Bid Cap in Facebook Ads: How to Calculate the Maximum Bid

Bid Cap in Facebook Ads is a bidding strategy in which we set an upper bid threshold in an auction. In this article, we will look at how to calculate the maximum bid, in which cases Bid Cap works best, and what mistakes should be avoided when starting out.

We need to start from SRM
You need to start from the lead price
Today we will figure out which method is correct, and also look at other features of working with this version of the handle.

Reference materials

In our further discussions we will rely on these articles from the reference, I recommend taking a look:
About bid cap
Bid cap best practicies
Pacing and Scheduling
It will also be useful to familiarize yourself withhow the Facebook auction worksand with mechanicsoperation of the VCG auction in general.

Required base

Bid per impression (BPI)— this is about the auction in which our ads take part. Each ad has its Total Value, and if our ad has the highest value, it receives an Impression. Do you think that in this case the same rate per impression is deducted from us? But no. That’s because a Facebook auction is…

Second price auction. This means that if you win an auction, you are effectively paying slightly more than your closest competitor’s bid (for example +1 cent). That is, you do not pay your bid per impression, but pay the minimum required amount to get ahead of your competitor.

Overall Valueads are calculated as: Bid per action (we will always mean conversion as an action) multiplied by the Estimated frequency of action + the sum of the Quality Ratings of our ad.

In the certificate, the last part of the formula about quality assessments was discarded (probably because at the beginning of the delivery announcement these estimates are still unknown, equal to zero and do not play a role) and this is what happened?

That is, in Russian:

Bid Per Impression = Bid Per Conversion multiplied by Estimated Conversion Rate.

Now let’s look at the parts of the equation.

Conversion rate— surprise-surprise! THIS is the bet we limit when we set the Bid cap! And not at all the Rate per impression. In general, can you already guess what will happen next?

What is this Estimated Conversion Frequency?

Estimated Action Rate(EAR) is a forecast of the probability of conversion for the current impression for which there is competition in the auction. It is calculated as a percentage. But in fact, this is an internal Facebook metric, which is calculated based on many signals:

Historical performance of your ad and account (such as previous conversions).
Audience behavior and characteristics.
Display context, relevancecreativityand other parameters.

Clarifying the unknown

So far we have many definitions, but few specifics. Let’s be clear. So, what do we know from the above formula?

Rate per impression

In the process of working with any geo, after a couple of thousand impressions we get an average CPM. It consists of the cost of a thousand bids per impression:

CPM = Bid Per Impression (average)×1000

This means that to calculate the left side of our formula, it is enough to divide the CPM by 1000. Easy!

Estimated Conversion Rate (EAR)

Let’s figure it out: how do we get from impressions to conversions? Of course, through clicks. CTR is responsible for the first part of the transition, and CR for the second. In total, conversions occur with the following frequency:

EAR = CTR × CR

The question immediately arises: how can we calculate EAR if we have not yet sent traffic to the link and do not know the exact metrics? I’ll comment on this below.

Final formula

CPM/1000 = Bid Cap × CTR × CR

Or:

Doesn’t remind you of anything??

Let’s look at an example

Let’s take a geo with CPM = $15 and a link with CTR = 3% and CR = 2%. Let’s say we’re happy with all the other math, and we want to switch to Bid Cap. Let’s count, and count in cents:

Bid Cap = 1500c / (1000 × 0.03 × 0.02) = 2500c = $25

By setting such a marginal bid, we can be sure that we will receive traffic in this geo. And we seem to be so smart, we’ve calculated everything, but isn’t there a simpler option, hmm?

SUDDENLY, if we look, we realize that 10,000 impressions will cost us $150, they will bring us 300 clicks, which in turn = 6 conversions. Divide $150 by 6 and get the conversion price… $25!

It turns out thatThose who said that the Bid Cap should be set based on the conversion price were right.

Tips for using Bid Cap

When testing

We can influence the final bid per impression (BPI) in two ways: changing the bid cap + changingcreativity. If we have set the maximum acceptable bid cap for us, but there is no delivery or the ad status says Bid limited, then FEB has its own opinion about how this is yourscreativewill convert (EAR), and he is more pessimistic than you. Changecreative!

Strategy for working with bid cap during tests: set the bid cap to ROI 100% and gradually moderate our appetites if there is no deliverya. The increment is 10%. After each increase, we wait 2-3 hours and then look at the results.

When scaling

We already know how conversion is used for our adverts or landing pages, we know the CPM and how much one conversion costs. On new adsets with fresh creatives (using the SAME approach) and an established bid cap, we only have to monitor one metric — CTR, which is very convenient!

Expedited delivery

An interesting feature of the bid cap is the ability to set accelerated display of ads. If in the normal delivery mode Facebook will try to spread your daily budget over all 24 hours of the day, then in the accelerated mode it will buy you everything, everything, everything, while it is possible and the budget has not run out.

In general, you can try to use this display mode to quickly obtain data during tests, and there is alsoan interesting strategy based on the use of a lower bid cap and an accelerated deliverya.

Conclusions

Compared to the cost-per-result handle, where Facebook can float around the target price, sometimes getting leads for more and sometimes for less, with a bid cap we don’t give Facebook the ability to go into a price range above our limit.

The worse Facebook estimates our potentialcreativity, the less traffic we will receive, and the closer it will be in cost per conversion to the value of our marginal bid.

If, when dumping at the minimum wage, we have excellent creatives with quality ratings ranging from Medium and higher, these are the first candidates for uploading them to the bid cap, using lower bid values.

After changing your cap rate, wait a few hours before changing it again (especially with accelerated deliverye), you may be unpleasantly surprised because of the leaked budget.

And that’s all for me, Yellow Web is with you, give it a plus, gentlemen!