Your Cost Caps Will Break During Your Next Sale. Here's The Fix. transcript

Let's talk about running manual bids during sales and promotions. If you have run manual bids at all, bid caps, cost caps, target ROAS ads on Meta, you probably know that as much as they are useful in normal moments of your advertising and of your media buying, they can be a real pain when you're running sales. And there is a really simple reason for this. If you think about what a manual bid is, it is a manual bid is a prediction actually every Meta ad delivery is a prediction, but a manual bid is a prediction that your ads on Meta is a prediction on Meta's side that your ads will deliver a certain return on your investment of your spend.

That's what a manual bid is at the core. You just define what that return is and tell Meta only spend if you predict Meta that we can get that return. So Meta makes that prediction by looking at historical data and then predicting the future based on its knowledge of users and all those kinds of things. For example, Meta's going to be able to predict very quickly how many clicks on average your ads are going to get, how much the impressions are going to cost.

Of course, those two things have an impact on each other, but you know, it can predict both of those. So it has I think a very easy time predicting the cost of a click, but then from there, Meta needs to predict how much or how many of those clicks are going to convert. And now the prediction gets to a much smaller number in the sales funnel. There are just less purchases than there are clicks, right? If you imagine that you convert let's say two or three, four, five percent of all the clicks that come to your website, that means just naturally the number of purchases that build up in a data set is much smaller than the number of clicks, right?

By to the tune of you know, 20 to 50x or something like that. So it has to predict the number of purchases that you will get and it will have to predict what the cost of those purchases are. And the way that it does that as far as anybody knows, the way that it does that, Meta predicts how many purchases you are going to get in a really obvious, really clear way. It predicts that by looking at how many purchases you've gotten before.

And if it has that data, the amount of money you've spent, the amount of clicks you're going to get, and the amount of purchases it it it predicts you're going to get, then it can predict your CPA. That's all the inputs that it needs, okay? Amount you're spending and how many purchases you're going to get. Basically, that's everything. And that that creates your CPA, okay? Very simply, if you spend $100 and you get one purchase, you have a $100 CPA.

If you get two purchases, you have a $50 CPA. And it and it can do a bunch of things use a lot of math to predict those things uh over time. We are not going to break that down any further in this episode because you should know that by now. If you're running that ads, this is basically how it works. It's how it works even if you're running auto bids in a lot of ways. And that's simple enough. What I want to point out is the challenge that happens when you run a sale or really when you do anything at all where the future is materially different than the past.

So, think about this for a second, right? If you suddenly take your product and you cut the price in half, it's extremely likely that you are going to get a much higher conversion rate on that product. Even if you don't market as being cut in half, it's just very likely they're going to get a higher conversion rate on that product. And therefore, suddenly, Meta may be able to read that, and I think Meta is reading your landing pages, but Meta suddenly has a has has is going to have purchase behavior in the future that is at a much higher conversion rate than it was in the past.

And therefore, it will take time to update its predictions. And critically, one of the things that Meta does that is so helpful about manual bids is that it does not update its predictions of the future based on small sample sizes really quickly. Imagine that you get five clicks, and by some miracle, all five of those clicks turn into purchases right away on some ad. Meta is not suddenly going to predict forward that you have a 100% conversion rate now.

It is going to take those five purchases and those five clicks, and it's going to analyze them and regress them to a larger data set. And that means Meta is going to be slow to recalculate your predicted CPA on your ads, okay? So, if you think about that, then that means there is a lag time between the way that a behavior uh the the way that behaviors of your customers interact with your website and Meta's use of that information in its prediction model, okay?

There's a lag time between those two things. And this is the fundamental problem when running a sale. Because if you are running a sale with manual bids, and you suddenly are going to convert much more traffic than before, that's probably what the point of your sale is. You discount your price or you do a bogo or gift with purchase or whatever, and you do those things to spike conversion rate at the cost of some margin, okay?

For you, you are doing that as a way to spike conversion and get people to buy right now. And therefore, the future is unlike the past. And that creates this challenge, okay? And so, the question is, how do you as a media buyer handle that challenge when you're working? Because let's say that you have a $100 CPA target. Now, suddenly, you are starting to get purchases at uh let's say $60 cuz you're convert Well, let's say $50 cuz your conversion rate doubles compared to usual.

