00:03buying ads on Facebook is not like buying ads on TV you don't just pay to buy commercial space
00:10the Facebook ad system is built of what called an auction system so in order to understand how
00:17Facebook charges for ads it's important to understand how their auction system work first
00:22the Facebook ad auction is how Facebook decide how much to charge for an ad and the Facebook
00:29ad auction is designed to achieve two goals creative values of advertiser by helping them
00:35reach and gets results from people in their target audience while also providing positive
00:40and relevant experience for people who use the Facebook products and to achieve this balance
00:46they hold in action to match the right ad to the right person at the right time so each time
00:53there
00:53is an opportunity to show an ad to someone an action take place to determine which ad to
00:59show to that person and billions of action take place every day across the Facebook family of
01:05apps so who compete in these actions when an advertiser like you create an ad you define
01:12your target audience on Facebook but what happens when another advertiser wants to target the same
01:19audience is you well then both you and the other advertiser compete in the action to show that person
01:26the ad for example say one advertiser target all women who like flowers and another advertiser targets
01:34all flower lovers who live in California in that case the same women in California who likes flowers
01:41could fall in both of those advertisers audiences and let's call this woman a dummy name Clara so how does
01:49Facebook decide whose ad Clara sees well Facebook decides which ad Clara sees by running an equation that
01:58calculate a total value for each of these ads which is effectively a commercial score and the ad with
02:06the higher total value wins the action and gets shown to Clara so what does this equation look like an
02:13ad's
02:14total value is based on three things the advertiser bid the estimated action rate and the ad quality and we
02:22will explain each of them briefly the advertiser bid is how much an advertiser is willing to pay to achieve
02:29their desired outcome like a website visit or a newsletter sign up and you can manually set their bid or
02:36you can
02:36let Facebook automatically determine what your bid should be the more money you bid the higher your advertiser
02:43bid will be it's good to remember though that the winner of an auction is not simply the advertiser that
02:50pays the
02:51most it's a combination of all the factors in the equation and we will talk more about sitting bids in
02:58another
02:58lesson so the next part of the total value equation is the estimated auction rate the estimated auction rate measures
03:07the likelihood that a certain ad shown to a certain percent will lead to a desired outcome
03:12so it's basically an estimation of how likely the user is to fill full your ad campaign objectives
03:19whether that's pressing a shop now button or going to your website the final part of the total video
03:26equation is ad quality ad quality is determined by many sources including feedback from people that few
03:34or hide your ads as well as finding a low quality attributes such as sensationalized language engagement
03:41bid and more so the advertiser bid the estimated auction rate and the ad quality combined make
03:48up an ad total value so what does this mean for clara who is being targeted by two flower companies
03:55well let's assume both companies run in ad with the goal of getting people to purchase flower from their
04:01websites they put the same advertiser bid and facebook determined clara is equally likely to fill full their
04:08desired goal in other world buy products from both of them and this is means the estimated action rate
04:15is the same for both aids too advertiser a however is sending people to a website that has a lot
04:23of
04:23ads on their homepage as well as misleading information about flower pricing and that's not a great user
04:30experience so hypothetically this could lower advertiser a ad quality score driving their total value down
04:38and this means advertiser b will have a higher total value score leading to them winning the auction and
04:45clara seeing their ad so now that you understand the action how does that relate to how much you are
04:52charged for an aids billions of action take place every day across the facebook family of apps and often
05:00with far more than two companies so every time you see an ad it's the result of an auction and
05:06facebook
05:07only charges you for those aids when you win the auction facebook typically charges you by the number
05:14of time your aid is displayed to people also known as an impression and facebook charges on a 1000
05:22impression basis also known as cpm or cost per thousand cpm measures the total amount spent on an
05:30aid campaign divided by impression and multiplied by one thousand so an example is if you spend fifty
05:37dollar on your aid and got the ten thousand impression your cpm will be five dollars and you might
05:44be wondering why cpm is important cpm is a common metric used by the online advertising industry to
05:51determine the cost effectiveness of an aid campaigns and it's often used to compare performance among
05:57different aid publishers and campaigns so when you get charged fifty dollar you can calculate what you
06:04were charged for by the cpm price and for some marketing goals you can also choose to be charged per
06:11link click or per action this means facebook will only charge you if a customer clicks on your aid and
06:18take another specific action such as watching a video and i'll show you later where you can make
06:24that choice to be charged per link click or action rather than impression now that you know how the
06:31action works and how facebook charges for aids you are ready to set your budget in ad manager and your
06:38facebook ad budget is the total amount you want to spend daily or over the course of the campaign facebook
06:44will then try to spend your budget evenly throughout the time your aid is running and you won't be
06:50charged more than the budget you set so if you set a maximum budget of say one hundred dollar to
06:56run
06:56an aid over a month but facebook only spent seventy dollar that month based on the aid performance your
07:02bill will be seventy dollar remember when you are setting a budget for facebook ads it's the maximum amount
07:09you are willing to spend not the actual amount spent finally let's briefly cover how you will actually
07:16pay for your aids in general there are two ways you may be charged for aids many advantages have what
07:23called automatic payments with automatic payments facebook will automatically charge you whenever you
07:29spend a certain amount which is known as a billing threshold you will be charged each time you hit your
07:35billing threshold and again on your monthly bill date for any leftover charges you can also pay via
07:42manual payments with manual payments you preload money to your account before your aids runs after
07:49that facebook will typically deduct from that amount up to once a day as your aids run for smaller amounts
07:56facebook may wait until the charges amount to a certain amount or until seven days pass before they
08:03invoice your account all right that's all for this lesson see you in the next lesson
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