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Cost Caps Bidding: What It Is & Why It Should Be A Part Of Your Facebook Ads Strategy

Cost Caps Bidding: What It Is & Why It Should Be A Part Of Your Facebook Ads Strategy

Last Updated:  
March 18, 2024

If Meta is any part of your advertising efforts, you know how important it is to control your ad spend and ensure that you're getting the best possible return for your advertising dollars. One way to do this by using the Cost Per Result bid strategy, formerly known as Cost Caps, on your Facebook ads.

It's important to note that although changing your bidding strategy can have positive effects on your ad’s performance, all digital marketers should focus on creative performance first, as creative is still the biggest lever for your ad campaign performance. Playing with bidding strategies can be an effective needle mover, but it shouldn't be the first thing you look at if your ads aren't performing as well as you’d like. Focus on your creative quality first.

This blog will outline what exactly Cost Caps are, when you should (and shouldn't) use them, and things to keep in mind if you decide to use them in your overall Facebook advertising strategy.

What are Cost Caps?

Cost Caps is a bid strategy on Facebook ads that allows you to set the maximum Cost Per Acquisition (CPA) on a purchase. Facebook will keep the average CPA at, or below, your set cap. Essentially, you tell Facebook to keep its CPAs under a maximum amount, so you can  focus on increasing your conversions and your conversion rate at that CPA.

Cost cap bidding is particularly useful for controlling your ad spend and ensuring that your CPAs stay profitable for your business. They can help you control your ad spend and ensure that you don't go over budget. This method comes especially handy  if you have a set budget.

Lowest Cost vs. Cost Caps

Lowest cost bidding, now named Highest Volume, is the default bid strategy on Facebook. If you don't select any other bid strategy, Facebook will auction your ads using Lowest Cost, meaning that it will try to get the most results for your budget. This strategy is useful if you focus on conversion volume. Facebook will "use up your budget," and run your ads with no specific CPA goal.

Bid Caps vs. Cost Caps

Another Facebook bid strategy, bid caps, sets a maximum bid that you are willing to bid on in an ad auction, and how much you are willing to pay for a single conversion. For example, if you want to pay $25 for a conversion, you set your bid cap, or your bid's upper limit, to $25, and your average bid won't ever hit that number. It's a hard limit.

In contrast to Bid Caps, Facebook chooses bids "dynamically based on your cost or value goals" when using Cost Caps. Some bids may be higher than others. Facebook makes sure that the average CPA is the Cost Cap that you set.

When To Use Cost Caps

If You Have A Lot Of Data

To use Cost Caps effectively, you need to have been running Facebook ads for a while to gather enough historical data around your conversion goal, in other words, : you need a lot of tracked conversions. Your campaigns should also have been running on the same optimization event as you plan on setting your Cost Cap to. For example, if you plan on running a conversions campaign and setting a Cost Cap, and you've only run lead form campaigns in the past, Cost Caps aren't going to work efficiently for your campaign.

If Your Know Your Cost Per Results

To set a reasonable Cost Cap, you should have a clear idea on what your average Cost Per Conversion sits. With no clear idea of where your product's advertising costs are, you may undershoot your Cost Cap. This will lead to Facebook not being able to carry out the right optimizations for your campaign, and will stunt spend.

If Your Products CPAs Fluctuate With The Market

Facebook's Cost Per Result fluctuates based on human behaviour. Over time, you may notice that your costs increase during holidays and events such as Black Friday or Christmas (when brands everywhere are increasing their costs to compete for eyeballs). You may also notice that your Cost Per Result increases during the weekend. Cost Caps are a great solution to managing your CPAs during normal market fluctuations. It works by fighting the spikes in costs and producing a predictable, stable cost per result throughout.

When Not To Use Cost Caps

If You're Setting Up A New Facebook Account

Because you need a lot of past conversion data for Cost Caps to work efficiently, if you're starting a new Facebook ad account, you may struggle to get caps to work. Facebook does not know your product, or your customer's interactions with your brand, when you set up a new account.

If you set a Cost Cap too early on, you'll get in the way of Facebook's conversion process. You'll struggle to get conversions, and your campaigns will be stuck in the ‘Learning Limited’ phase. You need an ad account that has already ran with your desired optimization event.

Extreme changes in your ads platform

If you decide to go ahead and run Cost Caps, it's best to do so under conditions that your Facebook campaigns are used to. Extreme changes to your targeting or your product will reset Facebook's learning, and may change your campaign's CPAs. You don't want to shoot yourself in the foot by making extreme changes to your campaigns, throwing in a Cost Cap based on your old audience, and have Facebook stop spending.

