How the LinkedIn Ads Auction Works — and How You Can Benefit

November 23, 2020

Turning gears

You understand advertising and generally get how auctions work. But marrying the two in the digital realm—advertising and auctions—can be a little confusing. You might ask: What are you bidding on? How do you win a digital auction? What does any of this have to do with advertising?

LinkedIn advertising is a powerful ads platform that enables organizations to reach, engage and convert their professional audiences at scale, on your terms and your budget. Having a good understanding of how the LinkedIn ad auction works and what factors affect your ad delivery can help you understand your ad performance, especially when first starting out with LinkedIn Ads. In this post, we’ll walk through how LinkedIn Auction works and share the positive impacts of objective-based advertising bid strategies.

How an Ad makes it to the auction

LinkedIn Ads determine which ads should be shown with a lightning-fast ad auction. This auction takes place every time a member visits LinkedIn. Hundreds of millions of auctions take place everyday across the LinkedIn member network. 

Advertisers bid against each other on the auction system to serve ads to a target audience. When you as an advertiser create ads, you tell us who you want to reach with your ads by defining the target audience. Ads will automatically enter the auction once your campaign is running, and the auctions your ads enter are determined by the target audience for your campaign. 

A member can fall into multiple target audiences. For example, a member could belong to both “Job title: software engineer” and “interest: MBA program.”  When there is an opportunity to show a member an ad, the ads with a target audience that the member belongs to are eligible to compete in the auction. 

LinkedIn ads deliver value to members and advertisers

Like in traditional advertising, there are three stakeholders with LinkedIn Advertising Auctions—the advertiser (you), the professionals you’re trying to reach (certain LinkedIn members) and the platform you’re using to reach them (LinkedIn). Our goal is making the auctions fair and efficient for all stakeholders. 

LinkedIn ads auctions provide value for both members and businesses. For LinkedIn Members, ad auctions provide relevant experiences by serving interesting ads when they visit the LinkedIn feed. For advertisers, LinkedIn creates value by helping them reach and get results from members in their target audiences. 

How LinkedIn determines which ads are shown where

There are two main factors in the ad auction that determine which ads appear, and in what order:

Your bid. The amount you bid expresses how much you value the desired goal. Note that how much you actually end up paying is often less, and you can change your bid at any time.

Relevancy. Auctions aren’t just about how much you’re willing to pay. As a members-first organization, we want to show content LinkedIn members are interested in seeing and engaging with. That’s why each update is assigned a relevance score that measures how engaging a given update is for the targeted audience. An ad’s relevance score is based on Predicted Response Rates. This rate reflects how likely we believe a given member will engage with or convert from a particular ad.

The ads that win auctions on LinkedIn are the ads that drive the most value to both members and advertisers. To win auctions and maximize your campaign’s success, your ads must have both a good relevancy score and an appropriate bid — and this combination determines who wins the auction and serves ads on our platform:

In the LinkedIn auction, Predicted Response Rates are calculated at creative level. Advertisers are given two ad rotation options when viewing the creative settings tab in Campaign Manager: Advertisers can either a) Optimize for performance or b) Rotate ads evenly. For a campaign with multiple creatives, advertisers can pick the creative with the highest combination value of both bid and Predicted Response Rate. If an advertiser selects “even rotation,”the algorithm randomly chooses a creative for a campaign.

How Objective-based advertising impacts auction dynamics

When you create your campaign you can choose how you would like the LinkedIn Auction system to optimize your ad delivery based on the campaign’s objective, which could be, for example, to drive website visits or generate leads. Your campaign will be delivered to optimize for the selected objective by showing your ad to LinkedIn Members who are most likely to take the action you choose. 

Objective-based advertising also optimizes your campaign’s bid based on the campaign objective, such as engagement, video views, impressions.

The objective you choose at the Campaign level will determine what optimizations you can choose from. We align our ads pricing, bidding, and delivery with the selected objective to provide OBO (Objective-based Optimization) to optimize the campaign performance and scale the advertiser ROI for objective-based key results.

How are advertisers charged from the auction?

When an advertiser is charged depends on the bid type of the campaign. Manual Bidding and Target Cost bid strategies bid on a specific goal such as Video views or Website Visits. Each campaign objective has a different billable action. Customers are only charged when that billable action occurs. For example, when a customer chooses the website clicks objective, they will only be charged when someone clicks the link to your website. While for Maximum Delivery, you will be charged per impression regardless of your campaign objective.

LinkedIn uses what we call a second price auction model to decide how much to charge. That means if you win your bid, you will only pay the minimum needed to beat the second-place bidder, no matter what you set as your maximum bid. For example, if you bid $1.40 and beat an otherwise identical ad bidding $1.00, your campaign will be charged $1.01 if the person it was shown to makes the billable action. How much you spend overall on the campaign will depend on a few different factors including your bid type selections, target audiences, bid amount, budget and competition in auctions. 

Bidding on LinkedIn Ads

The auctions system indicates the price you pay per billable action is not a fixed rate, and this is where your bid strategy comes into play. Bid strategies are our overall approach to spending budget and getting results. Your bid strategy choice tells us how to bid for you in ad auctions. The correct bidding strategy depends on your business needs. Our ads platform offers a number of bid strategies that are designed to maximize your particular cost strategy. 

Maximum delivery is designed to auto-optimize your bid to produce the best results at the lowest cost. If you care more about spending your whole budget, we recommend the Maximum delivery strategy. This bid strategy is best for spending your budget as efficiently as possible. When to use: want to spend full budget and maximize results.

Manual bidding enables advertisers to specify the maximum bid amount they are willing to pay for, and the cost will not exceed that value. You’ll get real time guidance and suggestions on competitive bids during our campaign set up. When to use: want to set a max bid across auctions to control cost.

Target CPX bidding allows the advertiser to achieve a stable average price per event over time by auto-optimizing your bids to achieve a daily average cost that is at or close to that value. When to use: Want to have cost predictability.

Get the Most Out of Sponsored Content

Organic and paid content work together in the LinkedIn feed. While those who follow you will see your post in their feed, LinkedIn Sponsored Content lets you take your best-performing organic content to a wider, targeted audience.

Before you give content a paid boost, it’s important to know the type of content resonating with your organic audience. It’s also vital to understand your buyer persona. That is, you should have a generalized view of your ideal customers and how they might make a purchasing decision. It may make sense to segment your audience by industry, job functions, or experience so your content speaks to specific pain points or motivations.

LinkedIn offers a spectrum of targeting options. It’s tempting to zero in with an incredibly specific subset, but if the audience is too small, your campaign may not generate enough data to fully optimize your campaign performance.

On the other side, too large an audience may sacrifice relevance. The sweet spot is a sizable audience targeting only your most valuable potential customers.

Log into LinkedIn Campaign Manager to start your Sponsored Content success story.