Now, you're getting a $50 conversion rate, okay? And if you do that, then what Meta will first do is it will not deliver your ads that quickly, and you will lose time until Meta is confident that conversion rate is going to stick, okay? So, you you launch a sale, let's say it's a Friday. Let's say it's a Friday through Monday sale. You launch a sale, and on Friday, you get uh 20 purchases at a $50 CPA compared to the 10 you got the day before, or let's call the eight you got the day before in some particular ad set on a $100 CPA.

If that happens, then you are now in this position where uh you wanted to scale your spend. Like, you might end up with like a three to one ROAS or something on an ad set that you actually wanted a two to one ROAS on, but Meta under delivered relative to the expectation, and you missed out on that moment, okay? The reverse is also true, by the way. When your sale ends, let's say you've been on sale for a week, and suddenly your sale ends, now Meta might be slow, Meta might over-deliver your ads for a little bit, might give you $150 CPA for a little while, because it's going to predict it after it's adjusted the CPA target to your new CPA reality in your sale.

After it's adjusted that, then maybe it takes some time to adjust back. And so there's this There is in both of those situations, before sale and after sale, you are in the same problem. The future and the past each other, and therefore the past's ability to predict the future is more limited. And so what do you do about that? And so what I want to do now is walk you through the basic principles of how to think about this situation as a media buyer, so that you know how to go about this.

I'm actually not going to do a lot of the nitty-gritty math here, because I think that it will vary for you a lot based on a lot of different considerations, and it will the moment you start trying to pencil out how much should you make your adjustments of your cost caps by, or whatever it is. You start getting into all these scenarios that are really difficult, okay? But let me just walk you through the basics of how to think about this situation, okay?

So, number one, the whole point of manual bids is that you can get a bunch more scale than you previously could get, or you could actually get suppression of your ads in a way that is unlike auto bids. And therefore, if you can get this right during sales, it is an incredible tool, manual bids are an incredible tool for driving volume at your target. So, I just want you to think baseline ways. Like, you don't really know how much more volume you can get when you're on sale than when you're at full price.

You don't really know. You might get three extra normal volume. You might get eight extra normal volume. It probably depends if you're at, you know, peak seasonality, or if you're trying to shoehorn a sale into a low seasonal moment, or whatever. All these things are different basically every time. With more historical data and with more maturity in your brand, and with more ad spend, all this stuff is easier to measure, but you have the situation where you don't really know.

If you can get this right, if you can get this right, you have a really good ability to go capture the maximum amount of your value on your spend, okay? So, that's principle number one. Principle number one is, if you can get this right, it really works. Just got this comment from somebody who's followed my content for a very long time about working with More Staffing to staff their e-commerce business with incredible talent from the Philippines.

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Go to morestaffing.co/af. They built their staffing agency in the Philippines based on their work running US-based e-commerce businesses. Go check it out for yourself. morestaffing.co/af. But, principle number two is there is going to be a period where it is not this simple. The way basic way we buy on on manual bids usually is by having a budget that is dramatically higher than how much money you actually spend. If you're spending $5,000 a day, you might put the budget at $50,000 a day or something like that.

Maybe even $100,000 a day. Because you don't want the budget to pace your ad spend. You want the bid to do that. That's the whole point of the bid. And the thing is, if you go into the beginning of a sale, and you know that there is a bunch of volatility and a bunch of uh difficult to predict behavior in the beginning of that moment, you might have a really, really hard time predicting how much spend you can get. And it may therefore be important for you to pull your budget down to like a true first-day top-end target until you're confident you're getting delivery at your target.

So, basically, you restrain it a little bit at first. So, that's principle number two. You may need to actually have some check on your budget in those early days, particularly for brands that are newer and or that that have less total spend where you're going to have more volatility and you might be adjusting manual bids and those kinds of things. The more you're adjusting bids in these scenarios, or the more that the the performance the more expectation you have of volatility of performance where the future's going to be more unlike the past, the more careful you need to be about your budget because you can get really, really crazy, okay?

Principle number three. If your sale is short, or if you have relatively few purchases per ad set, which might be because you have a super high AOV or you're just not spending that much, you might consider, despite what I said in number one, actually auto bidding your sale ads. Auto bidding your sale, period. So, um so, the reason I think this is that it it's actually possibly the case in some of these scenarios that you should think of a sale not as an endless upside opportunity, but as a way to drive some of additional value um that you know you're going to get.

So, take your sale ads and even maybe take some of your other best ads, drop them in a campaign that you auto bid. And let's say you're spending $1,000 a day on average right now, and you think you can double that spend, set that budget for 500 or 1,000 or whatever for a few days and see where you get to and make some uh adjustments from there. Now, you you may still have to make those adjustments not too quickly. You still got to let it spend some, etc.

