Understanding Meta's Ad Auction Algorithm: Why Diversification is Key
Discover how Meta's auction algorithm prioritizes ad winners and why it's crucial to diversify your testing strategies for optimal ad performance.
Unlock Meta's ad auction secrets to outperform competitors by optimizing your bid, ad quality, and user experience without increasing spend.
Most ad buyers guess how Meta's auction works, but few realize there’s an actual equation that drives the auction algorithm.
Knowing how to win in the auction is the ultimate unlock of efficient ad performance. Best of all, it gives smaller brands the chance to outperform without having to outspend their peers.
1️⃣ Part One: Meta’s Auction Equation
▶ Total Auction Value = Advertiser Bid x Estimated Action Rate + User Value
Meta’s algorithm is looking to strike a balance between financial gain, happy advertisers, and happy end users.
Let’s dig deeper.
▶ Advertiser Bid
This financial component is simply how much are you willing to bid in the auction to get the desired result. If all other factors are equal, Meta will reward the highest bidder in the auction.
▶ Estimated Action Rate
This quality score is tied to the ad’s performance. This score looks at ad engagement, click through, and conversion rates to estimate how well your ad is expected to perform. If all other factors are equal, Meta wants to reward high performing ads with better auction performance.
▶ User Value
This quality score is tied to the end user’s experience. Meta wants all of its platform users to have a positive experience with high relevance ads. This score looks at dwell time, engagement rate, and reported ad rates. If all other factors are equal, Meta wants to reward user-friendly ads with better performance and more reach.
2️⃣ Part 2: How to Win in the Auction:
▶ Media Best Practices
Meta offers a variety of ad products that automatically help you get optimal results in the auction (like automatic bidding, CBO, broad audiences, etc). Follow media best practices to remove growth limits and ensure you’re not paying more in the auction.
▶ Better Data
If your pixel has data quality issues, Meta is only getting a partial view of your conversions and this can negatively impact your auction performance. Upgrade your data connection to ensure Meta sees 100% of your conversions. (Shameless plug: try Popsixle)
▶ Better Ads
Strive to have better ads than your competition. If you have better dwell time, engagement rates, and click through rates, these signals will improve both your Action Rate and User Value scores.
▶ Better Site Experience
Make investments to improve site loading time, lower friction in your checkout experience, and develop strong offers that drive conversion. A higher than average conversion rate will improve both your Action Rate and User Value scores.
3️⃣ Part Three: Summary
When you buy digital ads it’s critically important to out compete your peers in the auction. Rather than spending more, instead leverage great data, strong creative, and a low-friction site experience to boost your scores and win in the auction.