You’ve heard about cost caps. Maybe you’re already using them.
And now you’re hearing about some DTC brands moving 100% of their budget into cost cap bidding.
So what should your brand do in 2024?
I interviewed CMOs and agency founders like Cody Plofker, Jess Bachman, Andrew Faris, and Charles Tichenor, plus reviewed perspectives by Barry Hott, Taylor Holiday, and Ashvin Melwani.
In this post, you’ll find a balanced look at how you can use cost caps in 2024 with a focus on how cost caps impact your creative testing.
Let’s look at the different sides of the great cost cap vs bid caps debate.
This post has a lot of nuance, so to help orientate you, here are some of the bigger takeaways.
With those positives in mind, many experts believe there are downsides when you rely too much on cost controls.
Note: if you use Motion you can use comparison reports to look at different cost cap scenarios with your naming conventions.
You can enhance what you learn with cost caps with more rigorous creative testing with Motion—including using custom tagging to analyze larger patterns and memorialize learnings.
Cost caps do not operate in a vacuum—your TikTok or YouTube approach is also influencing your Facebook ad results.
Cost caps will naturally target middle funnel prospects actively looking to purchase, so you'll make better creative decisions by using Motion for a holistic view of your advertising performance.
For example, you can also look to see if top-of-funnel efforts on other channels like TikTok are working in tandem with your Facebook ads strategy.
If you’d like some help setting this up in Motion, you know where to find us.
Here’s a quick definition using a handy infographic:
Cost caps simplify campaign management by focusing on getting you the most volume while staying within your desired cost per action.
Unlike other bid strategies that help optimize for cost, using cost caps enables you to set the max CPA/CPI you're willing to pay for results, reducing complexities in managing bids while maximizing your campaign results.
One of the reasons larger brands find cost caps useful is that you can keep your CPA at or below a certain amount regardless of market conditions—when you’re spending $50K - $100K per day, this certainty and efficiency can be huge.
The downside, of course, is that often this efficiency is gained by Facebook claiming sales that might have happened on other channels such as your influencers, physical retail, or Amazon.
While cost caps are easy to set up in Facebook ads, on DTC Twitter you’ll see a lot of fighting about them.
This can be boiled down to two things:
First, a fear of the algorithm removing perceived control. Media buyers have historically resisted giving more and more control to Facebook. Cost caps take away the skill of assigning budget to the right ads.
But—we’ve seen this before with the algorithm taking over creative targeting. In economics, Wall Street likes to say “Never fight the fed.” In advertising, a similar “never bet against the algo” might be true.
Two—no automated solution is perfect. Cost caps are a data-driven, probabilistic approach. And so they can get it wrong and might not work out for different brands as marketing success is always highly contextual.
Reality and consumer behavior and the different contexts of your brand (a large brand with lots of data might get great results from cost caps, while a mid-sized company struggles as they have less data to feed into their ads strategy) will always defy perfect quantification.
That said, here are four perspectives on cost caps to help you plan your attack in 2024.
Cody Plofker is the Chief Marketing and Revenue Officer at Jones Road Beauty. Jones Road Beauty is a collection of clean, high-grade formulations designed for all ages, skin types, and tones. Jones Road Beauty’s revenues are estimated at $125M in annual sales according to Beauty Matter. Jones Road Beauty spends roughly 80% of their ad budget on Facebook.
According to Cody, the greatest advantage of cost controls are that they help brands minimize risk and maximize potential upside.
“At Jones Road Beauty, we use bid caps more than cost caps,” Cody told me.
“We’ve found using bid caps with a very high budget but tightly controlled bids is the best approach for us.”
With bid caps, brands only spend if they hit their efficiency targets and spend as much as they want at them.
Cody warns that using this bid strategy requires vigilance. “You need to look out for sudden large changes in conversion rate, which can throw off the bidding and cause your brand to potentially over bid.”
“To get this strategy right, you need your variable costs and CPA targets. And need to understand the art of it and how high they need to set them and have MER or CPA targets.”
In 2024, Cody recommends that you try cost caps but don’t be pressured to shift your entire budget there just because of what you read on DTC Twitter.
“I like cost caps and bid caps. But I don't like dogmatism. You can succeed with many different strategies. Don't be dogmatic, and focus on what works in all scenarios, like a great product and great ads.”