But there's some point here at which the sort of upside capture is not really worth it. And what you want to do instead is just auto bid the sale. Again, particularly if it's like a short sale. Like I've got a client who has done a couple of 2-day sales. When that happens, we just set up an auto bid campaign, predetermine some amount of budget that we think we can get through at some price, and then we sort of adjust in real time.

If day one the performance looks really bad, we bring it back. If it looks really good, we might pull it up and see if we can capture the upside. But, we're just not going to go let it go super crazy. Or we're not going to rely on the manual bids because the whole point of the manual bid is that it doesn't adjust quickly. So, if you are in a quick sale period, you probably don't want to rely on them as much, and you can just use the auto bids as a way to do that.

Now, there's still going to be challenges with your evergreen campaigns here because the conversion behavior is going to be different than it has been in the past. But, as far as actually scaling spend, it can can work really well to just run some auto bid on your sale ads, okay? Number four, critically, you must pay attention to your average order value and your unit economics. You must pay attention to both of these.

If you're running target ROAS, the average order value one is less of a big deal, probably. Your average order value almost always changes during a sale, okay? So, if you're running cost caps or bid caps, then and you you normally have a $100 CPA. Let's say it's a $100 CPA target on a $200 order, okay? Just to make the math easy. Right? When you run that sale, what might happen is that your AOV might go to 250, or it might go to 300, or might go to 150.

And in all of those scenarios, your cap has to be relative to your AOV because it produces a really different ROAS, right? A $100 CPA on a $150 is a 1.5 ROAS. On a $250 AOV, it's a 2.5 ROAS. And if that's the case, then it then your job is to pay very close attention to that. But, there's also this second tiered this second factor here, which is that you have this question of not only AOV, but margin profile. And this is where you've just got to be financially driven with these this kind of decision-making.

Almost certainly, for most brands, when you're on sale, you're going to have some amount less margin than usual. There are actually some exceptions to this, particularly if you can push your AOV up a lot during the sales so that your shipping costs become a smaller percentage of your sale and this can sort of net out as well as your fulfillment costs. Well, just to make this clear, if you're paying $10 to ship a product, often the second product is only going to cost you a dollar or two more.

So, if you can get somebody to add a second item in there, it opens up some margin space, especially if you push the AOV up. There's also a similar thing here with pick and pack in your fulfillment scenarios, right? Where if additional picks cost less than the initial processing fee with the 3PL. So, you could pay you should pay attention to all that. Understand the unit economics here and see does this change at all?

But, if you go to 40% off, I mean, doesn't matter. Like with shipping and and pick and pack fees and things like that, like it probably doesn't add up to be enough to where you can go 40% off and still up end up at the same margin. So, pay attention to the margin profile and therefore set your ROAS target differently and then pay attention to the AOV, the unit economic situation and set your caps accordingly, okay? So, that's just another principle.

You have to watch that really closely and then you have to do the same thing when the sale ends. So, those are really, really important things. You have an e-commerce brand, you have Meta Ads, that means you need ad creative and you should get that creative made by my friends at Behind the Scenes Studio, btsstudio.co. Behind the Scenes Studio is a Philippines-based creative house, creative agency built specifically for Meta Meta Ads, performance-based Meta Ads and tied in very much to what we do at Edge of Growth.

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Number five, from a campaign setup standpoint, what we normally do is we launch a pre-scheduled campaign that is sale focused. And that means like you let's say you have your main evergreen campaigns, let's say it's a super simple setup, one product, there's a cost cap incremental highest volume campaign, okay? And then there's the same ad and a target ROAS incremental campaign highest value optimized. That would be like our most standard setup at AJF Growth.

Same ads, same product in both of those two two campaigns like our We have one client right now that that's that's literally their entire Meta Ads account, two campaigns, just like that, okay? Cuz they have really one core product they're pushing on. After that, the thing I would do during the sale is I would add a third campaign here, maybe even a fourth campaign, depending on a couple things, depending on how much spend you're getting out, where you basically take your sale ads, you pre-schedule the launch dates of them, optimize them for one-day click or for incremental, either one can work here.

