Should you try cost caps for Meta ads? I’m breaking down everything I’ve learned about this controversial Meta campaign format.
This content was originally published in the No Best Practices newsletter on 10.15.2023.
Confession: I had to mute the term “cost cap” on X (Twitter?). There were too many people getting too dogmatic about it.
I am a big believer in the idea that no single tactic is a “silver bullet” for every business. Every platform has “usage guidelines” that set the user up for success, but not every platform is right for every brand.
Cost caps were (probably still are) being hailed as a silver bullet for Meta ads. Not able to scale? You need cost caps. Can’t achieve the ROAS you want? Cost caps. Creative fatigue? Cost caps. And on, and on, and on…
I researched cost caps and attempted to implement them for two of my media buying clients. I also reached out to so-called “cost cap maxis” on Twitter for help re: budgeting and campaign setup. Here are my findings, and my POV on implementing this strategy.
What Are Cost Caps For Meta Ads?
Cost caps are a bidding strategy you can utilize within Meta ads. You can find it in the campaign setup screen under Campaign Bid Strategy > Cost Per Result Goal.
The default campaign bid strategy is Highest Volume–this is probably what most of your campaigns are using. This strategy spends your entire daily budget. Meta attempts to find the audience most likely to convert (within the parameters you set). CPA performance is variable from day to day.
Cost caps work differently. You set a target cost per acquisition goal. Meta will only spend your budget against users/impressions when it thinks they’ll allow you to hit that goal. You won’t necessarily spend your entire daily budget. In fact, you might not spend a dollar.
Cost caps are the ultimate profitability control lever. You’re only spending money if you can hit your target CPA. That is why cost cap maxis love the strategy. It allows you to scale spend rapidly while remaining profitable (if the conditions are right), and you never spend against unprofitable acquisition.
Does it always play out that way in reality? Of course not.
My Cost Caps Experience
I tried out cost caps with two clients. One was a footwear brand with an AOV between $300-400. The other was a supplement brand with an AOV between $70-90.
For the footwear brand I launched a separate cost caps campaign and set the cap at around one third of our AOV. This is the target we try to hit with all paid media: an aMER of ~30%. For creative I initially used our 2-4 best performing ads (videos) and 2-4 statics that featured best-selling styles but hadn’t gained traction elsewhere.
The campaign did not spend a dime. The campaign didn’t start spending until I increased the cap to around 45% of our AOV.
The performance was incredibly variable. Sometimes we’d get five to ten conversions and our actual CPA would be near our 30% target. Sometimes we’d get one conversion with a CPA close to 100% of our AOV.
This was not the miracle that Twitter had promised, so I reached out to some cost cap maxis for help. They suggested that I increase the total daily budget of the campaign so it was enough to drive 50 conversions per week at my target CPA. They also advised that ads active elsewhere in the account probably wouldn’t perform in a cost cap campaign.
I made those adjustments–increased the daily campaign budget, paused the ads that were running elsewhere and added in new statics (because, up to that point, statics were driving most of the spend we did get).
In return, I got a bit more spend and CPAs that were (on average) slightly closer to my goal. But none of the MEGA SCALE that folks raved about on Twitter. And CPAs weren’t more consistent than a lowest cost campaign.
If all else fails, cost cap maxis say you should turn off any campaigns in the account that are not running on cost cap bidding. I did not want to do that. Our main scaling campaign was north of $5k/day and performing well. I didn’t want to throw that away for something with uncertain results.
I saw a similar outcome for the supplement brand even though the AOV was much lower and the audience was hypothetically broader. The ads wouldn’t spend. Again, I was not willing to shut down the entire account to make cost caps maybe work.
A third anecdote from a colleague at a footwear brand with a slightly higher AOV than my client: cost caps were working for them during the summer, but tanked after Labor Day. In footwear, AURs and AOVs are lower in the summer vs the fall (sandals vs boots).
This brand had a best selling sandal that often sold out or went on pre-order. Creative featuring that style was driving the majority of their cost cap spend. They didn’t have a similar style at a similar price point for the “transitional” moment between summer and fall.
What was going on?
Cost Caps For Meta Ads: First Principles
Caveat: the following is my hypothesis for what was going on based on what I observed and my knowledge of how Meta works.
When you run a Lowest Cost campaign, some of your budget does get spent sub-optimally. Even if you have a scaling campaign full of “banger ads”, you’ll have days when your CPA or ROAS is slightly off target.
But that “inefficient spend” is reaching a slightly colder audience, and some of those folks will come and convert with you outside of Meta’s 7 day attribution window. This is especially true if you’re a high AOV brand. People will see your ad, browse the site, save items to Pinterest or a similar shopping list, and then wait until they can splurge.
For my footwear client, we’ll see orders come in on Shopify where the path to purchase is something like “visited the site three times in the past 21 days”. Not every purchase happens within one, or even seven days.
When you’re running a Cost Cap campaign with a tight CPA target, you’re only spending budget on users who are ready to convert NOW. If you’re selling a category like fashion where there is evergreen general interest but it’s not motivated by a burning need, that audience may be non-existent. And the higher your price point relative to the category, the longer your prospects’ consideration period tends to be.
I did see Cost Caps spend for my client once: when we released new inventory of a best-selling style we had been marketing for the prior three weeks. Cost Caps captured pent up demand; it’s a very efficient way to do that.
Same story for the colleague: they had been marketing their best seller for several years and were generating pent up demand after it sold out.
Should I Try Cost Caps/How To Try It
If you’ve validated product-market-channel fit for your brand and you struggle to keep CPAs consistent, cost caps are worth a try (even though it didn’t work for me).
Here are some tips to get you started:
- You’ll want to start with 20-30 creative assets. Look at what has performed best in your account L90D and create iterations. Try taking 3-5 screen captures from each of your top videos, iterate copy on statics, etc.
- You do not want the assets in your cost cap campaign running anywhere else in your account. BTW, this is a good opportunity to relaunch some former winners that are no longer running.
- Pick a CPA target if you haven’t already. Here’s how I pick my paid media KPIs.
- Set your cost cap 20-40% above your target CPA to start. You’ll do this in order to gain some spend/traction. You can pull it back when things start spending if your realized CPA is too high.
- Set your daily campaign budget at 8x your actual cost cap, minimum. This will ensure your campaign gets out of learning mode (50 conversions/week / 7 days = ~8).
If you run this playbook and your cost cap campaign doesn’t spend, you have a few options. You can try testing more creative. You can try raising your cap until the campaign spends and see how far you have to push things. Or you can try turning off all your other non-cost cap campaigns.
If it doesn’t work, don’t sweat it. I don’t think cost caps work for every brand, despite what some DTC demagogues have to say.
Even if cost caps don’t work for you initially, it’s worth trying them again during your tentpole selling events. They’ll help you maximize profitable demand capture. Just be sure to monitor your spend and realized CPA closely throughout the day.