pro game.
You might have heard or being told by some random gurus on the internet to “Just create $5 or $10 dollar campaigns and keep your budget low to get high efficiency.” Well, the guru is not completely wrong but it’s quite unrealistic to scale to $50k per day with this strategy and maintain the same efficiency.
In this blog, I am going to explain — why it is easier to get better efficiency at a lower budget and cost per conversion skyrockets once you start increasing the budget?
To learn how you can scale 10x or 100x on Facebook, we will first have to understand how the Facebook algorithm actually works.
Understanding the Facebook Algorithm:
The Facebook algorithm might be one of the most complex codes written in human history. It is based on cutting edge technology like artificial intelligence and machine learning. It might take years for one to understand the exact functioning of the Facebook algorithm. But the good news is, we don’t have to learn all these, not at least from a marketer’s point of view.
We only have to understand how Facebook decides which ad will be shown to a particular user (your potential customer) and at what cost. Marketing is all about winning from your competitors.
When a user (let’s say Alex) logs in his/her Facebook account and refresh news feed, he/she will be shown an ad after a few posts. To make understanding simple, let’s assume that there are 5 advertisers who want to show their ads to Alex. Now Facebook has to decide which one advertiser out of these 5 will get to show it’s ad. These 5 ads will go in an auction and the one who wins will get to show it’s ad. What is this auction based on? The answer is Total Value.
Facebook uses auction (in auction buying ads) to compare multiple ads and decide which ad will be displayed to a user at a particular time. The ad, which wins the auction will be shown to the user. In order to normalize/simplify the comparison, Facebook uses Total value to decide the winner of an auction. The ad with the highest Total value will win the auction.
May the ad with highest Total Value win the auction.
Total Value is defined by the following formula
[Advertiser Bid] x [Estimated Action Rates] + [User Value] = Total Value
The total value of an ad is a factor of the following components:
- Ad Quality — As self-explanatory as this metric might sound, in reality, it is much more than that. This metric makes sure that your ad is not creating any negative experience on Facebook. Facebook wants to create a good experience for its users and make its platform all happy and positive ( I know, right?). For this, It penalizes anyone who is doing the opposite. Ad quality includes your ad image, text, landing page speed, landing page experience, number of people hiding your ad, CTR, engagement rate, and many more factors. The negative experience might be anything including but not limited to — setting unrealistic expectations, false advertising, plagiarized content, slow landing page, sensitive content, using popup ads on the landing page, etc.
See these official guidelines for more info on how to create safe ads.
- Estimated action rate — Probability of taking a desirable action by a user. In other words, Probability for Facebook to make more money. If a user takes desirable action, Facebook can charge you more, you will get your lead or sale and ultimately invest more in Facebook ads. Don’t worry it is not as bad as you think, it’s a win-win situation. Facebook wants to show relevant ads to its user (which is only fair) and you want your ads to be shown to your potential customer.
- Bid — Last but not least. Bid, the crux of efficiency. The definition is “How much money one is willing to spend for a particular action?”. A product is worth how much a user is willing to pay. Given all the other factors common, the ad with the higher bid will win the auction. Well, there are two ways to get into Harvard, Be an excellent candidate or be a billionaire.
You will have to either improve the other two factors or pay the higher price to win the auction. Assuming you are not a billionaire or at least don’t have that amount of money just to throw away, you will probably have to improve on Ad quality and estimated action rate.
User value is a component of Ad quality and how users react to your ad, this includes CTR, post-click experience, post-click engagement, bounce rate, etc.
Now, in order to get the highest total value at the lowest cost, you need to maximize User Experience and Estimated action rate.
In other words, If your Ad follows all the guidelines, your landing page is engaging, your website is lightning fast, and your Ad is engaging and targeted to the relevant audience, You will pay minimum cost possible.
How to improve the Total Value of an Ad?
The simple answer will be: Improve all the three factors of Total Value and win the auction. But our aim here is to keep the cost low and still win the auction. So, we will have to improve Ad Quality and Estimated action rate.