👉 Make sure you subscribe to Cody’s newsletter to go deeper into Jones Road Beauty’s growth strategy.
Jess is the Creative Strategy Director and Co-Founder of the agency FireTeam. At FireTeam, they’ve done incredible things for DTC brands and Jess is a master of performance creative.
For Jess, the biggest danger of cost caps is that they can prevent true creative testing and subsequently stall revenue growth. You get locked into a set of mediocre creative and struggle to break beyond that wall.
“The Meta algo is the most powerful in the world, but it's nearsighted. It doesn't know your vision and goals. It's optimized for a 1-day click,” says Jess.
Jess is not against cost caps and he uses them. In particular, he says they can be useful when you have no idea about what creative ideas will work—you can throw all your creative into one campaign and see what Meta can figure out.
But his experience shows that you need to also test creative without cost controls to break into the higher levels of performance.
“Cost caps work great once your creative is dialed in and you know what cap you want things and you can very easily adjust for higher or lower times of performance,” says Jess.
But where you run into issues is with creative testing. In his experience, cost-controlled campaigns are poor at helping with things like expanding to new types of customers.
“When you need to test ideas that are outside of the core ads in your account, Meta always goes for the lowest-hanging fruit. You need to be careful with the rope you give Meta,” Jess explained to me.
In his experience, ad accounts that rely too much on cost caps get caught in a situation where it becomes difficult to get winning ads that aren't very similar to current winners.
For example, your account spend becomes 70%+ static images—and you can’t seem to beat existing winners as Meta is looking for short-term wins (purchases).
He calls this a “Creative Shrinking Sponge.” In these cost-controlled accounts, you have “mismanaged creative testing” that puts a “ceiling on scale.”
The brand gets caught in a “negative feedback loop where it looks for quick wins that look remarkably like old wins, both in the creative and the audience. It shows the same type of creative to the same people.”
As a result—creative performance, expansion to new audiences, and corresponding revenue growth stalls.
“We will give our clients a stack of creative to test and when cost controls are used, you will see ads with $5 of spend—showing that Meta didn’t really find out whether that new creative idea would work but instead opted for the safer bet.”
While cost cap proponents will say that Meta is using predictive signals, Jess is not sold that Meta is truly giving new creative ideas a chance. “Until you at least spend enough to get a purchase or spend 3-4 times your CPA at least, you haven’t given that new creative a chance to prove itself.”
Even further, Jess says Meta is not being scientifically sound in creative testing.
“Getting back half a result and declaring the test a dud is not the scientific method,” Jess says.
“Testing creative without cost controls, and having some patience (and confidence) with your creative is ESSENTIAL to breaking this glass ceiling of scale. This affects accounts of all sizes but gets worse and needs to be actively managed above $100k/mo.”
👉 You can learn more about Jess' incredible success using creative to catapult advertising results for brands at www.Fireteam.is.
Andrew Faris has been growing ecommerce brands since 2014 as everything from a media buyer to the head of strategy at Common Thread Collective to the CEO of 4x400, a DTC aggregator.
Andrew is a big advocate of using cost controls—and while he favors bid caps (which are a bit more advanced)—he believes cost controls are magic for growth.
“Every brand advertising on Meta should be spending the vast majority of their dollars on cost controls, be they cost caps, bid caps, or min ROAS." says Andrew. “I allocate nearly 100% of my budget this way across all of my clients."
For Andrew, the biggest advantage is using cost caps to evaluate the performance of new ad creative.
Without cost controls, media buyers usually test new creative by setting up a test campaign, analyzing the results, and then deciding what ads to run.
Andrew says that is an “extraordinarily flawed approach.”
You spend a ton of money on ads that don't work. “People really underestimate this, and, in turn, how beneficial it is for a business to completely eliminate this cost center,” says Andrew.
And it limits how much you can test because you can only test if you have the budget to assign to the test.
“Cost controls are almost magical in this respect, and it boggles my mind that people don't understand this,” Andrew told me.
“With cost controls, you can launch limitless new creative in an ad account and trust that Meta will only spend on the likely winners while suppressing spend on likely losers. That's incredible! I scale all of my ad accounts this way and most of the highest-spending brands I see do the same.”
