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Have you ever wondered how the LinkedIn Ads auction works? The video below from LinkedIn fully describes how the LinkedIn Ads auction determines the winning bidder and how pricing is calculated.

Our recommendation is to not get too caught up in the LinkedIn Ads auction process and instead worry more about creating content that is irresistible to your audience. Great content can be produced fairly inexpensively and over time will greatly reduce your LinkedIn ads costs.

Below is the direct transcript from the video “How does the LinkedIn Auction Work?”

“In this video, we will walk you through the basics of how the LinkedIn auction works and the different levers you have as an advertiser to be more competitive.

The players – LinkedIn’s auction has three main stakeholders.

The first is the advertiser.

The second stakeholder is the LinkedIn member.

The final player is LinkedIn – the host of the auction.

LinkedIn’s role is to ensure that the auction is fair for advertisers and members are served relevant ads that they are interested in and more likely to engage with.

Step 1 Choose your campaign objective. Determining your objective is the first step in creating a successful marketing campaign the campaign objective also indicates which key results linked in platform should optimize for. Each campaign objective optimizes differently. So it is important to choose the one that best fits your marketing goal.

Step 2. Set your bid. Once you decide on your objective and ad format – you will want to place a bid. Your bid price is not what you actually will pay because LinkedIn uses a second price.

For a second price auction, the winner only pays the price offered by the second-highest bidder plus one cent. A very simple example would be that you place a bit of $5 and the next highest bid is four dollars. If you win the auction, you will only pay four dollars and one cent not the original five dollars that you bid.

This second price method lets you set your bid at the maximum price you are willing to pay for a click or impression but will only charge you just enough to win the auction.

Step 3. LinkedIn does the rest, relevancy score and placement. In order to provide the best user experience, the auction also considers your relevancy score in addition to your bid. Each ad is assigned a relevancy score based on how likely the member is going to respond to the ad and generate the objective key result. This could include factors such as expected CTR. Prediction of how often your ad will be clicked on based on historical performance data and your landing page experience.

Every time a member visits the LinkedIn feed the auction runs instantly in the background. A campaign that has won the auction target. Particular audience will appear in the feed. Bringing it all together. We’ve now learned that whether your ad shows in the LinkedIn feed is a function of both your bid and relevancy score.

Let’s bring this to life by showing you a quick example. Imagine an auction with three advertisers. In this case advertisers, A B and C are all competing with each other for the same target audience on LinkedIn using the same objective. Advertiser A has a bid of $12. Advertise your B bids $8.00 and advertiser C bids four dollars.

We’ve also assigned each ad a relevancy score you can see here that their respective relevancy scores are four, nine and three. From this information, we calculate a combined score, which is simply the product of their bid and relevancy. You can see that it’s simple multiplication. For advertiser A, we calculated a combined score of 48 by multiplying the bid price of $12 against the relevancy score of 4.

After determining the combined score for each advertiser we can the stack rank them to determine the winner of the auction. In this example advertiser B is the winner. Advertiser B actually wins the auction even though they did not have the highest because their content was highly relevant. How do we determine how much advertiser B pays? Remember that LinkedIn is a second price auction.

Let’s put that into practice. Advertiser B, the winner of the auction only has to pay enough to make his combined score higher than the advertiser with the next highest combined score. So, how is the amount calculated? We take advertiser A’s combined score of 48 and divide it by advertiser B’s relevancy score of 9.

That means advertiser B will pay just one cent more or $5 and 34 cents, which is how high their bid would need to be to beat the combined score. Above advertiser A. So, that’s how the LinkedIn auction works. To simplify. Make sure you bid enough to be competitive. Work to achieve and keep your click-through rate high and strive for relevant and engaging content.”

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Territory.IO is a Linked Ads Management company