- Target relevant audience — It’s a no brainer. You obviously have to target a relevant audience. Target your remarketing audience, target lookalike audience, filter lookalike audience further by adding interest filters. Create different lookalike based on product categories. Upload subscriber lists and existing customer lists to Facebook and target them (based on your product type). Use interest targeting. Use the Facebook insight tool. Use Google Analytics audience insights, InMarket and Affinity audience. Do customer surveys etc.
- Improve user value (user experience) — User value is not just about CTR, it goes way beyond that. Facebook wants to improve the user experience on its platform so that users come back to its platform and engage more. Basically Facebook wants to know whether the ad is serving its purpose or not. User value includes landing page experience, the relevancy of landing page with the objective, landing page speed, conversion rate, etc. So, if you have a landing page that converts well, your user value will be higher and it will cost less for you to acquire a new customer.
- Create high quality and relevant ads — Creating engaging and high-quality content abiding all the rules (including 20% text) will give your ad a great advantage. Even if people stop for a second to look at your ad, the algorithm takes that into consideration. So, always use high quality and well-designed images.
In order to scale to 10x or 100x, we need to understand how Facebook bidding works and the concept of discounted bidding.
Why CPA increases with increase in Budget — The concept of Discounted Bidding
Here, we will understand why the strategy of multiple campaigns with small budget works and why this strategy is not viable in scaling the business.
The Facebook algorithm is designed to get maximum conversions in the given budget (or maximum results in case of different campaign objectives). One important point here is that Facebook has to use the given budget for the entire day (for the daily budget) or for the lifetime of the campaign (for lifetime budget). In order to last the allocated budget for the entire day, Facebook lowers the bids to get the lowest cost per result available. This is what Facebook calls “Discount Pacing”.
Now, If you have understood the concept of Total value and Facebook ad auction explained above, you will understand that this strategy will not necessarily win auction all the time. But with the discounted bidding you will get the result at the lowest cost possible.
When your budget is small, it is easier for Facebook to spend the budget with discount pacing. That means with discounted bids, you might not win all the auction, but you will win enough auction to spend your allocated budget and that too at a lower bid hence lower cost per conversion.
But once you increase the budget, it is not possible for your ads to win all the auction and spend the allocated budget at discounted bidding. So, in order to spend the allocated budget and get the maximum result, Facebook increases the bid, so that you can win more auction(and get more results). As the budget further increases, the bids increase again.
This is the reason why campaigns perform better at a lower budget, and cost per result increases with the increase in budget.
So, should we just keep a lower budget campaign for better performance? the short answer is NO. The good news here is that we also have Facebook’s algorithm to leverage. Now this algorithm, like any other machine learning algorithm needs some data to learn and then optimize.
Once the campaign is set up (let’s say with conversion objective), it goes into the learning phase. in this phase, Facebook experiments with various combinations of placements, platforms, ads, etc to understand the most efficient way to promote your ads. And then the budget is allocated accordingly. Facebook not only looks at the efficiency metrics but also at the rate it is increasing and decreasing and shifts budget accordingly.
So, if you put a smaller budget on each campaign, it might take Facebook algorithm weeks to learn and optimize.
But if you put a significant budget with the right conversion event and let the Facebook algorithm learn and optimize, your results will be much more efficient.
The right strategy to scale with Facebook Ads:
Now, as we have understood that the cost is controlled by bid and bid depends on the likelihood of conversion and the total value, we should try to maximize the other two.
Scaling on Facebook — that is getting a new customer, requires a strategic plan for short term and long term goals. You need to understand that user interacts with your business from multiple channels and not just Facebook. They might first see your ad on Facebook, watch reviews on YouTube, ask friends for recommendations, search your brand on Google, Visit your ad multiple times via retargeting and remarketing and finally convert via a direct visit to the website. Below are some of the analysis you can do to understand the behavior of your users and customers.
- Analyze the website traffic and funnel position:
Go to Google Analytics -> Conversions -> Multi-Channel Funnel -> Path Length and
Google Analytics -> Conversions -> Muti-Channel funnel -> Time Lag
Once you have analyzed the above reports you will understand
a. How much time(in days) it takes for users to convert.
b. how many interactions it takes for a user to convert.
