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How Do Facebook Ads Actually Work? Here’s What You Need to Know

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How Do <b>Facebook</b> Ads Actually Work? Here's What You Need to Know thumbnail

Let’s just get to the elephant in the room. Facebook ads are struggling.

Facebook is fighting a lawsuit against their reach metrics. And Facebook’s personalized ad campaign to combat Apple’s App Tracking Transparency (ATT) isn’t going well.

But the truth is that Facebook ads actually work.

With updates like exclusion controls, a new Conversions API that allows you to pull data directly from your server into Ads Manager, and transparency about the data Facebook is collecting, this social network doesn’t show any signs of slowing down.

Ahead, I’ll explain how and why Facebook ads work, different types of Facebook ads, and how to get started creating your first Facebook ad.

So, Do Facebook Ads Really Work?

The short answer: Yes. Facebook ads do really work.

Want proof?

In 30 days, this app generated 7,044 installs after spending $9,821 on Facebook ads.

BionicGym generated 9x ROI from their Facebook ads.

This company spent $300,774.82 to earn $3.64 million in revenue from Facebook ads.

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But, there’s a caveat in that Facebook ads work when your business is the right fit for Facebook ads. Depending on your industry, you want to consider if Facebook aligns with your business model.

Facebook ads are not always the answer for more traffic, clients, or sales. If you’re a business with a low cost of entry like an ecommerce pushing products or a SaaS that’s driving sign-ups, it can be difficult to find success.

If you’re unsure, start small. Stick to a cheap $5-$10 per day ad spend for 1-2 weeks to test.

A Quick Background of Facebook’s Ad Algorithm

Originally, when Facebook launched its ad algorithm, it was based on an auction. It gave priority to the highest bid.

However, in 2018, Mark Zuckerberg announced that Facebook would be shifting to prioritize “meaningful interactions.”

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Facebook shifted more toward the user experience model while integrating the auction.

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The auction is based on:

  • Ad rank.
  • Advertiser bid.
  • Estimated action rates.
  • Ad relevancy and quality.

However, it is still unclear exactly how Facebook’s ad algorithm works.

Eric Sodomka, a research scientist at Facebook that focuses on auctions, shared his first-party insights on how Facebook’s ad algorithm works.

You’ll want to watch this:

Within that presentation, Eric shares how Facebook evaluates content.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

On the left, you’ll see the probability that this specific user will click any ad.

On the right side, you’ll see the probability that a specific user will click this ad.

Facebook uses this predictive data to decide the likelihood that someone will take an action. With Facebook’s flexible analytics architecture, they do test various models outside of this.

If you want to get into the nitty-gritty of it, you’ll want to dive into this research paper, Practical Lessons from Predicting Clicks on Ads at Facebook by Joaquin Quinonero Candela, the Director of Applied Machine Learning at Facebook Research.

6 Types of Facebook Ads

There are six types of Facebook ad formats.

Image

File type: JPG or PNG

Resolution: 1080 x 1080 pixels

File size: 30MD

Facebook image ads allow users to create visuals with static images to drive action.

Here are my secrets to optimizing your Facebook image ads:

  1. Show examples of customers using your product.
  2. Try to avoid text. Remember, less is more.
  3. Stick to a consistent theme if you’re running multiple ads.
  4. Always use high-resolution images.

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Video

File type: MP4, MOV, or GIF

Resolution: 1080 x 1080 pixels

File size: 4GB

Video duration: 1 second to 241 minutes

Facebook video ads give businesses a chance to showcase their brand in sound and motion. These can be seen in the stream, feed, or stories. You also have the option to create a slideshow.

Here are my secrets to optimizing your Facebook video ads:

  • Showcase a unique feature, product, or service. You want to tell your story.
  • Keep the audience engaged with clips of 15 seconds or less.
  • Stick to one message per video. Ask yourself: What action do you want them to take?

Carousel

File type: JPG or PNG

Video file type: MP4, MOV, or GIF

Resolution: 1080 x 1080 pixels

Number of cards: 2-10

Image file size: 30MB

Video file size: 4GB

Facebook carousel ads allow you to display up to 10 images or a video in a single ad. Each image receives its own link.

