How Does LinkedIn's Second-price Auction Model Work?

LinkedIn advertising cost is one of the most discussed topics about the platform. If you are coming from Google Ads or Meta ads, LinkedIn CPC and CPLs can often cause sticker shock.

Your LinkedIn ad program does not have to be expensive. In order to optimize for cost across the entire platform, let’s start with understanding the basics of how LinkedIn’s bidding works (which is the same as Google and Meta).

LinkedIn uses a second-price auction model for its ad placements. In this system, the winner of the auction is determined not just by the highest bid, but by a combined score that factors in both the bid amount and the ad’s relevancy score. The winner pays just slightly more than the second-highest bidder, not their own full bid.

Key Steps in the Process:

1️⃣ Combined Score Calculation: Each advertiser’s bid is multiplied by their ad’s relevancy score to create a combined score.

2️⃣ Auction Winner: The ad with the highest combined score wins the auction.

3️⃣ Price Paid: The winner pays the price equivalent to the second-highest combined score divided by their own relevancy score, plus $0.01.

Example:

Let’s say three advertisers are competing for a single ad slot on LinkedIn:

Advertiser A: Bid $5 × Relevancy 9 = Score 45

Advertiser B: Bid $8 × Relevancy 5 = Score 40

Advertiser C: Bid $7 × Relevancy 3 = Score 21

*️⃣ Step 1: Determine the Winner

Advertiser A wins because their combined score (45) is the highest, even though their bid ($5) is not the highest.

*️⃣Step 2: Calculate the Price Paid

Since LinkedIn uses a second-price auction, the winner pays based on the second-highest combined score.

Second-highest combined score: 40 (Advertiser B)

Winner’s relevancy score: 9 (Advertiser A)

The formula is:

Price Paid = Second-highest combined score / Winner’s relevancy score + $0.01

Price paid = 40 / 9 + 0.01 = 4.44 + 0.01 = $4.45

So, Advertiser A (the winner) pays approximately $4.45 for the ad impression, not their original bid of $5.

Here’s what that means for advertisers: You don't have to be the highest bidder to win. To run a cost-effective ad program on LinkedIn, ad relevance is key. No matter what format or placement you are using, keep the audience and messaging at the center of your ads.

Don't be afraid to set a lower bid than what you normally do and operate the levers that improve ad relevance—audience, ad text, creative, landing page. Keep an eye on impressions every day, as this is your primary indicator of whether you are winning auctions.