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The Dangers of Turning Off Facebook Ads

Published on: November 17 2023 by Common Thread Collective

The Dangers of Turning Off Facebook Ads

Table of Contents:

  1. Introduction
  2. Understanding Expected Value
  3. Applying Expected Value to Bets
  4. The Principle of Expected Value in Blackjack
  5. The Connection to Facebook Ads
  6. The Equation for Winning Facebook Auctions
  7. Treating Ad Delivery as a Bet
  8. Estimated Action Rate: The Probabilistic Model
  9. The Breakdown Effect and Optimization
  10. Cost Caps: Ensuring Expected Value

Article:

Introduction

In the world of advertising, turning off an ad in your Facebook ad account may seem like a simple decision. However, there is an underlying principle at play here that can greatly impact the success of your advertising campaign. This principle revolves around the concept of expected value and the idea that every ad delivery is essentially a bet. In this article, we will dive deep into the world of expected value, explore its application to Facebook ads, and understand why you should never turn off an ad without proper consideration.

Understanding Expected Value

Expected value is an anticipated average value for an investment at some point in the future, based on probability. It can be calculated using a simple formula: value times probability over cost minus 1. To illustrate this concept, let's consider a simple betting scenario using a coin flip. If you were offered a bet where you would receive $2 for every $1 you bet if you guess correctly, the expected value of this bet would be zero. This means that over time, on average, you would neither win nor lose money. However, in the short term, the outcomes may vary.

Applying Expected Value to Bets

To better understand how expected value works in real-life scenarios, let's consider the example of flipping a coin five times. If we bet on heads and keep track of the outcomes, we may end up with a positive return on our investment. For instance, if we correctly guessed heads three times out of the five coin flips, we would have invested $5 and made a dollar in return, resulting in a 20% return on our money. This highlights the importance of not making decisions based solely on short-term outcomes, but rather on the expected value over the long run.

The Principle of Expected Value in Blackjack

The principle of expected value can also be applied to games like Blackjack. In this game, the probability of winning is approximately 49.75% with a 2-to-1 payout. However, when considering the expected value over time, playing Blackjack perfectly would result in a negative return of 0.5%. This is due to the slight edge the house holds in the game. Understanding this principle can help us make better decisions when it comes to investing our money in various opportunities.

The Connection to Facebook Ads

Now, let's delve into how the principle of expected value connects with Facebook ads. Every ad delivery on Facebook is essentially a bet. To win at the auction and get your ad delivered, you need to understand the equation that Facebook uses: Total Value Score (TVS) = Bid x Estimated Action Rate x Ad Quality for User Score. By fixing your bid and setting a cost cap, you are essentially locking in your expected value for the ad.

Treating Ad Delivery as a Bet

Considering ad delivery as a bet allows us to make more informed decisions when it comes to running Facebook ads. Instead of relying solely on historical outcomes, we should trust Facebook's probabilistic model for estimating the likelihood of actions from users. Every ad delivery is a bet on the future value of your investment, and Facebook's algorithms are designed to optimize this delivery based on their modeling.

Estimated Action Rate: The Probabilistic Model

The estimated action rate is a critical component of Facebook's delivery system. It incorporates historical ad performance, conversion rates, and individual user behavior to create an expected click-through rate (eCTR) and expected conversion rate (eCR) for each ad. These probabilistic models help Facebook determine the likelihood of user actions and optimize ad delivery accordingly.

The Breakdown Effect and Optimization

The breakdown effect refers to the fluctuating outcomes of ads in terms of impressions, clicks, and purchases. Often, advertisers make the mistake of judging the success of an ad solely based on these outcomes. However, Facebook's optimization process relies on a probabilistic model of future outcomes. Advertisers should trust this model rather than making decisions based on incomplete information from past outcomes.

Cost Caps: Ensuring Expected Value

One effective way to utilize the principle of expected value in Facebook ads is by setting cost caps. By fixing your bid and defining the expected value you desire, you allow Facebook to determine whether the expected value matches the bid expectation. If the expected value doesn't align with your desired outcome, Facebook will not deliver the ad. This ensures that your ads are only shown when the expected return matches your investment goals.

In conclusion, understanding the principle of expected value and treating ad delivery as a bet is crucial for running successful Facebook ad campaigns. By harnessing the power of probabilistic models and setting cost caps, advertisers can optimize their ad delivery and avoid making hasty decisions based on short-term outcomes. Remember, never turn off an ad without considering the expected value and letting Facebook's algorithms work their magic.

Highlights:

  • Expected value is an anticipated average value for an investment at some point in the future.
  • Short-term outcomes may vary, but the expected value provides a long-term perspective.
  • Applying the principle of expected value to games like Blackjack helps make informed investment decisions.
  • Facebook ad delivery is akin to making bets on the future value of your investment.
  • Trusting Facebook's probabilistic model and setting cost caps ensure optimal ad delivery.
  • Do not judge the success of an ad solely based on past outcomes; focus on expected value.

FAQ:

Q: Should I turn off an ad if it doesn't perform well initially? A: No, making decisions based on short-term outcomes can be misleading. Trust Facebook's probabilistic model and let the optimization process run its course.

Q: How do cost caps help ensure expected value? A: Cost caps allow you to fix your bid and define your desired expected value. If the expected value doesn't meet your bid expectation, Facebook will not deliver the ad.

Q: Can historical outcomes reliably predict future outcomes? A: Historical outcomes provide some insights but should not be the sole basis for decision-making. Facebook's probabilistic models better predict future outcomes.

Q: What is the breakdown effect? A: The breakdown effect refers to the fluctuating outcomes of ads in terms of impressions, clicks, and purchases. It demonstrates why advertisers should rely on probabilistic models rather than past outcomes.

Q: Is it necessary to constantly monitor and adjust ads? A: No, once you have set your cost caps and defined expected value, you can trust Facebook's delivery system to optimize ad delivery. Avoid unnecessary manual interventions.

Q: How can I ensure the success of my Facebook ad campaigns? A: Understanding the principle of expected value, setting cost caps, and trusting Facebook's probabilistic models are key to running successful ad campaigns.

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