For each ad you post on Facebook, Facebook has advertisers with the same target bid, which determines which ads will eventually be eligible to appear to their target audience. 

The auction of Facebook ads is primarily about achieving these two key goals:

1. Create value for advertisers by helping them reach their target audiences and get results.

2. Provide a positive user experience for users using the Facebook platform.

Facebook ads differ from other digital marketing platforms in that they are similar to Google's concept of "people-based" ad pricing. And it's precisely because the ads themselves are based on people, so the core of their advertising bidding and pricing is more focused on showing the right ads to the right people at the right time. The more relevant an ad is to the target audience, the more likely the user is to the ad itself, and the lower the advertiser's advertising costs. 

Unlike traditional ad auctions, such as TV or print ads, Facebook is the highest bidder. Facebook's ad display rules tend to deliver the highest total value to advertisers and users, so the following three metrics are core to Facebook's considerations: 

1. Advertiser bids

2. Facebook's advertising system estimates the rate of action for users

3. Ad quality rankings and the user value they generate

The long-term survival of Facebook's platform relies more on providing a high-quality Feed experience for users who use it every day, both satisfying and engaging, in order to improve their stickiness and retention. As a result, showing the most relevant ads to each user is more in line with Facebook's principle of maximizing its interests, which is why Facebook refuses to allow the highest bidder to get a place.

On the other hand, the effectiveness of Facebook ads also depends on having a large number of highly engaged shoppers on the platform, and once the platform's highly active Shoppers lose users because they don't have a good product feed experience, there will be no advertisers willing to pay for ad spaces on Facebook. 

In addition to keeping Facebook users happy at all times, the platform is also designed to help advertisers stay profitable by showing ads to people identified by Facebook's platform Big Data Analytics as most likely to complete your conversion activities, such as "Purchase," so it's also important for users to estimate action rates.

Note: "Estimated Action Rates" means that Facebook determines the likelihood that someone will take action on an ad when they see it based on your historical ad performance, post-click user experience, and subsequent actions after your previous users clicked on the ad. In extreme cases, a poor user click experience may result in your ads being blocked. 

Just as we habitually rank ads by "total value" in their ads, Facebook also ranks them by each userAd Space (Ad Bit)to allocate a specified value.

As a result, demand for Ad Space for high-conversion shoppers has been high, and the wave of traffic they want to compete for will be fierce price competition among advertisers, so it will certainly cost more to put ads in front of more valuable people.

I'll give two user examples to explain this situation, and I'll represent two types of consumers, and you can see which types of shoppers end up in your ad targeting.

• Sally Shopper

• Skeptic Scott

Shopper A：SALLY SHOPPER’S TERRIFIC TRAFFIC

Let's meet Sally Shopper first! 

Sally Shopper, a 25-year-old American woman and high-frequency online shopper, has a high level of interest in Ads on Facebook, clicks on most of the ads she sees, and regularly buys products she finds on Facebook and Instagram. 

Thousands of advertisers want to show ads to people like Sally because it's easier to convert them by scrolling through advertisers' Facebook feeds. Facebook uses Sally's past buying habits to determine what kind of ads Sally likes to see and how interested and likely she is to buy them, and ultimately uses Facebook algorithms to optimize to show Sally her favorite ads.

However, because Facebook also limits the number of ads users see in its Feed, advertisers must compete with other advertisers for a limited number of ad spaces. Competition is particularly fierce for Sally users who often buy after clicking on Facebook ads.

For example, brand: Fielder's Choice Goods, which sells wallets made from old baseball gloves.

The ad is aimed at 25-55-year-old baseball fans in the U.S., with an average order value of $150 for wallets, and the campaign in use aims to convert and optimize advertising results for Purchase. The following image shows the initial performance of this ad. 

A closer look at the CPM and CPC metrics, which can scare new advertisers at the start of an ad, thinks it's a problem with their ads and shuts them down quickly.

But in the end, the ad became one of the best ads in the account, spending more than $30k over its life cycle and returning on investment of 2.5x (ROAS) with "Expensive clicks" and "High CPM" (high thousand impressions). 

Thus, maximizing your ads to reach highly converted users, such as thousands of Sallys Shoppers, is the best way to make your ads profitable in the end. Shopper Sally's Shopper Sally's feed will be very expensive because this buyer profile is a high conversion user. In response, it has to be said that Facebook is doing the right thing, because the competition for Feed ads from high-conversion users is fierce, so Facebook should also charge a higher fee. 

Here are three ways to make sure you can maximize your ability to reach a high conversion audience: 

• Always optimize for Purchase Conversions for Ad set.

• Try testing multiple creatives to find the content that's most relevant to Target Audience. The more user value your ad reaches, the more competitive your ad will be in bidding. 

• Make sure your bid is competitive in the Target Audience you're trying to cover. 

Do a good job of the above three points, to ensure that you can get a relatively cheap price for high conversion users! 

So is it worth advertising to Shopper Sally at a competitive Ad space bid? The answer is yes, and conversion rates increase proportionally as Ad space costs increase. In the ad example above, the ad received 190 clicks at an average of $5 per click, but 16 of the 190 clicks were converted from click-to-buy, with an overall conversion rate of 8.4%, resulting in a 2.5x ROAS under the $150 Average Order Value. 

Fielder's Choice Goods' average station-wide conversion rate hovers around 1.14% (see screenshot from the Shopify store below); In this way, the conversion rate of ad traffic from this Facebook ad has increased eightfold.

And that explains why CPC can be a misleading indicator when evaluating the effectiveness of Facebook ads, especially if it is the wrong way to optimize ads based on a station-wide CPC. 

Shopper B：SKEPTIC SCOTT’S TRASH TRAFFIC

Next, let's look at when the CPC and CPM indicators might be more misleading through another category of consumers. 

Let's start with Skeptic, an American man in his 30s who loves drama. He spends less than 30 minutes a day on Facebook and Instagram, but often clicks on ads, but never buys them because he likes to go shopping in person. He represents another category of consumers.

Before we begin to articulate relationships, let's clarify a concept: relevance analysis. Correlation analysis refers to the close relationship between two variables. For example, height and weight are related, and taller people tend to be shorter. But the relationship is not entirely relevant, but there is a relationship between the two variables.

The data analysis team calculated the correlation between CPC and ROAS and came up with a humanAmazing's conclusion: An analysis of ads that cost more than $100 million last quarter proves that there is no relationship between CPC and ROAS. 

Rather, the actual correlation between CPC and ROAS is -0.08 when the Campaign hierarchy chooses to purchase conversion targets.

Note: Explain the concept of correlation, when there is a fully related relationship between two variables, the value is 1 or -1. Strong correlations are considered to be greater than or less than -50.

In this result, the correlation between CPC and ROAS is 0.08, which basically tells us that whether the advertisement has a high CPC or a low CPC, it will not be an indicator affecting ROAS. By contrast, the correlation between CPM and ROAS is slightly better: -0.12. But this is still a trivial correlation.