The Importance of Understanding Facebook’s Algorithms (Part 1)

You can gain competitive advantage in your advertising by understanding how Facebook really works. Algorithms do all the magic under the hood, so today, let’s start with Facebook’s budget pacing algorithm. When combined with the Vickrey–Clarke–Groves mechanism that Facebook uses in the auction, the best value is generated for advertisers.

The budget pacing algorithm controls spending over time. Without it, many campaigns or ad sets might spend their whole budget in just a few hours, which wouldn’t be optimal. In general, the reason it wouldn’t be optimal is that the campaign might miss out on cheaper impressions, clicks or actions in the auction that are available later in the day. Besides getting the best price, pacing also ensures predictable delivery and helps all advertisers get fair access to their target audiences.

At the moment, Facebook has different pacing algorithms for different use cases. We concentrated on analyzing the daily budget pacing algorithm since this is what most of our customers at Smartly use. The most optimal strategy is to start with a conservative daily budget and then carefully increase it.

How does it work in real life?

The pacing system controls the competing bid so that spend will be smooth throughout the day. See the following example (Picture 1) with the daily budget of €200. The first thing you notice is that the budget is used quite evenly throughout the day. However, the budget is spent slower during the night hours since Facebook takes into account the sites traffic patterns: each audience group behaves differently and generally less people are online during the night. As another example, Facebook mobile app users tend to be online more often than people who don’t use the app.

Picture 1. The daily budget pacing algorithm with a fixed budget.

What happens when you increase the budget during the day?

We started analyzing this question by shifting the daily budget from €200 to €400 during the day. Increasing the daily budget during the day (Picture 2) speeds up the spending if there are no other limiting factors such as a bid that is too low. Increasing the daily budget is a powerful way to accelerate the delivery of your campaign or ad set. Alternatively, you can spend the whole budget as fast as possible from the beginning of the campaign with our accelerated delivery feature.

If you increase the daily budget late in the evening or night, the pacing algorithm might spend the remaining budget very fast, which, in turn, might decrease the campaign’s performance for the rest of the day. You can optimize the budget manually or automate it.

Picture 2. Increasing the daily spend during the day.

What happens when you decrease the budget during the day?

Decreasing the daily budget slows down spending for the day, as seen in Picture 3. Be careful when decreasing the daily budget since it can cause what we like to call a \"hangover day.\" The rest of the day will be spent slowly and the performance might be bad also for the next full day due to a lower amount of conversion data. Thus, if you have to decrease the daily budget, do it close to midnight to avoid hangovers.

Picture 3. Decreasing the daily budget during the day.

If your campaign or ad set can’t spend the entire daily budget, the issue isn’t in the budget pacing, but somewhere else like in bidding, targeting or creative. If it can spend the entire daily budget, however, then do all the daily budget changes close to midnight. That said, if your metrics, for example your CPA level is good and the audience size is large enough, look promising, increasing the daily budget conservatively during the day improves performance.

We have noticed that a working strategy is to start with a conservative daily budget and then carefully increase it. It’s faster and easier to increase the budget than to decrease it, due to the hangover risk we just described. As a final point, we do not recommend changing the budget more often than three times a day since the pacing algorithm takes some time to learn the new optimal bid.

The next part will reveal the secrets of the oCPM bidding algorithm and how to use it for competitive advantage.

Kalle Tiihonen works as an Account Manager at Smartly.io, one of the fastest-growing Facebook Marketing Partners in Europe.

Image courtesy of Shutterstock.