The Facebook Ad Algorithm: What Marketers Need to Know

Want to lower your Facebook ad costs?

Looking for tips to optimize your Facebook ad campaigns?

To explore the Facebook ads algorithm, I interview Ralph Burns.

More About This Show

The Social Media Marketing podcast is designed to help busy marketers, business owners, and creators discover what works with social media marketing.

In this episode, I interview Ralph Burns, a Facebook ads expert. He runs Tier 11, an ad agency focused on serving eCommerce businesses. He’s also a co-host of the Perpetual Traffic podcast.

Ralph explains how your bidding and campaign objective settings can help or hurt your ads budget.

You’ll also learn how the Facebook ads algorithm determines whether your ads provide a good user experience.

Share your feedback, read the show notes, and get the links mentioned in this episode below.

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Here are some of the things you’ll discover in this show:

Facebook Ad Algorithm

Ralph’s Story

Around 2007 or 2008, Ralph began running online ads on his sales and management blog. With AdWords, the blog had good pay-per-click traffic. In 2009, Ralph’s blog led to his being fired from his corporate job in sales and management. To make more money, he became an affiliate, selling other people’s stuff with pay-per-click ads via networks such as Yahoo! and MSN.

When Facebook started placing ads in the right column, Ralph began running affiliate ads on Facebook, too. Back then, the targeting wasn’t nearly as good as it is today. The only targeting options were gender, age, where someone lived, whether someone was interested in men or women, and relationship status (single, married, or it’s complicated).

With the targeting options available, Ralph thought he could be successful running a dating offer and became a super affiliate for the dating service Christian Mingle. Through this experience, Ralph learned that Facebook was a tremendous platform with an amazing amount of traffic.

When Facebook started running ads in the news feed, Ralph became one of the early adopters of direct response advertising and he’s been doing it ever since. Along the way, Ralph started his agency, Tier 11. In the beginning, the agency worked primarily with information-based products such as coaching services.

Today, Tier 11 focuses primarily on eCommerce clients but still works with some information-based products. To sell physical products, Tier 11 uses a strategy called the eCommerce amplifier, which converts cold audiences into purchasers or even long-term customers. The agency has a large team, is rigorous about choosing clients, and has a close relationship with Facebook.

Listen to the show to hear Ralph and me discuss the pros of being fired.

Why Does Facebook Have an Ad Algorithm?

The Facebook ad algorithm works with the auction and is a big black box few people understand. Facebook uses the ads algorithm to determine the best ads to show the best audience while also creating a good user experience. In January 2018, Mark Zuckerberg said Facebook will prioritize meaningful interactions. This priority shift has changed how the algorithm and auction work.

The Facebook ad algorithm doesn’t give highest priority to the highest bid because Facebook wants to create a good user experience. If advertisers monopolize the news feed, Instagram, the right-hand column, or wherever you’re advertising on Facebook, people won’t return to Facebook.

As a public company, Facebook needs more advertisers to generate the earnings that interest Wall Street. But it also has to keep its users happy. The auction manages these competing factors by way of the Facebook advertising algorithm.

I note that since the problems with political ads and Cambridge Analytica, Facebook is probably especially sensitive to ads that turn people off. Not all ads are created equal and therefore shouldn’t necessarily be shown. Ralph agrees and adds that the news around Facebook’s political ads has shown his clients how popular the platform is and has increased demand for Facebook ads.

At Tier 11, Ralph makes sure ad campaigns are run the right way. They work within Facebook’s policies and help the platform provide a good user experience. Anyone who advertises on the platform and has any success has to look at advertising that way.

Ralph says Facebook has become more conservative from a data standpoint, which Ralph sees as a good thing. He thinks Facebook sees itself as blazing the trail for how data is treated in digital advertising.

To position your ads well on Facebook, you need to keep a few things in mind. First, you need to know how to use the platform and the right things to do. Also, your ads need to provide value because Facebook wants to create a positive user experience with meaningful interactions.

Listen to the show to hear more of my thoughts about the impact of recent news about Facebook.

How the Facebook Ad Algorithm Works

In essence, the auction is the Facebook ad algorithm. The auction determines the order in which your ad appears in the news feed relative to other ads. If you target an audience of 1 million people, hundreds or thousands of other advertisers are potentially targeting people in the same audience. An ad wins the auction and is thus shown first, second, or third if it has the highest total value.

The highest total value reflects how Facebook sees the ad. In Ralph’s interactions with Facebook and its auction team, total value is a term it uses to describe the auction. As mentioned earlier, value isn’t only about money; it’s also about the ad’s relevance. Facebook wants to show ads users want to see and engage with.

An ad’s total value has three components: bidding, estimated action rate, and quality and relevance (also known as user value).

Bidding: When you advertise on Facebook, you can bid in three ways: Lowest Cost, Lowest Cost With Bid Cap, and Target Cost. Lowest Cost is the default bid at the ad set level and the one that advertisers use probably 99% of the time.