If You Want To Spend Your Entire Budget

If your goal when running Facebook ads is to spend your entire budget efficiently, you might want to consider using Highest Volume as a bid strategy, or Lowest Cost, instead of Cost Caps. Cost Caps, if not used right, can slow down your campaign's spend. Using Cost Caps will depend on your goals as a brand, and what you want to get out of Facebook ads.

How To Set Cost Caps on Facebook Ads

In Facebook ads manager, when you create a new campaign and set your conversion goal (it's usually going to be "Sales"), you can set your Cost Cap.

In your Facebook ad campaign, if you decide to use Campaign Budget Optimization (CBO) then enable "Advantage Campaign Budget" at the campaign level.

Then, under "campaign bid strategy," choose "Cost per result goal." By default, your Facebook ad campaign will be set to the lowest cost bid strategy.

You'll be able to set a specific Cost Cap at the ad set level. If you're running an ABO(Ad set budget optimization), you can skip directly to this step and still set a Cost Per Result Goal at the ad set level.

It's as simple as that!

Why Cost Caps Are Important For Your Facebook Ads Strategy

Setting a Cost Per Result Goal can boost your advertising cost’s stability and predictability. It's an efficient way to manage your ad spend and your costs, by asking Facebook to cap your acquisition costs at a certain average price. They "[reduce] complexities in managing bids while maximizing your campaign results," since you don't have to play around with bids, but can set a target cost that you want your campaign, or ad group, to sit at.

With Cost Caps, Facebook will find opportunities within what your brand can afford, without going above your costs.

Cost Cap Best Practices

Set it higher than you want it to be

You want Facebook to have as much room as possible to get you conversions at a profit to your company. It's always a good idea to set your Cost Caps a bit higher than your goal. You could also test different caps at different costs by dividing your ad sets, or your campaigns, by different cap goals.

Set Realistic Cost Caps

Your cost caps should be based on the average cost per acquisition of your ads and the specific goals of your business. If you set your caps is too low, you may miss out on valuable traffic. On the other hand, if you set your cap too high, you may end up overspending on your ads.

Monitor Your Actual Ad Spend

You’ll need to regularly monitor your ad spend, an indicator of ad delivery. This will help you see how well your ads are performing and make adjustments as needed to improve your results, such as increasing or decreasing your caps. If you increase your daily budget, Facebook will also increase your cost caps.

Experiment with different cost caps

One of the great things about caps is that you can set different caps for different ads within the same campaign. This allows you to fine-tune your ad spend and allocate your budget more effectively.

Mistakes To Avoid When Using Cost Caps

Setting Cost Caps Too Low

If you set your caps too low, and Facebook doesn't believe it can reach your goals, your campaign will stop spending. It will stall. If you increase your daily budget, your Facebook may increase your cost cap as well.

Setting Cost Caps Too High

If you set your caps too high, Facebook will overspend your budget.

Things To Look Out For

Spend Can Be Slow

Especially in the initial stages of the campaign, spend can be very slow when you start out with a Cost Cap. Costs might fluctuate until the campaign exits learning, and then it should average out once it's settled. It might take your Facebook campaign a longer time to exit the learning phase when using a Cost Per Result Goal.

It Takes A Lot Of Testing

Finding the right cap can be a daunting task. Knowing if cost caps are good for your brand is also a daunting task. It takes a lot of testing to find your brand's sweet spot. Keep an open mind when you first set your Cost Cap, and look for signs of underspending or overspending to guide you into the direction that you want.

This is also true for finding the right bid when using a bid cap. Testing will most likely be a part of your process.

When starting out, test a cost cap campaign against a lowest cost campaign, with a similar set budget, and figure out which brings your the best results based on your brand's KPIs.

Facebook Will Narrow Your Audience

When using Cost Caps, Facebook will take its previous conversion data to try to find you similar buyers with close behaviours. Using caps can stop Facebook from widening your audience and from reaching new customers. This is because you limit Facebook's algorithm to finding customers that share their buying behaviour with others that have already converted. Therefore,  look for signs of an exhausted audience (high frequency and low CTRs). It could be worth having a frequency cap as well.

You may be losing out on expensive conversions that yield higher order values and a higher ROAS, with bidding strategies. Using a cap is not the best way to go for market-share, if that's your business's goals.

Leveraging Cost Caps for Facebook success

Playing with Facebook's bidding options is a great way to optimize your ad spend. Cost caps, in particular, are a powerful tool for controlling your ad spend and maximizing the performance of your Facebook ads.

By setting caps, you can control your ad spend, fine-tune your ad budget, and make more informed decisions about your advertising strategy. However, with all things in advertising, it's important to evaluate whether using caps makes sense for your brand and the market you are in.

Understanding how your customers interact with your ads is a vital first step to setting up caps, and knowing how to evaluate and optimize your ads while on cost caps is just as important. And if you're looking for a platform that will help you track all of that data and much more, give Triple Whale a try!

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