The Reason Your Bid Caps Won't Spend When You Also Auto Bid transcript

Hey, so this is a question I get all the time, which is like basically um if my average uh CAC is let's say $55 and I'm running it at a a lowest cost. Um just or let's not call it lowest cost cuz that's confusing cuz uh bid caps and auto caps are lowest cost. Um but I'm running an auto bid and I'm getting a $50 $55 CAC, my bid cap is set to $65 but it won't spend. So you So the idea here is that you're blending an a bunch of auto bidding with a bunch of bid caps, right?

So the auto bid, let's say let's just call it um let's just call it uh total spend of $10,000 per day, okay? So there's your total spend, $10,000 per day. Um or let's say let's call it total auto spend, okay? Total auto spend of $10,000 per day. And you're going, "Okay, I have my bid cap set here and my average CAC is here. Okay, at $55. So why, if my bid cap is $65 and my my um my actual average CAC is $55 on this auto bid, why is my bid cap not spending?

I'm You've got room from 65 to 65 $55. Does that make sense? So So the basic problem is my bid cap is set significantly above my actual average CAC and yet it's still not spending uh when I'm combining it with my auto bids as a way of kind of generating scale. Um so here's the way I would approach that. The problem is your average CAC um There's There's two main problems, okay? The first is that your average CAC is actually not representative of all of your spend.

So the way to think about this is like if you're spending $10,000 a day, right? Um if you drop that to $5,000 a day on auto bid, what would happen to your CAC? Well, it would go way down, right? Because we all know that spend uh as spend increases on the same set of ads, if I spend more money on the same set of ads, I'm going to get a higher CAC, okay? Or a lower ROAS, right? So spend and efficiency have an inverse relationship.

That's the problem, okay? So the more I spend, the worse the more the more my performance degrades, right? So like uh visualize it the other way, right? If you're at $10,000 a day and you're at a $55 average CAC, then if you spend $20,000 a day, what would happen to your CAC? Well, it would go way down from $55. You know that. That's why otherwise you would spend it, right? That's That's the whole idea. Um okay, so in that world, um what you need to do is begin to understand that your spend is not really $10,000.

It's actually It's not like It's not one $10,000 spend. It's a bunch of smaller tiers of spend or tranches of spend, right? And so this is a really crude way to visualize this, but just imagine that you have five tranches of spend, okay? So each of these represents $2,000 in spend, okay? Um considering that spend and performance or inefficiency have these inverse relationships, okay? Um because of that, if you think about it, right?

Your first $2,000 you spend, okay? Tranche number one. Okay, uh well, let's leave it there. Tranche number one is $2,000 and you're going to get a $45 CAC, okay? So right now your average um let's call it average total, actually. Average total CAC, okay? On your first $2,000, your average is $45. It's exactly the same as your CAC on that $2,000. Now, if you spend $2,000 more and on this $2,000, your CAC is actually $50, right?

Cuz now you've spent more money, so your CAC gets worse. But now your blended average across that is 48 cuz you're actually blending up all of this spend together. So if you keep playing that game, now you Now you add a $55 tier in there or tranche in there, right? Now you've got a $50 CAC blended even though it's 55. And in fact, the more and and all the way down to where like on that last $2,000 you spend, okay? Now you've got a $65 CAC on that spend.

And that $65 CAC um is what you're spending here, but actually your average is 55. So if you look at your blended dashboard at the end of the day, it's going to say $55 average, but you actually spent above that 55 on this. This is actually one of the problems with cost caps is that you get a blended average and so some of your spend is actually going to go above that. So if you if you say I want a $55 average CAC but you're not profitable above $55, um well, you're going to be spending some money above this.

This is This is precisely why you might set the bid cap at $55, right? If if that's your target, then then you would do that. Well, in in any case, um so this This last $2,000 you just spent is at 65, which means the next money you spend is going to be worse than that 65. Now your CAC is going to go there. So if your bid cap is set at 6 spent at $65 and your bid cap campaigns won't spend, your bid caps are doing precisely what you've asked them to do, which is eliminate any spend that is above that uh that CAC because you're not going to get that now, right?

You're not because you you're already spending that, okay? So So because the next if you if you had a sixth tranche in here, right? It's going to be worse than the $65, okay? So that's the That's the first point, that your blended average is actually a It actually represents a whole bunch of different CACs all blended together. Um and so that's that's number one. Number two, um because you're auto bidding this $10,000 per day, you are telling Meta, "You must spend $10,000.

You must spend this money." And if you must spend this money, then Meta is going to get through this $10,000 before it worries about spending your bid cap, which is essentially like saying um because this $10,000 is guaranteed to spend, it's going to pace that $10,000 as efficiently as it can. And then it's going to it's going to consider your bid cap additional to that, okay? So you're essentially telling Meta, "Make sure you get through all these tranches and then consider the bid cap.

Then consider the bid cap." Because it has to pace out this $10,000 a day spend and after that pacing mechanism, it's going to say, "Whatever's left, we can do here." Which means you're essentially guaranteeing this bid cap money is going to be assigned to this tier, okay? To this tier. It's going to be on that sixth. So what I think is there's a really simple way if if you're not ready to commit all in on bid caps, there's a really simple way to test it, okay?

And it's like this. You take this 5,000 You take this $10,000 a day and depending on how aggressive you're willing to be here, you drop it to let's say $5,000, okay? Uh we'll call it six, okay? Now you've actually eliminated all of these tiers, okay? These are gone, okay? Whoop, deleted. And now you Now this is where you're at and if if this is true, if you have a $55 CAC on this third tier of spend on this third third tranche of spend, now your bid cap should spend something and it should find kind of exactly what the right series is.

Now, don't hold me to these tranches, right? I I mean, how this decline happens like I know Taylor Holiday has some evidence that actually these these tranches um that the decline happens really swiftly. It goes from like pretty profitable to really bad really fast. Um and so So I could be wrong. Uh So yeah, so don't hold me to the tiers. I'm just visualizing the basic concept here, but that's the idea. And that's why That's why blending bid caps and auto bidding often doesn't work very well um is because people are trying to ask um Meta to get a performance that they're actually not getting anyway and they're not going to get based on where they're at right now.

Um so that's the basic idea. Hope that helps.