How Do Facebook Ads Work? Here’s A Simple Answer

In 2019, Facebook made just under $70 billion in advertising revenue alone. 

That’s 98% of their total revenue. This is why just about everything on Facebook is free such as Facebook Pages, Facebook Groups, Facebook Profiles, etc. 

But, have you ever wondered how do Facebook ads work? 

Surely, there must be some kind of rhyme and reason to how they do things. 

And it turns out, there is. 

Before we dive into the mechanics of the ad platform, I thought it would be useful to understand the anatomy of a Facebook ad first. 

Anatomy of a Facebook Ad - How Do Facebook Ads Work

When you break down a Facebook ad to its individual parts, several pieces emerge. 

When these pieces come together, it’s like Thanos collecting all of the Infinity Stones. They work together to achieve a specific goal, which is set by the ad objective. 

Here are the basic components of any Facebook Ad: 

  • Creative - The visual element of your ad. It can be an image or a video.
  • Ad Copy - The written text above the creative.
  • Headline - A short sentence or phrase that appears directly under the creative. Its use will depend upon the context of the ad.
  • Placement - Where your ad appears.
  • Targeting - the group of people who will be exposed to your ad.
  • Bid - the amount you’re willing to pay to show your ad. 

Just about every ad you will ever create (with rare exceptions) will have all of these basic components. 

Without them, you won’t be running any ads anytime soon.

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The Ad Auction - How Do Facebook Ads Work

how do facebook ads work

Facebook uses a real-time auction to determine the best ad to show to a person at a given point in time. Billions of auctions take place each day across Facebook’s family of apps. 

Ad placements include the News Feed on Facebook, Instagram Feed, Stories, and on websites and apps. I’ll be doing a comprehensive breakdown on each ad placement in a future post. 

The participants in each auction depend on the targeting for each respective advertiser. Advertisers that are trying to reach the same target market will compete in the same auction against one another. 

This can happen even if they’re targeting different interests. For example, Advertiser A might target people who like Grant Cardone. Meanwhile, Advertiser B is targeting people who like Apple products. If there’s a person on Facebook who likes both Grant Cardone and Apple products, then both advertisers have to compete to see who will get their ad shown.

Getting your ad shown has an exact science that was formulated by Facebook. They assign each ad a particular score, and the ad with the highest total value will win the auction. 

The total value of an ad is made up of 3 factors: bid, estimated action rates, and ad quality. 

Your bid is how much you’re willing to pay to show your ad. In old school auctions, the winner was the person who was the highest bidder. When it comes to Facebook ads, you can be the highest bidder and still potentially lose. 

The estimated action rate is Facebook’s best guess on whether or not someone engages or converts from a particular ad. If the action rate is high, then your ad costs will generally be much lower than your competition. 

Ad quality deals with how “good” your ad is from a multitude of perspectives. Keep in mind that the goal of Facebook is to optimize the user’s experience. They want people to come back often and stay on their platform for as long as possible. 

If your ads are negatively disruptive to the user experience, then your ad costs will rise.

Ron Goldman, VP of ad products from Facebook, once said “Our goal is to make ads on Facebook just as useful and relevant as posts people see from friends and family.”

This sums up their process perfectly. The advertising platform is their bread and butter and they will do everything they can to keep the riff-raff out.

Ad Relevance - How Do Facebook Ads Work

When you combine the estimated action rate with ad quality, you get the ad’s overall relevance.

Relevance deals with how relevant the ad is to a particular person. For example, if you have an ad for a steak and you’re showing it to vegans, they’re going to see your ad as irrelevant. 

They may choose to hide your ad, report it, or just completely ignore it.

If you need help with determining the relevance of your ads, Facebook has a set of 3 diagnostics to help with that called Ad relevance diagnostics.

Here’s a quick explanation of each:

  • Quality Ranking - Your ad’s perceived quality compared to other ads competing for the same audience.
  • Engagement Ranking - The likelihood that a person will click, react to, comment on, share, or expand an ad.
  • Conversion Rate Ranking - Your ad’s expected conversion rate compared to other ads with the same optimization goal (i.e. your ad objective) competing for the same audience.

Post-Click Experience - How Do Facebook Ads Work

Your work isn’t done as soon as someone clicks on your ad.

If you’re directing people off of Facebook, then you need to ensure that their experience is up to par. Facebook calculates this based on your website speed and the user’s network connection. 

Facebook said on the record that, “We will show ads to people when they are interested in your content and have a network connection that can quickly load the post-click content.”

This helps users have a positive experience with advertisers and reduces the chance of them bouncing off the website due to slow loading speed. 

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