Formerly called automatic bidding, the Lowest Cost bid lets Facebook set the bid for you. For some people, letting Facebook bid for you is counterintuitive, but you do want Facebook to bid for you because it isn’t just looking for money. It also wants to create value in the news feed and meaningful interactions.

Lowest Cost With Bid Cap lets you set an upper limit on how much you’ll spend. If you’re running a website conversions campaign and want to get leads for no more than $5 each, you can set a maximum bid of $5. This option controls costs but also means you’re automatically not entered into any auctions over $5. As a result, choosing this option lowers impressions.

Specifically, Tier 11 has found the Lowest Cost With Bid Cap option will go right up to your cap but still lowers impressions. To illustrate, you can run ads to a 1 million–person audience that you know will convert, but because the ads don’t get any reach, they die on the vine. For instance, even if you raise the cap from $5 to $10, the results are better than with the $5 cap but still aren’t good.

Formerly called Average Bidding, the Target Costs bidding option also lowers impressions. With this option, you also spend more on your ads than you would with the Lowest Cost option.

The upshot is to bid and to always leave your bidding option set to Lowest Cost (or autobidding).

Estimated Action Rate: Several factors contribute to the estimated action rate. First, recent activity in the ad (likes, shares, comments, video views, clicks to your website or back to the page, and so on) matters.

These actions are aggregated into the relevance score, which advertisers see after the ad has run for a while. Although the score has nothing to do with the Facebook ad algorithm, a low score can be an early sign of trouble because it’s a lagging indicator that tells an advertiser how much positive or negative feedback an ad has received.

You typically don’t see the relevance score for about 3-7 days, depending on your budget. Usually, the Facebook ad algorithm takes about 7 days to kick in and start its learning phase so that the auction can work more effectively.

Ralph notes that relevance score isn’t necessarily an indicator of how well you’re doing as an advertiser. His agency typically runs website conversion campaigns, where, for example, you want to get several dollars in sales for each $1 spent on ads. In some cases, the best converting ads have a relevance score of 2-4, whereas the worst converting ads have a score of 7-10.

Negative feedback is especially detrimental to your estimated action rate (and thus your relevance score). The more negative feedback an ad receives, the worse the ad will potentially do. Ralph thinks negative feedback may have 10 to 100 times the impact of other recent activity such as a like or share. Negative feedback includes a person hiding your post or unliking your page.

I ask how we should manage our ads to limit the damage negative feedback can do. Ralph says if an ad is getting a tremendous amount of negative feedback, your ad and your targeting are probably off. Your message (which can include your image, video, ad copy, or headline) doesn’t fit your market.

Your conversion number, if you’re aiming for one, will be your first sign of this issue. The ad won’t be converting at your target CPA (cost per acquisition). When your conversion number is off, you’ll probably shut off the ad simply because it isn’t doing well.

Estimated action rate also looks at the ad set, the campaign, and the account history. The ad set level is typically where all of the optimization takes place, so Ralph wasn’t surprised about this part. However, when he learned this information from Facebook in March, the details about campaign and account history helped him understand issues he’s seen with Facebook pages in the past.

When Ralph has created ads for pages that have been hacked, in some cases, the ad accounts could never fully recover. Say a page has acquired $5 leads for a while and then gets hacked. Then the CPA (cost per acquisition) increases tenfold, and nothing seems to fix the issue. In these cases, they had to start from scratch.

Conversely, a great account history will help you. If you’re really attentive to user comments; users like, share, and comment on your posts; and your product is well matched to the markets that you’re trying to target, your CPA will decrease and help you get more engagement and win the auction.

I ask whether the Facebook advertising algorithm also rewards your ads based on the topic. (Here you see a popular post from Tier 11.) For instance, if your audience is especially responsive to posts about a certain topic, does the Facebook ads algorithm reward your account for that? Ralph says yes.

One client has an amazing Instagram following, and her audience loves her content. She’s very transparent, giving, and helpful. When she started running Facebook ads, her CPA was the lowest Ralph had seen in his career.

All of these Facebook ad algorithm factors make sense when you think about advertising from Facebook’s perspective. They don’t want someone who just started a page and has no history to win auctions over someone who has an awesome ad account history. Facebook wants to reward pages that have a good page history and a track record of creating ads and boosting posts.

Estimated action rate also takes some other factors into account. Facebook hasn’t shared with Ralph what those factors are, but he thinks they’re likely related to user experience.

User Value: The user value component of the Facebook ad algorithm used to be known as ad quality and relevance. The experience a user has after they click a post has a big impact on this factor in the Facebook advertising algorithm auction.