Based on this information you can set up your funnel
2. Funnel approach to acquire new customers:
From the above analysis, we know how many interactions it usually takes for a user to convert. You can also do path analysis and cross-device conversion analysis to understand more about your user behavior.
From the example above, We understand that about 55% of the user convert with 1 interaction (In reality it will be less as cookies expire after a certain duration or users might delete cookies or use a new device). 45% of the user takes more than one interaction to convert, hence it becomes essential to set up a robust Retargeting campaign and targeting users at the right time.
Further analyzing the above data, we notice that — 70% of the converter makes the purchase in a single day whereas only 55% convert with one season. That means about 15 to 20% of the converter made more than one visit in a single day and converted. This means it is important for us to create Retargeting campaigns based on recency and short time range. In the above case, I would recommend creating retargeting campaigns for a 1-day visit, a 3-day visit, a 7-day visit, and 30-day visits.
3. Creating Funnel:
Acquiring new customers online via ads requires a robust funnel structure.
Identify users who are likely to buy your product or service (Lookalike audience) -> Engage users from the TOF lookalike campaigns -> Retarget Users for Macro Conversion -> Retarget macro converter for Final Conversion.
Once you have set up retargeting campaigns based on the analysis in step 1 and 2, you will have to set up a Top of funnel campaign to fuel your Mid and Bottom funnel.
More relevant the top of funnel audience is, less it will cost for you to engage and acquire them. There will be some users who will buy your product with one interaction, so it is also advised to set up a campaign with a conversion objective with the TOF audience.
If the product cost is less/affordable, it will take lesser interaction and smaller funnel to convert. But if you into luxury or premium product or your product cost is significantly higher, it might take more interaction to convert users.
4. Setting up the right budget:
Once you have set up the funnel, you should keep in mind that Facebook will need at least 40 to 50 conversion in the last 7 days to optimize your campaign. So, you need to estimate the budget of your top and mid-funnel campaigns accordingly.
5. Scaling the campaign while maintaining efficiency:
While Facebook’s algorithm is designed to get you the most out of your budget, it can increase the cost per conversion with a sudden increase in budget. So, in order to scale, you should increase the budget slowly. You will also have to keep track of the ‘frequency’ and ‘first impression share’ to make sure you are not exhausting your audience.
If you have a significant number of conversion in the last 7-day window, you can put a cost cap or Target cost on your campaign and increase the budget. Keep in mind, if Facebook can’t get the conversion at your target cost, it will not spend the full budget. The spend can also be limited if you target the same audience in other campaigns.
Once you have set up the right budget and target cost as per your business goals, you will have more time to analyze creative performance and improve the quality of your ad.
6. Test, Test, and Test
Not all the strategies work for all businesses. one strategies might work for one business whereas the same can be a drastic failure for others. So, you need to first analyze user behavior, define target segments, and then test.
Test different buying types (Auction vs Reach and Frequency), test different campaign objectives, audience type, ad type, ad messaging, etc.
Keep testing, improving and scaling your campaigns and you will have the results.
Scaling your business on Facebook is not as difficult as it seems. But it does require a focused strategy and a strategic approach. You can’t just create random campaigns and expect Facebook to grow. You need to analyze the customer journey and optimize your campaigns (and objective) accordingly. You must give sufficient time for Facebook to learn and optimize your ads.
Further, Scaling a business online is a continues and strategic approach. It is not dependent on one channel or one medium. You need to engage users from all points of interaction. Facebook can be a boon to your marketing strategy if you use it right. Facebook’s algorithm can be leveraged in your strategy and you can use it to educate new users, engage them and finally acquire them.
I hope, this article will help in making your campaign more efficient. Don’t forget to leave a comment if you find the article useful.
I am a marketing enthusiast with 4 years of professional experience in digital marketing. I have worked with multiple startups and have handled advertising accounts of Fortune 500 companies.
Do not hesitate to reach out to me if you need any help in digital marketing.
You can contact me on LinkedIn.