I'd probably start incremental still. It's actually something I'm not totally decided on yet, but probably incremental attribution, and run them with pre-scheduled start and end dates, and have the ads turned on and ready to go before the start of the sale. That way the ads are approved and ready to go in Meta, Meta has processed them, has approved them, is ready to launch them, and you end up in a situation where you should feel good about your those ads' ability to run, and then separate budget, separate separate bid controls, etc.

Again, whether you're running a manual or not, probably depends on spend volume or not. As I said earlier, the more you're planning to spend and the more purchases you're planning to get so that Meta can see your purchase volume, okay? Or so that Meta can get more purchase data, right? If you're getting hundreds of purchases per day, even with a low spend, then you can run manual bids here. In that case, you probably want to run those with manual bids.

If you are running the shorter sale, you run those separate campaigns with auto bids, shorter sale or less total conversions, run them with auto bids, stay safe on your budgets, and take the extra profit that comes from your existing customer list and whatever else, okay? So, run them as separate campaigns, pre-schedule them, get them going in Meta, and you should be good. Okay, number six. Okay, here's the 401 version of this if you want to get crazy.

I told you that Meta is going to have a difference in CPA when the future is unlike the past. Like, it's going to have a hard It's going to have a a challenge, right? So, let's say again, normally you got a $100 CPA, and during your sale, you were consistently getting a $50 CPA, and Meta's sort of underspending the moment. And you want it to get to $100. You want to take as much volume as you can at $100. If that's the case, all right?

If that's the case, then you could jack your CPA target up. So, let's say you have a $100 CPA target, a $100 cost cap in your campaign, and you're getting a $50 $50 CPA. If that's the case, one thing you could do is push your cost cap to $150 or something like that to try to force more spend through and increase Meta's learning faster so that you can go capture the moment and capture the upside more quickly. Now, you don't have to do that.

You can actually play a little more conservative you want, you can sort of let just take some extra profit on the early days of a sale and not worry too much about it. You can let Meta catch up over time. If you're running like a longer sale, it's probably what you want to do, just sort of let the let the cap settle in. If you're one of these people who's going to run basically Black Friday deal all November long, then you're probably in a good good spot here.

You also may have to consider some competitive dynamics here. You may need to bid higher if they if it's a if it's a category or a time period where there's a bunch of people bidding for that same space, and you want Meta to more aggressively buy space, and it's a short time. The ultimate example of this is Black Friday. You'll underspend Black Friday if you just launch it on a cost cap and keep your cost cap at your normal number.

So, what you could do is you can push your cost cap higher to basically force Meta to spend more money faster, and then later take your cost cap back down to your {quote} {unquote} true target. Cuz the problem is eventually Meta will catch up and Meta will start spending really aggressively and you can spend a lot of bad money really fast. I ask me how I know, right? Cuz I've done it for clients and it's not a great experience.

You spend too much money because you're trying to get the cost cap right or because you're trying to get more spend out and when that happens, you know, let's say you set your $150 cost cap on your $100 actual target CPA, well, let's say Meta picks up quickly. You get a lot of purchases and Meta quickly gets signal and says, "Okay, start spending." Well, Meta might actually spend past that $100 CPA once it's adjusted before you realize that Meta is now spending at the pace that you want.

And when that happens, you have to adjust back down to $100 quickly and proactively. So, so just be careful with this because you can end up spending a lot of bad money quickly. I generally am at a point now where I think it's not the best idea to do this. Instead, we tend to run some auto campaigns or something like that to sort of push on some spend early, but I don't love any of these solutions. The actual probably best solution for this moment and I'll just tell you like this is where media buying is really hard and really hands-on in these moments.

It's kind of feeling this sort of thing out. The The thing is of course Meta doesn't tell you how fast it's updating and what its current expected conversion rate is on your ads or anything like that. So, you're sort of kind of guessing by reading the tea leaves. Also, Meta updates its ROAS relatively slowly sometimes. So, you don't even know sort of what the true return on your spend is because the machine learning will dump a bunch of conversions into the ad set and and it will update more slowly.

So, it can be a really big mess. In the midst of that, what we do a lot of times is I'll increase the cost cap some amount or I'll lower the ROAS target on the TRAS ads some amount, okay? And then I will just lower the budget to some number where I'm pretty confident I can spend that number aggressively. So, let's say I have a campaign and it's spending 10 grand a day and I think it can get 40 grand a day out comfortably during a sale.