To visualize this, about 3 years ago, Ralph had a magazine client whose CPA increased after the client changed its thank-you page. After a user clicked off Facebook to visit a lead magnet landing page and entered their name and email address, they initially landed on a thank-you page that related to the lead magnet. Users then spent lots of time off Facebook browsing the magazine site.

This client’s CPA for leads was only $1 or $2, which is tremendous, until they changed the thank-you page without notifying Ralph and his team. When they started seeing the CPA for leads increase to $10, $12, or $15, everyone at the agency was confused until the account manager discovered the change.

Because the thank-you page was less relevant, users stopped browsing the magazine website after they saw the thank-you page. Instead, they were back-clicking, and cost per acquisition skyrocketed.

I mention that Facebook has been tracking user time on site and how quickly people abandon things as a way of identifying and avoiding clickbait. As an example, if users click an ad to a sales page and then the Facebook pixel on their site notes that users quickly abandon the page, Facebook probably determines that sales page isn’t a high-value target. Ralph agrees.

Ralph adds that users immediately back-clicking works against you in a big way. Facebook is trying to control the user experience with the ad, as well as the experience after users click the ad. That’s why a thank-you page that appeared two or three steps after users opted into a lead magnet impacted a client’s CPA.

Facebook understands what back-clicking means on its platform. Users who immediately back-click often leave negative comments, unlike, or hide the ad. That negative feedback is part of the estimated action rate, and the back-click indicates that the ad isn’t valuable to users, affecting the user value component.

Listen to the show to hear Ralph explain how back-clicking is related to the bounce rate.

How to Optimize Your Facebook Ads

To ensure your ads do well with the Facebook ads algorithm, you have to test several factors. I ask how the three different pieces of the Facebook ad algorithm are weighted. Ralph guesses that they’re probably equally important.

Matching your message to your market is an important first step. For instance, during a call with a new client, an account manager at Ralph’s agency noted that the client had five different avatars in the main avatar, each with a different kind of hot button for the product.

To break down the targeting in this way, Tier 11 uses an ad grid developed by Molly Pittman from Digital Marketer. The grid helps you talk to your audience using language they understand and that reflects their interests. As a result, the ads are more effective, and you increase user value.

To illustrate, with this ad grid, a retiree who’s interested in a particular dog product will see a different ad than someone in their early 20s. You target each avatar based on age, demographics, and maybe interest, but also show them an ad that speaks to that particular target audience. Your ad copy and images need to contribute to the conversation that’s going on in your prospect’s head.

When you increase user value in this way, you’re also helping yourself because your conversions will likely improve and cost less.

To boost estimated action rate, you start by thinking about the result you want from your ads because that determines the actions you want users to take. Perhaps you want the right person to opt into a lead magnet at a specific cost because you know you can monetize that action. Or you want the right person to purchase a product at a certain CPA.

In other words, choose the right objective for your ad campaign. If you want people to watch your video, run a campaign with a video view objective. If you want a conversion such as a $5 lead or a $20 purchase, you’d probably use the website conversions objective. The conversions you get impact your estimated action rate and thus factor into the auction.

An ad that accomplishes your goal gives Facebook positive reinforcement. Facebook also looks for a certain number of actions per week. To illustrate, in a lead magnet campaign, you want a minimum of about 50 conversions per ad set each week. This number gives Facebook enough information to figure out the best audience for your ad so you can win the auction. They want you to win.

Ralph then explains why choosing the right campaign objective works best. Typically, Tier 11 starts with an audience that’s anywhere from 1 to 50 million. This size gives Facebook enough people to whom it can show the ad and home in on the action you want Facebook to produce.

In an audience of 1 million, Facebook knows who has taken different types of actions. For instance, 100K to 200K might be converters who opt into lead magnets or purchase products. Others might watch videos or engage with posts. As Facebook tries to show your ad to the right people, it matches what it knows about your audience with your stated objective, such as website conversions.

Listen to the show to hear my story about changing a campaign objective to help an ad campaign.

Discovery of the Week

Otter Voice Notes is a cool tool for taking voice notes and creating transcripts. It can also help social media marketers repurpose content.

When you click Record, Otter Voice Notes simultaneously records audio and transcribes it. Social media marketers can use the app to help them repurpose their content. To visualize this, if you have a good call with someone, you can use the transcript to create other useful content. Podcasters can use the app to create transcripts of their shows.

Based on our tests, the app is about 90% accurate as it transcribes what you say. After the recording is done, the app’s AI automatically scrubs the audio to further improve the transcription. Both the words and the punctuation are mostly correct.

The free tier gives you 600 minutes per month, or about 10 hours of audio. With the premium version, you get 6,000 minutes per month, and it costs $10 per month.

Otter Voice Notes is available for desktop computers, iOS, and Android.

Listen to the show to learn more and let us know how Otter Voice Notes works for you.

Key takeaways mentioned in this episode:

What do you think? What are your thoughts on the Facebook ads algorithm? Please share your comments below.