FREE PREVIEW · MODULE 1 · LESSON 1 · 12 MIN
How social ad auctions really work
What you are actually bidding on, why relevance lowers your costs, and the three numbers that drive everything.
Every time someone opens a feed, the platform runs an auction among advertisers who want to reach that person. The winner is not the highest bidder; it is the ad with the highest total value, roughly bid multiplied by estimated action rate plus a quality adjustment. That is why a well-made ad from a small brand can beat a dull ad from a large one. In practice, improving your estimated action rate through better creative is often the largest lever you have, frequently larger than any targeting or bidding trick.
Three numbers describe nearly everything about a campaign. CPM, the cost per thousand impressions, tells you how expensive your audience is and how the platform rates your relevance. CTR, the click-through rate, tells you whether the creative stops the scroll. Conversion rate on your landing page tells you whether the promise in the ad matched reality. Cost per result equals CPM divided by a thousand, divided by CTR, divided by conversion rate. When cost per result moves, decompose it into these three to find out which one changed.
Many advertisers use rough planning ranges for a cold audience, in US dollars, such as CPMs of 8 to 20 on Meta and 5 to 12 on TikTok, CTRs of 1 to 2 percent on Meta and somewhat lower on TikTok, and landing page conversion rates of 2 to 5 percent for purchases or 15 to 30 percent for free signups. Treat these as assumptions, not benchmarks: real figures vary widely by country, category and season. If you are far outside them on day one, check your setup before blaming the creative.
Example: a Lyon candle maker decomposes a bad week
Lumen & Wick, a two-person candle maker in Lyon, saw cost per purchase jump from about €26.70 to €40 in one week. The owner’s first instinct was to change targeting. Instead she decomposed the number. CPM was flat at €12. Landing-page conversion was flat at 3 percent. Click-through rate had fallen from 1.5 to 1.0 percent. The arithmetic confirmed it: €12 ÷ 1,000 ÷ 0.010 ÷ 0.03 = €40, against €12 ÷ 1,000 ÷ 0.015 ÷ 0.03 ≈ €26.70 the week before. The whole rise came from the creative, a video that had run for five weeks. She left targeting alone, wrote ten new hooks and launched the two strongest. Within a week click-through recovered to 1.4 percent and cost per purchase settled at about €28.60, without touching bids or audiences.
Illustrative example: the business, people and figures are fictional.Key takeaways
- The auction rewards estimated action rate, so creative beats bidding tricks
- Cost per result decomposes into CPM, CTR and conversion rate
- Use rough planning ranges as a sanity check for setup problems, not as targets
Exercise
Write down your target cost per result. Using the rough planning ranges, work backwards to the CPM, CTR and conversion rate you would need. Decide which of the three you can most realistically influence.
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