In 2024, Andrew will advise all of his clients to spend nearly 100% of their budget on cost controls most of which will be spent on bid caps.
As Andrew often works with smaller DTC brands trying to find traction, his approach helps to minimize risk and find winning ads without wasting spend on low performers.
👉 Andrew specializes in helping DTC brands with their Facebook ads strategy. Learn about about his agency here.
Charles Tichenor IV is the founder of Disrupter School & Disrupter Agency. He’s driven over $1B in revenue from Facebook ads and was one of the original advertisers in Facebook’s legendary Disrupter program.
In fact—Charles helped Facebook write the SOPs for using cost caps effectively. So the Thumbstop research team (aka me) had to speak to him.
“Cost caps are useful for jumpstarting performance, especially for smaller, budget-conscious companies,” Charles told me.
Using cost caps with a small percentage of the budget allows advertisers to gather valuable data and reduce the cost per acquisition (CPA).
However, Charles believes that cost caps have significant disadvantages when it comes to achieving true business growth.
“If your objective is to find short-term wins and you are not concerned about the data integrity of those wins—in other words, you are trying to spend your budget now and get something that works now—cost caps can work for you.”
The downside is that you are spending on things that are less likely to be top-of-funnel and less likely to be incremental sales volume, says Charlie.
“The creatives that work with cost caps are generally less effective at scale,” says Charlie.
“Sometimes, the creative is working because it was shown to someone ready to buy.”
That lack of incrementally means that while the win looks good on an agency creative performance report, it didn’t move the business forward as much as you might think.
“You are producing low confidence creative wins that are more temporary. You aren’t unlocking future growth opportunities.”
For example, let’s say you are doing a Black Friday promotion and you have 200 ads you want to run. You can use cost caps to run all that creative. If an ad earns spend, great.
If it doesn’t, kill it. And you can quickly move through that list of creative in a matter of days. “Will the ad look good on a dashboard and prevent you from losing money? Likely yes. Will you be able to then take those winning ads and spend millions on them? Likely no.”
Charlie used the metaphor of riding a bike to explain this to me.
“Can someone only riding a bike with training wheels win the Tour de France? No. Will they fall over? Also no. I think winning the Tour de France is a better goal than not falling over.”
In 2024, Charles plans to use cost caps in three ways.
First, to achieve temporary wins—such as improving the incremental sales of evergreen products and market testing, squeezing out extra profitability. He recommends a max of 20% of your budget allocated to cost caps.
“When you exceed 20% of your budget in cost caps,” warns Charles, “you quickly delete your data and start to erase efficiency gains.”
Second, for his clients spending $30-$80K per day, he will be using cost caps to achieve goals like suppressing rising CPAs such as taking older creative assets and throwing them into cost caps to get some final value out of them and keep that blended CPA down a little bit.
“Decreasing your CPA by 5% for a brand spending $50K per day can be huge when you are spending at scale,” says Charlie.
Lastly, Charlie says cost caps are awesome for omnichannel brands who want to bring things to market and prove out new ideas.
“Cost caps are particularly useful for large brands that generate most of their customers outside of Facebook ads such as having large influencer programs or physical retail or you are excellent at Amazon. They can use cost caps to run some Facebook ads, test out new ideas or products and not lose their money, and be able to easily manage the campaign.”
👉 Charles has an incredible course and program on Facebook ads—you can learn more at: www.disrupterschool.com.
Ultimately, the most important relationship is between cost caps and your creative.
Cost caps can be useful for a certain amount of your spend—but relying on them too much may degrade your creative decision making. You can end up with safe, profitable advertising—not new, business-changing creative ideas that pull you ahead of competitors.
Shameless plug incoming...to get a more holistic view into your advertising performance, use Motion 😄
Comparison reports in Motion enable you to see different cost cap scenarios. You can enhance what you learn with cost caps with more rigorous creative testing, including using custom tagging to analyze larger patterns and memorialize learnings.
Cost caps do not operate in a vacuum—your TikTok or YouTube approach is also influencing your Facebook results and cost caps will naturally target middle funnel prospects actively looking to purchase, so you can use Motion for a holistic view into your advertising performance.
Book a demo and we can nerd out on cost caps together!
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