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Have you ever launched a Meta ad campaign, only to be left wondering why your ads barely got any reach, while your competitor’s ads seem to be everywhere? You set a decent budget, picked the right audience, and yet… nothing.
Here’s the reality: If you don’t understand how the system actually works, you’re likely wasting ad spend, losing out to better-optimised ads, and missing opportunities to connect with your ideal customers.
Meta uses a mix of bid amount, estimated action rate, and ad quality to determine which ads get shown. This means that even a lower-budget ad can outperform a high-bid one if it’s more relevant and engaging. If you don’t know how to optimise these factors, you’re playing a guessing game with your marketing budget.
In this article, you’ll get a clear, no-fluff breakdown of Meta’s ad auction system, including:
- How Meta decides which ads win the auction (it’s NOT just about money)
- The three key factors that determine whether your ad gets shown
- How to optimise your ads so you don’t waste your budget
By the end, you’ll know exactly how to beat the competition and make your ads work smarter, not harder.
Understanding Meta’s Campaign Structure and Ad Auctions
Before we dive into how Meta’s ad auction works, it’s important to understand how ad campaigns are structured. This structure plays a key role in how your ads compete and ultimately get shown to users.
Meta’s campaign structure is broken down into three levels:
- Campaign – Where you set your overall objective (e.g., conversions, traffic, engagement)
- Ad Set – Where you define your audience, budget, placement, and scheduling
- Ad – The creative itself, including the copy, images, or videos
The ad auction happens at the ad set level—not the campaign or ad level. This means that when your ad enters an auction, it’s competing against other ads targeting the same audience and placements—not necessarily against ads from competitors in your industry.
How Meta’s Ad Auction Works (And Why It’s Different from Google Ads)
Unlike Google’s paid search model, where advertisers compete primarily on bids (meaning higher competition drives up prices), Meta’s auction system prioritises user experience. Its goal is to show the right ad to the right person at the lowest cost possible.
This means that higher competition doesn’t always mean higher costs. Instead, because Meta prioritises ad relevance and user engagement, more competition often leads to better ad experiences for users—resulting in lower costs for advertisers who create high-quality, engaging ads.
The Ad Auction Formula
At the core of Meta’s advertising system is its ad auction formula, which determines which ads are shown and how much advertisers pay. Unlike traditional auction models where the highest bidder wins, Meta uses a value-based system underpinned by a single formula:
[Advertiser Bid] x [Estimated Action Rate] + [User Value] = Total Value
The ad with the highest Total Value wins the auction and is shown to the user. However, the more valuable an ad is to users, the less the advertiser will have to pay per impression or action. This is why higher competition doesn’t always mean higher costs—stronger competition encourages advertisers to create better, more engaging ads, ultimately lowering costs for those who optimise effectively.
Now, let’s break down each component of the auction formula and how you can control them to improve ad performance.
1. Advertiser Bid
Every time you run ads on Meta, you choose a bidding strategy, which influences how much you’re willing to pay and how you compete in the auction. Meta automatically places bids based on your settings, which can impact your costs and ad delivery.
Available Bidding Strategies (Updated March 2025):
- Highest Volume: Meta aims to get as many possible conversions as possible within your budget. This will result in your cost per acquisition (CPA) fluctuating depending on market conditions
- Highest Value: Meta aims to get the highest conversion value while spending your entire budget. For example, if you own an ecommerce store, Meta will focus on trying to generate purchases on higher value products, as monetary value, and not conversion count, is its main priority with this bidding strategy
- Cost Per Result: This gives you the ability to add a cost per result (CPR) goal (such as a cost per purchase goal), which Meta will aim to achieve. This is best if you want to keep your CPA around an average amount regardless of market conditions. Note that it is not guaranteed to achieve this CPR
- ROAS Goal: Meta will aim to generate a return on ad spend for your ad set over the course of your campaign. For example, if you want your budget of AUD $100 to produce around AUD $110 in purchases (or a 110% return), you’d set your ROAS control at 1.100. With this bidding strategy, Meta won’t spend your budget if it can’t achieve the ROAS goal you’ve set. This is different to highest value bidding, which aims for a high conversion value but ensures that you spend your entire budget during the campaign lifetime
- Bid Cap: You can set bids manually in auctions, which allows you to have full control over your ads bidding. This option is only meant for advertisers that have a deep understanding of the way the platform works
The bidding strategy you choose and the specific options you select with each bid (like the ROAS Control with ROAS Goal) has an impact on where, when and how your ad is delivered, ultimately impacting the costs you pay.
As such, it’s important to get your head around each bidding strategy, and split test the strategies that are most relevant to your business, to get an understanding of what works better for you.
2. Estimated Action Rates
Each ad has an optimisation event, often an action you want a person to take, such as clicking through to your website, watching a video ad to completion, submitting a lead form, or purchasing a product. Estimated action rates represent how likely Meta thinks someone is to take that action.