Here are my secrets to optimizing your Facebook carousel ads:

  • Choose a different product on each image pair, each product image with its own landing page link.
  • Tell a compelling story that pushes people to swipe for a more interactive format.
  • Explain a step-by-step process of how a product or service works.

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Instant Experience

Image type: JPG or PNG

Video file type: MP4 or MOV

Size: 1080 pixels x 1920 pixels

Images supported: Up to 20 images

Instant Experience Facebook ads pair with collection ads. Users can watch videos, swipe through carousels, and shop for products in your catalog.

Here are my secrets to optimizing your Facebook collection ads:

  • Try to not autoplay two videos at once. It could cause multiple playback issues.
  • Skip the captions for videos with Instant Experience ads.
  • If you’re using the title-to-pan feature, add a CTA to let users know they can tilt to see more.

Collection

Image type: JPG or PNG

Video file type: MP4, MOV, or GIF

Resolution: 1080 x 1080 pixels

Image file size: 30MB

Video file size: 4GB

Facebook collection ads are paired with Instant Experience ads. The collection ad serves a cover photo or video and four product photos. When a user clicks on a photo, a landing page pops up to drive that Instant Experience feature.

Here are my secrets to optimizing your Facebook collection ads:

  • You can allow Facebook to dynamically choose which products you want to be shown. It saves time in the long run.
  • Try to stick to product categories with more than 50 products. Facebook forces you to pair a minimum of 4 products, but with the dynamically chosen options, Facebook will serve the most popular or highest likelihood to be purchased.
  • Always include a URL parameter to track ad data.

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Bonus tip: If you’re unsure how to choose the right Facebook ad objective for your goals, check out Amy Bishop’s article.

Here’s How to Create an Ad on Facebook With Step-by-step Instructions

First things first, before you can create an ad on Facebook, you’ll want to create a Facebook Ads Manager account (if you have a business page).

If you’re not sure if you have an account, try to log into Facebook Ads Manager.

Step 1: Choose a Campaign Objective

Facebook gives you options to select from the following goals.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

For the purposes of this article, I selected traffic as my goal.

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Step 2: Name Your Campaign

After you select your campaign objective, you want to name your campaign along with the ad set and ad.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Step 3: Complete Campaign Details

After you name your campaign, Facebook will give you more campaign details to complete.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Here’s a quick breakdown of each:

Special Ad Categories

If your ad relates to credit, employment, house, social issues, elections, or politics, you must select this option. Due to the restraints of certain countries, there are different steps Facebook must follow to be legally compliant.

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Campaign Spending Limit 

Similar to budget optimization, the campaign spending limit stops delivering your ad once that limit is reached. Facebook will send you a notification to let you know the limit has been reached so you’ll have the option to keep it running if you’d like.

A/B Tests

Facebook allows ad managers to test creatives, audience, and placement to uncover the best-performing campaign. If you select this option, Facebook will automatically make this the A of the A/B test.

Campaign Budget Optimization

This allows you to set a budget at a campaign level. In the past, Facebook only allowed users to set this at an ad set level so it caused a lot of complications when allocating budgets to different audiences.

I’d recommend using this if you’re starting a campaign in a learning phase, or easing your campaign management, or if you’re targeting to get more conversions or a lower cost-per-ad. If you’re targeting a super niche audience, you may want to avoid this.

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Step 4: Choose Budget, Schedule, Audience, and Delivery

This is my favorite step in creating Facebook ads. It’s where the research and the data begin to come together.

First, you can choose where you want to drive traffic.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Then, you can toggle dynamic creative on if you want Facebook to automatically generate variations depending on the audience most likely to engage.

You’ll want to pair this with automatic placements that I’ll cover below.

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These are my new favorite ad sets from Facebook. Wordstream saw 60% more conversions after using dynamic creative ads in just 30 days.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

You can also use this to rotate in an offer style ad feature. This allows you to send automatic reminders, discount codes, and more.

Swish used this to promote a 50% off discount at 7-Eleven stores and saw an increase of 66% of offline sales.

Next, you can choose your budget and schedule.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Followed by audience creation.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Until you get down to the placements, optimization, and delivery at the bottom.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

One element you’ll want to remember to check is how you get charged for these Facebook ads.

