Quantifying The Reach-Efficiency Tradeoff In Facebook Advertising

Any marketer that has tried running paid advertising campaigns on Facebook knows it is one of the most complex auction-based ad marketplaces that exist today. Constantly moving targets, rapid ad fatigue, and lack of transparency around the effects of bids and budgets on performance make it difficult to optimize these campaigns.

However, sophisticated optimization strategies are impossible without understanding the mechanics of how ads are served on Facebook. To this extent, we examined performance of over 500 Facebook ads over a 3-month period in order to shed some light on how the Facebook ad marketplace works, and discover what metrics are key in driving performance.

Since there is variation in how ads are served on Facebook depending on pricing strategy, the following learnings will apply best to cost-per-click (CPC) or optimized cost-per-mille (oCPM) campaigns.

Bids, Budgets & Facebook Campaigns

Any discussion on Facebook campaign mechanics necessitates a brief preface on the relationship between bids and campaign budgets.

Facebook campaigns often spend to the budget limit as long the bid is sufficiently high. This behavior differs from that of paid search and programmatic display campaigns where ad inventory is usually the bottleneck. In order to assess the effect of bidding on Facebook campaign performance, budget also needs to be adjusted continuously so as to not constrain volume.

Another effect of having a marketplace that is not inventory-constrained is that ad placement can change rapidly from day-to-day or even hour-to-hour, resulting in unpredictable spikes in performance and volume. However, now that the marketplace is starting to mature somewhat, performance seems to have become somewhat less volatile, making certain analyses possible.

Effect Of Bidding On Reach & Frequency

Unique impressions (reach) and impression frequency (average daily impressions per individual) are important metrics for evaluating performance of any CPM campaign. On Facebook, it becomes particularly important to separate these metrics, as there is currently no method of frequency capping a Facebook campaign with the exception of inventory purchased through FBX.

To examine trends in these metrics, we looked at 500+ ads within 200+ campaigns across multiple advertisers, a combination of CPC and oCPM campaigns targeting various segments. Data for each ad was normalized so that the type of campaign or ad does not impact the overall trend.

Examining reach and frequency, we find that they both increase with bid up to a certain level.

Bids vs. Reach and Frequency

Bids vs. Reach and Frequency

However, at higher bid levels, this relationship breaks down after reach is maxed out. The following points are the key takeaways from the chart above:

  1. Both reach and frequency increase linearly with bid up to a certain level.
  2. Reach increases approximately 90% for every 100% increase in bid, while frequency increases around 17%.
  3. Reach plateaus or even declines at high bid levels.
  4. Frequency accelerates its growth at high bid levels, resulting in further growth in impressions beyond the reach limit.

Unique impressions declining at high bid levels may point to Facebook routing its high-price, high-competition inventory towards ads with the highest bids in order to maximize its revenue under conditions where reach is already maxed out.

Effect Of Bidding On Click Volume & CTR

Click volume behaves similarly to unique impressions at lower bid levels, showing that reach impacts click volume more than does frequency.

Bids vs. Clicks and CTR

Bids vs. Clicks and CTR

However, click volume does not drop off as rapidly as reach at high bid levels due to Unique CTR (unique clicks/unique impressions) being boosted by increased frequency. Takeaways from this chart are the following:

  1. Click volume is influenced by reach more than frequency
  2. Unique CTR generally decreases with increasing bid due to reach expanding to wider, less relevant audiences.
  3. Unique CTR recovers at high bid levels due to maxed reach and increasing frequency.

CTR, omitted in this chart, is approximately equivalent to Unique CTR / Frequency, and declines continuously with increasing bids.

Summary & Tips For Facebook Advertisers

These results show that paying attention to frequency and unique impressions is crucial to running a successful Facebook campaign. Beyond the point where unique impressions plateau, frequency starts inflating rapidly with no increase in clicks, leaving little reason to raise the bid further.

Reach being inextricably linked to frequency means that marketers need to be aware of the tradeoff between scale and efficiency. Increased frequency means greater costs when bidding CPM, and increased ad fatigue for both CPM and CPC. Understanding this relationship between reach, frequency, and CTR, along with achieving the right balance based on campaign goals, will be key to a successful Facebook advertising strategy.

Opinions expressed in the article are those of the guest author and not necessarily Marketing Land.

Related Topics: Analytics | Analytics & Marketing Column | Channel: Analytics | Facebook | Facebook: Advertising | Social Media Marketing: Advertising


About The Author: leads product marketing at Origami Logic, a cross-channel marketing intelligence solution for modern marketers. With a career of 8 years in marketing and analytics spanning various functions, Kohki's focus has always been on translating data into strategy, simplifying the complex, and bridging the gap between data and organizational silos.

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  • Catherine Kellogg

    Kohki, as always, great analysis. One question: were these ads all right side bar ads or a combination of right side and newsfeed ads? I have found that newsfeed ads are also quite a different animal in terms of reach/frequency and its impact on CTR/CPC.

  • Kohki Yamaguchi

    Hi Catherine, great question! The data above is a combination of both. As you say, news feed ads behave very differently from RHS ads, most notably with frequency having a defined ceiling. So the trend for frequency above apply mostly to RHS ads, but the learnings on reach apply to both.


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