How Meta Determines Estimated Action Rate:
- A user’s past behaviour, such as whether they have engaged with similar ads before
- Your ad’s historical performance, based on engagement and conversion data
- The relevance of your ad to the audience being targeted
Since this metric is based on historical data, advertisers can improve their Estimated Action Rate by:
- Running longer campaigns: Restarting campaigns too frequently resets historical data, making it harder for Meta to optimise performance. Instead, edit existing campaigns rather than starting from scratch.
- Refining audience targeting: Selecting audiences more likely to engage improves this metric over time.
- Being niche with your copy and creative: Instead of using generic messaging like “This toolkit is great for home renovations,” be specific about who it’s for and what makes it valuable. A stronger alternative could be something like: “Built for Australian tradies who need reliable tools to get the job done—no fuss, no downtime.” You can take that same concept and utilise it for creatives. For example, showing a tradie in the image as opposed to showing just the toolkit. This will mean more users who resonate with that image and copy (likely tradesmen) will interact with the ad, and your Estimated Action Rate will naturally improve.
3. User Value
One of Meta’s biggest priorities is improving user value on their platform, and one big part of this is ensuring that high quality ads reach the right people at the right time.
User value is determined by three metrics:
- Ad relevance
- Post-click experience
- Overall ad quality
The higher the User Value, the better an ad performs in auctions and the lower its costs.
How to Improve Ad Relevance
Facebook assigns you an ad relevance score, which estimates how well your ad is resonating with the people you want to reach. The higher your ad’s relevance score, the better it’s considered to be performing.
This score ranges from 1 to 10, with 1 indicating a low relevance and 10 indicating a high relevance. This score is given once an ad has more than 500 impressions.
Relevance scores are based on:
- How well your ad is performing
- Positive feedback (which includes any actions taken on your ad or landing page after a user clicked your ad – this is why data tracking is so important)
- Negative feedback (e.g. someone clicks “I don’t want to see this” on your ad)
Ways to improve ad relevance:
- Encourage positive engagement, such as likes, comments, and shares.
- Minimise negative feedback, such as users clicking “I don’t want to see this ad.” You can do that by making your creative and copy super niche and targeted
How to Improve Post-Click Experience
Meta evaluates the quality of the landing page linked to an ad. A poor user experience on the landing page can reduce User Value and increase costs. Obviously this is only applicable to ads that lead to a landing page with a Meta Pixel present on the page.
Here are a few things to remember to achieve a better landing page user experience and thus improve post click experience, user value and win more ad auctions:
- Slow Load Time: advertisers with fast website performance may see higher click rates for certain audiences and at a lower cost
- Poor content experiences: Facebook’s system also learns what makes for negative ad experiences and applies those learnings to improve the user experience. In addition to a web page’s loading time, Facebook also takes into account content on landing pages that’s prohibited by their Advertising Policies. Facebook states that the following on any landing pages will result in poor post click experience and thus poor user value scores:
- A disproportional volume of ads relative to content
- Sexually suggestive or shocking content. See Meta’s policies about sensational content and adult content
- Malicious or deceptive ads that include prohibited content as defined in their Advertising Policies
- Pop-up ads or interstitial ads that block people from engaging with the web page
- Good Content: Ultimately, if you can get users engaging with your landing page and staying on it longer, this is going to be a positive signal for Meta’s post click experience. And yes, Meta can absolutely track the amount of time each user spends on your landing page. So, if your pages aren’t hitting the mark and users are leaving quickly, this will drive your cost up
How to Improve Ad Quality
Meta assesses the overall quality of an ad based on three factors:
- Your target audience’s history of level of interest in content similar to yours (this is determined by their level of interaction with similar content in the past)
- The relevance of your ad content to the users you target (determined by things like ad interaction)
- Overall ad quality, determined by ad interactions, both positive and negative
Check out Facebook’s guide on how to use ad relevance diagnostics. See here:
Basically, you’ll want to go to the ad level and find the columns titled:
- Quality ranking
- Engagement rate ranking
- Conversion rate ranking
If your ad has 500 or more impressions, Meta will usually give you a category ranking for all of these three metrics, fitting one of the below three categories:
- Below average
- Average
- Above Average
Then, you must view Meta’s Ad Relevance Diagnostics Page and find what row your ad fits in. For example, if quality ranking and engagement rate ranking are both showing average or above average in your ad account, but conversion rate ranking is showing below average, you would navigate to this row:
This then tells you what is causing the below average ranking and how to fix it. Using this method will allow you to improve your ad quality in a data-driven way.
Summary
Remember, the ad auction impacts the amount you pay for your ads. The better you perform in the ad auction, the lower your costs will be.
The ad auction formula:
[Advertiser Bid] x [Estimated Action Rate] + [User Value] = Total Value
Focus on controlling your advertiser bid (dependent on your business objectives), improving estimated action rates and increasing user value.
If you do this, your CPA will reduce, and you’ll experience better results across Meta.
So, What’s Next?
One of the things mentioned in this article was the need to get your creative, copy and landing page right. Since the ad auction formula is tied directly to content experiences, it’s really important to nail this.
To learn exactly how to do this, download our free guide on how you can create the best possible creative, copy and landing page experience for your Meta Ad Campaigns.