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Facebook is tricky and hides this all the way at the bottom.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Step 5: Choose Ad Format

You’re on the final stretch! On the last page of the Facebook ad set-up, you have the option to select the format you’d like to structure your ad for users.

This is where your ad type knowledge from above comes in handy.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Step 6: Upload Creatives

Now, you can upload your media and add ad copy and a landing page URL.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Step 7: Select Languages

If you’re a global company or a local company targeting other dialects, you will want to add your own transcripts to your ads.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Step 8: Set Up Tracking and URL Parameters

This last step is the most important step. You want to always track your data and select a URL parameter to understand how your ads are converting and what’s motivating users to click.

How Do Facebook Ads Actually Work? Here’s What You Need to Know

Facebook Advertising Is Just Getting Started

Due to the growing lawsuits aimed at Facebook ads and Apple’s stance on security, Facebook is going to look for more ways to generate revenue.

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Keep your eyes peeled for Facebook Group ads. Facebook has been silently testing these since late 2019. And, their $10 million Super Bowl ad was dedicated to Facebook Groups.

I smell a new ad type baking in the oven.

With a bigger drive for user experience and more lawsuits, Facebook is going to drop core targeting options slowly. But with this comes more ad options and a greater drive to video.

Until we have more information from Facebook, businesses should continue to work to understand their customers and how best to engage them.


Featured image credit: Paulo Bobita

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FACEBOOK

VA Hospital to Hold Memorial Day Ceremony on Facebook

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Chaplain Anthony Madu will speak, a memorial wreath will be placed and Taps will be played during the Facebook Live event at 10 a.m.. Organizers …

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Better Buy: Facebook vs. Pinterest

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Better Buy: <b>Facebook</b> vs. Pinterest thumbnail

These two social media companies are competing for ad dollars.

According to eMarketer, 81% of internet users worldwide use social media each month. Notably, that figure is up from 78% in 2019 as a result of pandemic-driven digitization.

Not surprisingly, that trend has been a tailwind for social giants like Facebook (NASDAQ:FB) and challengers like Pinterest (NYSE:PINS). And given the enormity of the digital ad market, both of these tech companies should continue to grow in the years ahead.

But which stock is the better buy?

What we know about Facebook

Facebook operates several social media platforms, including Facebook, Instagram, Messenger, and WhatsApp. It generates the vast majority of its revenue through the sale of ad space across those platforms, as well as on third-party apps and websites.

A group of young people interacting with smartphones, while various icons (i.e. camera, email, shopping cart) are displayed above their heads.

Image source: Getty Images.

Last year, as the pandemic drove people online, growth in monthly active people (MAP) accelerated. At the same time, 79% of MAP were also daily active people (DAP), up from 78% in 2019 and 77% in 2018. This indicates an uptick in engagement over time.

In the first quarter of 2021, 3.45 billion people used one of Facebook’s platforms on a monthly basis. Notably, the pandemic-driven increases in engagement continued to hold, as 79% of monthly users also signed in daily. And the average revenue per person (ARPP) increased 29% to $7.75 for the quarter.

In total, revenue jumped 48% year over year in Q1, driven by a 12% increase in the number of ads delivered and a 30% increase in the price per ad. That represents a meaningful acceleration in top-line growth compared to the company’s performance in recent years.

Metric

2018

Q1 2021 (TTM)

CAGR

Monthly Active People

2.64 billion

3.45 billion

13%

Revenue

$55.84 billion

$94.4 billion

26%

Free Cash Flow

$15.4 billion

$24.2 billion

22%

Data source: Facebook SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate.

While Facebook’s growth has been solid, investors should note that revenue has increased more quickly than free cash flow. This reflects Facebook’s weakening operating margin, which has fallen from 45% to 40% over that period.

Even so, Facebook is the leading social media platform worldwide. Over 2.7 billion people use at least one of its products every day — that’s roughly one-third of the globe’s population. That incredible scale has helped it capture 25% of the U.S. digital ad market. Only Alphabet‘s Google has taken more market share.

Going forward, if Facebook can avoid legal trouble, I think it still has room to grow.

What we know about Pinterest

Pinterest takes a different approach to social media. Rather than connecting friends and family, it’s a tool for inspiration, planning, and action. Pinterest has also gone to great lengths to build a positive environment for its users. Most social platforms can’t make the same claim.