What I might do is on day one of the sale, uh up update my cost caps to be more aggressive, okay? But lower my budget to actually 40 grand, okay? So, if I'm spending $10,000 a day, my budget might be $100,000 a day, which I'm never actually spending, but we're just doing that to make sure that we don't hit the pacing mechanism of the budget. If that happens, okay, what you can do is I can then go drop my budget back down to that 40 grand number.

I'm just making these numbers up, by the way. Drop that number back down to 40 grand, push my cost cap up, and now I'm forcing spend with my cost cap, but I'm also, if the spend gets crazy, then the budget will actually become a pacing mechanism again. And at some point, especially if the sale's longer, what I can do is flip that back over. And say, "Okay, now it seems that Meta is hitting my target CPA. I'm going to raise my budget by 50%.

I'm going to lower my cost cap by 20% or whatever it is, right?" And you start sort of finding the equilibrium that you're looking for there. There is probably a mathy way to do this. I just haven't really found it yet. Like, because all along, the problem is that Meta's updating its conversion rate, its expected conversion rate that's driving your prediction model, okay? And because of that, you don't know where it's at in the update process.

So, you're sort of missing a variable in all of this. And so, as you do this, that little nicks of budget and bid is really important. In all manual bid media buying, I think this basic principle is critical. You need to understand whether or not the budget or the bid is is doing the work of pacing your spend, cuz that's really what both of those tools are. They're just pacing mechanisms. There's an endless sea of people on Meta's products scrolling at different times.

And you have this option of how you deliver your ads to that sea of people. You could deliver to all of them if you wanted, or you could try and pace your delivery, which all of us are doing, relative to some efficiency target. And there are two ways to to pace that spend. One of them's with a budget, And how those two interact with each other is a really critical idea to have very clear in your mind as a media buyer.

All right, number seven, I think, last principle. Walk all of this stuff back after the sale, okay? Walk all of this stuff back after the sale. Once the sale is over, it's a really good idea for you to turn around and to say, "We now need to pull our spend way down." And almost certainly, Meta has gotten during your sale a whole bunch of signal that your performance is incredible compared to usual, and you can lose a lot of your sale money on the day after your sale happens by just overspending that day.

I've seen it happen a lot of times. Again, ask me how I know. I've done it myself a lot of times. So, the simplest thing to do here is just drop your budgets dramatically and your bids dramatically. Just assume your day after sale's going to be worse and pretty bad. And so, if you normally want a $100 CPA, drop that cost cap to 50 bucks. If you think you can get through $10,000 of good spend that day, drop the spend to $7,000 just to be safe.

And just like make sure you don't overspend that moment cuz very, very easy to do. You need to be on that really, really clearly. Find some way to if it's if it's going to happen at midnight while you're asleep, find some way to uh set a rule that does this for you or do something in cloud or something that it does this for you or have a media buying assistant do it for you or whatever, but you need to find some way to do it cuz it's really important.

So, that is how you buy media during before, during, and after a sale. Um there's more you could say, but I wanted to talk about the mechanics of these kinds of moments. They're really, really critical. All of this stuff is turned up to 11 when you get to Black Friday. All of these principles are the same, but it just becomes more aggressive um and more and different during those during those sale moments. So, that's how you do it, and that's how we do it at least internally at AJF Growth.

The more you do it, the better you'll get at it, and the more you'll see all these dynamics playing out. Hopefully, that's some help to you. >> [music] >> All right, big thanks to my sponsors for this episode, Behind the Scenes Studio, the advertising creative agency that I'm working with all the time. I've told you about them. Go to btsstudio.co. Huge fan of theirs, as well as More Staffing, morestaffing. co/ajf to get started with them to get the help that you need.

If you want help with your media buying for your brand, and some coaching, and some direction, and some hands-on work doing the actual media buying, or even larger growth work at the level of creative and forecasting and all the rest, you should reach out to AJF Growth. We are basically full right now, but you never know when a spot's going to reopen, so go to ajfgrowth.com and fill out the intake form. Tell me a little bit about your business there or just shoot me an email podcast@ajfgrowth.com.

Tell me all about it. Thanks so much for watching, for listening. I have a bunch of great episodes coming up very soon. Got JT Sarafat from TikTok Shops. I loved having him on before, so I'm bringing him back. Tell me what's happening in the world of social commerce and TikTok and all that. I've got Taylor Holiday coming again soon. We've had to push it off a couple times because people being sick and things like that, but we're hoping to do another episode very soon.

Patrick's back soon. Make House Back Soon. Bunch of great episodes. So subscribe wherever you're watching or listening. Thanks so much. I'll see you next time.