Social platforms make money by selling attention, and they do that through a structured process that looks, at a high level, like an auction. Every time there is an opportunity to show an ad in a feed, story, or search result, multiple advertisers compete to win that impression. The winner is chosen based on a combination of how much they bid and how the platform predicts the ad will perform for that specific viewer. A higher bid matters, but so does relevance; platforms want ads that users actually engage with, because engagement keeps people around.
Ads are usually priced using a few standard metrics. CPM, or cost per thousand impressions, charges advertisers for every thousand times an ad is shown, making it a good fit for brand awareness campaigns that care about being seen. CPC, or cost per click, charges only when someone clicks, making it better for direct response campaigns. Click-through rate, the ratio of clicks to impressions, functions as a leading indicator of how compelling an ad is. Platforms treat CTR seriously because it influences who wins future auctions: an ad that historically gets clicked gets a quality boost that can lower its effective cost per impression.
Beyond clicks, platforms care about what happens after the click. Conversion tracking measures whether viewers later take a desired action such as a purchase or a sign-up, and attribution assigns credit for that conversion to one or more ad exposures along the way. Attribution is inherently imperfect because users often see multiple ads before converting. Privacy restrictions make this harder: less tracking data means platforms must lean more on on-platform signals, such as in-app behavior like watches and likes, and aggregated measurement techniques. As a result, value optimization has become common: instead of chasing cheap clicks, platforms may optimize for predicted conversion value, looking for users who are likely to spend more. To avoid annoying viewers, delivery systems also use frequency capping, which limits how often the same person sees the same ad within a time window.