Smiling woman interacting with smartphone.

Image source: Getty Images.

Pinterest’s growth strategy has focused on bringing more inspiring and shoppable content to its platform. For instance, it doubled down on video in 2020, enabling brands to engage consumers with dynamic stories and tutorials. Pinterest also made it possible to switch to shop mode from search, and it introduced the verified merchant program, helping consumers identify trusted sellers. In both cases, this simplifies the transition from inspiration to action, increasing value for consumers.

Those efforts also drove record growth in 2020: Pinterest added over 100 million monthly active users, and during Q4 it saw a sixfold increase in the number of businesses using shopping ads on its platform. That boosted average revenue per user (ARPU) to $4.26, up 12% from the prior year. Notably, Facebook’s ARPP was $32.03 in 2020, more than seven times higher than Pinterest’s.

In general, Pinterest has delivered solid financial results over the last few years.

Metric

2018

Q1 2021 (TTM)

CAGR

Monthly Active Users

265 million

478 million

30%

Revenue

$755.9 million

$1.9 billion

51%

Free Cash Flow

($82.6 million)

$230.4 million

N/A

Data source: Pinterest SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate.

As a caveat, investors should be encouraged by the company’s strong performance in 2020, but they should also expect growth to slow in 2021. As the pandemic abates, people will probably spend less time online.

Even so, Pinterest has plenty of room to grow its business, especially in international markets. Given its execution so far, I think the future looks bright for this social media company.

The verdict

Facebook has achieved incredible scale, dwarfing Pinterest. It’s also much more profitable in terms of absolute dollars. That makes Facebook a formidable competitor.

However, Pinterest has also managed to differentiate itself. Its platform is often a safer environment for brands, since ads are less likely to appear beside hateful content. Additionally, people come to Pinterest looking for inspiration — in other words, they come to Pinterest with the intent to shop. That makes it a better place for marketers to spend ad dollars.

Finally, Pinterest is growing more quickly and its ARPU is several times smaller than Facebook’s ARPP. That means Pinterest has plenty of room to expand, which should create more upside for long-term investors. That’s why Pinterest is the better buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Trevor Jennewine owns shares of Pinterest. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Pinterest. The Motley Fool has a disclosure policy.

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How to prepare your Facebook account for your digital afterlife

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How to prepare your <b>Facebook</b> account for your digital afterlife thumbnail

Today, our online lives are where we share a lot of private and personal information, especially on social media platforms where we share many of our thoughts, post photos and videos over the time we have spent online. Among these social media platforms, Facebook is the most used social media service today. A lot of us, our friends and our family members have a Facebook account. We post and share everything from our private photos to a personal message via Facebook.

But have you wondered what happens to your Facebook account and the information (like posts, comments, photos, videos, etc.) that you have created and accumulated on the service after your time?

■ What will happen to my account?

■ Who can access your profiles?

■ Who will own your account and data?

■ How to manage it when such a time comes?

Facebook has added features to your account so that you can decide what happens to your account when such a time arises. Follow the steps given below to set it up and ensure that the information in your Facebook accounts is handed over to someone else safely or managed according to your choice.

Setting up Facebook’s legacy contact:

In the case of Facebook, you can choose to memorialise your account and hand over the control to a ‘Legacy contact’ of your choice or altogether delete your profile after your time.

Step 1: To set up your legacy contact, you can visit the ‘Settings & privacy’ option under your profile and select the ‘Memorialisation settings’ under ‘General Account settings’. You can also sign in to your account and visit https://www.facebook.com/settings to access this setting.

Step 2: Now, you can choose a legacy contact in this setting by searching for and adding a friend from your account as your legacy contact. Do note that, once memorialised, the legacy contact can only moderate the posts on your page and not post on your behalf.

Step 3: The following setting is to choose whether to allow your legacy contact to download all your data that you have created or shared on your Facebook account like posts, photos, videos etc.

Step 4: The final setting on this page could be considered an alternative to choosing a legacy contact. This setting is to delete your complete Facebook account once you pass away. Facebook needs to be informed about your death and requires verifying it with valid documentation to activate this feature. The company will delete all your information on Facebook on completion of this process.

To know more about these settings, you can visit the FAQ page on legacy contact.

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