Cost Capping: Friend or Enemy?

Love cost caps? Love to hate cost caps? There are mixed reviews around the ad buying industry about the manual bid, so we asked our friend Alex Afterman to write up his experience with cost caps.

In a nutshell, while cost caps can work for some accounts, generally they are best when a certain CPA (cost per acquisition) must be reached to be profitable, and underspending (or overspending) is an acceptable method.

Alex goes in to a case study where cost capping allowed an account to run on auto-pilot for months without optimization.

By: Alex Afterman, Owner, 11:11 Digital

I have a love/hate relationship with cost cap. And, if I’m being honest, it’s mostly hate. Most of the time when I use cost caps, I end up with one of two outcomes: 1) either my campaigns spend very, very little with a great CPA, or, 2) they spend lots and lots but don’t get a CPA anywhere near my cap. The problems with the latter are pretty obvious, but even with the former, most of the time my clients have hired me to scale them profitably. Spending $70 of a $2000 daily budget for 2 sales, even at a great CPA, isn’t really moving the needle for them.

I know lots of people love cost caps, but in my 4 years of ad buying, this has been the vast majority of my experience with them. Almost every time I’ve used them I find I can get the same or better results using lowest cost bidding, and at higher scale.

BUT WAIT – cost caps aren’t ALWAYS bad.

I have one use case where I do lean on cost cap. As mentioned, most of my clients want SCALE, SCALE, SCALE. But, there are occasions when my mandate changes. Sometimes it’s about cost effectiveness over scale. When the priority is keeping acquisition costs down, and it’s clearly understood that spending very little is an acceptable outcome, that’s when cost cap becomes an attractive option. Usually, the end result is not a lot of spend, but at a great CPA. However, I recently had an experience where cost cap not only consistently performed, but it actually allowed an account to run on autopilot for 3 full months.

The situation:

My client has a seasonal product. After Black Friday, we agreed to rest the account for 3 months and pick up again in March. They asked if i could leave it in such a way that it would keep some small amount of business coming in on minimal supervision at a low spend. So I spent my last week actively on the account experimenting with cost caps.

I wanted to find cost caps that would ensure a decent CPA, and that would at least spend something, even if it wasn’t anywhere near the set budget. I found the ideal cost cap for feeds was about 25% over desired CPA and for IG Stories was pretty much exactly at the actual desired CPA.

So I set up 2 campaigns - the first, a broad, single ad set CBO with a dynamic creative of all the stuff that had done best in the previous two months - images, videos, headlines, copy, everything. The budget was $300/day and cost capped at 25% over desired CPA.

For the second campaign, I created another CBO of 3 interest ad sets in an IG Stories-only placement, containing the top three performing interests and the top four performing IG Stories ads in each ad set, with a cost cap exactly at the desired CPA.

Even though I was technically “off the clock” I watched them for a week and they averaged about $300/day in spend with a 2X ROAS. It’s a small AOV product, and a 2X ROAS is in the acceptable range for them. I told them to keep an eye on it and if the CPA went up to lower the cost cap, if it stopped spending to raise the cost cap, and if they ran into problems to call me. Then I forgot about it.

So did they!

I recently re-engaged with them to pick up running ads again, and when I looked in the account I was stunned to see everything exactly the way I’d left it, and the results for the last 3 months were an average of $300 spent per day, and a ROAS of 2.10. They told me they actually forgot for a while that Facebook ads were even running. When they remembered they were supposed to monitor them they opened the account fearing the worst, and were relieved to see it plugging along exactly as we hoped it would. The account ran for 3 months on auto pilot, spending $9,000/month at just under the target CPA!

The funny thing is, the two campaigns didn’t spend consistently. Sometimes they’d each spend about $150/day. Sometimes one would spend $280 and the other would spend $20. But, almost every day it came in at or around $300. How do I know this? I was so fascinated by this whole thing that I looked at performance each and every day of the 90 it was running.

So there it is, my one huge success with cost cap.

I wish I could say that I figured that would happen, but honestly I assumed they would tweak the cap a little here, tweak it a little there, and either give up and turn it off at some point or call me and I’d get in there and refresh creative or audiences. But no - the thing ran itself without a human looking at it for 3 months.

Could we spend $90,000/mo (their in-season budget) with cost cap and get these results? Doubtful.

When I took the account over, the previous agency had everything cost capped. The CPA was fine, but they couldn’t get it to spend more than $25,000/month. My mandate when I took on the account was get the spend much higher, as fast as I could, while sacrificing as little on the CPA side as possible. The first thing I did was pull out all the cost caps, played around with audiences and creatives, and ended up hitting that $90,000 budget with a CPA actually better than the cost capped account I inherited.

It was one more data point that told me to avoid cost caps. But, if the priority is result over spend, and you desire a low touch campaign setup, finding the right cost cap/audience/creative mix may be your ticket to success.