Every time someone opens Facebook, Instagram or YouTube, the platform runs an auction to decide which ads to show them. Understanding that auction explains most of what happens to your costs.
The winner is not simply the highest bidder. Meta describes its auction as choosing the ad with the highest “total value”, which combines three things:
- Bid: what the advertiser is willing to pay for the result they chose, set directly or by the platform’s automated bidding.
- Estimated action rate: how likely this person is to take the action you are optimizing for, such as a click, a purchase or a video view.
- Ad quality and relevance: signals such as feedback from people who saw the ad and assessments of low-quality features like clickbait.
Google Ads, which runs YouTube advertising, works on a similar idea: bid combined with expected performance and ad quality.
Why this matters
- A more relevant ad can win auctions at a lower cost than a weaker ad with a bigger bid. Creative quality is a cost lever, not just a branding issue.
- The platform optimizes for the event you choose. Ask for clicks and you will get people who click, not necessarily people who buy.
- Costs rise when many advertisers compete for the same audiences, such as in the weeks before major shopping holidays.
Key cost terms
CPM: cost per thousand impressions. CPC: cost per click. CTR: click-through rate. CPA: cost per acquisition, the cost of each result you care about. ROAS: return on ad spend, revenue divided by spend.
Try this
Write down the one action that matters most for your business from an ad: a purchase, a lead form, a booked call. That is the event your campaigns should eventually optimize for.