Smart bidding strategy is a burning topic nowadays as most businesses are looking for ways to reap the benefits of ad automation. Value based bidding, Performance Max campaigns, Advantage+ campaigns, smart bidding, etc., are all the result of ad automation powered by AI & machine learning. It is the perfect time to adopt these strategies to grow your business.
Until now, most marketers were going with the traditional bidding strategies to bid for a conversion action. Now is the right time to make a shift to value based bidding to increase your conversion value and profit margins.
In the traditional bidding process, you generally over-assume your conversion value as you take only the final conversion value into account. This can be huge on your pockets and will eventually drain your budgets.
Let’s see how value based bidding strategy will actually work for you. By the end of this blog, you understand and get an idea on
- What value based bidding is
- How value based bidding works
- How to run value based bidding strategies
- Leverage full potential of value based bidding to enhance your ad campaign performance
- Recommended tips & best practices from experts
- Use value based bidding strategy for your business model
Finally, you will understand in detail about value based bidding and utilize maximize conversion value bidding strategy to achieve higher revenue.
So, What is Value Based Bidding?
Value Based Bidding Strategy:
Value based bidding is the bidding strategy that focuses on the value of conversion rather than number of conversions. Which means your ad campaigns will focus on quality rather than on quantity. Value based bidding strategy will consider stage specific conversion value rather than simply assigning the final lead value. This smart bidding strategy will optimize your ad campaigns towards maximum conversion value.
Earlier, when you use pay-per-click bid strategy, every single click is considered as final conversion.
With AI & machine learning venturing into the ad platform automation, bidding has gone to a next level. Now, you can actually assign values for various stages of conversions by differentiating the most valuable conversion and the least valuable conversion. You should assign a higher conversion value to the stages closer to the final conversion. The final conversions are more prominent compared to the first stage of your customer journey.
When you feed conversion value data to Google Ads, it will bid high for those high value conversions. This is the reason behind Google recommending you to “keep your budgets high” for the maximizing conversion value bidding strategy.
How Value Based Bidding Works?
Assume that you want to advertise on billboards across the country. Now, you would spend high on those advertisement spaces (let’s say New York City) which would get you a higher profit margin and spend less on those spaces (let’s say Providence village, Texas) that give you a lesser profit margin. This is exactly how value based bidding works. The algorithm will understand the conversion value you have sent to Google Ads. Accordingly, it will bid more for the conversions that offer you higher value. Similarly, it will bid less for the conversions that offer you less value.
The algorithm trains itself by using historical performance of your ad campaigns, audience signals (both individual & cross-signal effects) and the first-party data that you input to the ad platform. It combines various audience signals and optimizes your ad campaigns to offer you the best possible ROAS. In the process it will also train itself on what works best for you and what does not.
In the value based bidding, Google Ads gives you the following two bid options:
- Maximize Conversion Value
- Target ROAS (tROAS)
By default, when you try to change the bid strategy and check for all the bid strategies available, it shows you only maximize conversion value and conversions. Only after you choose the maximize conversion value option, it shows you the target ROAS bid strategy option. You can either set the target ROAS or just go with maximize conversion value by default based on your strategies.
Why to use Value Based Bidding?
When you use value based bidding, you automatically see an increase in your conversion value and your overall profit margins. Recent study shows that there’s a 14% increase in the conversion value for those who shifted from tCPA to tROAS.
Now, to make the effective use of maximizing conversion value bid strategy, you should adapt the strategy into your performance max campaigns. But why should you do it?
Why use Value Based Bidding in Performance Max:
Firstly, performance max campaigns optimize the bid value in real-time without any delay to achieve the objective selected. Secondly, it runs its campaigns on all spaces and optimizes your campaigns in real-time. Therefore, your ad will be shown at the right time at the right space.
Benefits of using value based bidding in Performance Max Campaigns:
When you use value based bidding in Performance Max Campaigns, the following happen:
- Higher Conversion value rather than more conversions (Quality over Quantity)
- Equip the automated bidding process with conversion values
- Automated bid value adjustment in real-time based on the conversion values
- Capture right audience signals and reach out to high prospective similar audiences
- Optimize the campaigns in real-time
- Drive your ads towards a specific objective (Conversions, Leads, Traffic, etc.)
- Higher conversion value for the best bid amount across all the channels of Google
- Offer personalized advertising based on the user’s preference with the combination of ad assets provided & real-time bidding
- Full control on your ROAS
- Automatic control over your budgets
When you use value based bidding in Performance Max campaigns, you spend only on the people whom you think will get you an ROAS of let’s say 150% (your desired) across all the six channels of Google.
Therefore, when you use conversion value based bidding strategy in PMax campaigns, it proves to be very effective.
Note: It is recommended to have higher budgets to run these automated campaigns under smart bidding to see desired results.
You can also use value based bidding in Google Ads for the following campaigns that are equipped with conversion tracking:
- Search ad campaigns
- Shopping ad campaigns
- Display ad campaigns
- Video action campaigns
Conversion value based smart bidding works better with campaigns that optimize real-time as the conversion values can be synced in real time. Therefore the ad spend is optimized for the required target – either the maximize conversion value or target ROAS.
How is Value Based Bidding different from the other Bidding Strategies?
In general, there are two bidding strategies that you might be using:
- Target CPA bidding strategy
- Maximize Conversions bidding strategy
Now, how is value based bidding strategy different from the above?
Here’s the below table that puts forward all the available bidding strategies and how they are different from each other.
How Max Conversions / tCPA bidding works?
In the target CPA (tCPA) or Maximize Conversions, the ad algorithm works on achieving the targeted CPA / Maximum Conversions. However, it tries to achieve it at any cost irrespective of the value a conversion brings to your business.
For example, let us understand there is a conversion (let’s say sign up) which adds a value of $100. And the next conversion (say product purchased) is of the value $500. Now, with target CPA / maximize conversions, you will be able to bid $10 for both the conversions. This is not beneficial as you are bidding the same for both conversions which add different value to your business.
This is where the Maximize Conversion Value bidding strategy comes in.
How Maximize Conversion Value bidding Strategy works:
When you use the value based bidding strategy, the ad algorithm will work to achieve higher conversion value rather than higher number of conversions. The conversions are optimized for different values based on the conversion event happening in the real-time.
Every stage in your customers’ journey can have a different conversion value. You have to take that stage specific conversion value into account to bid on Google Ads effectively.
For example, a simple check out conversion might have a specific conversion value and is different from the conversion value of a subscribe event. Therefore, instead of bidding the same amount for all the conversions, the higher value conversions are bid higher.
In the value based bidding strategy, you again have two options to choose from – 1. Maximize conversion value, & 2. tROAS or the target ROAS.
When you choose only the Maximize conversion value option but uncheck the tROAS, the algorithm will focus on spending your budgets to achieve higher conversion value only.
Whereas, when you also check the tROAS box and give a ROAS value, the Google Ads’ algorithm will focus on achieving the desired ROAS while achieving maximum conversion value.
Pro tip: In the initial stages, input the target ROAS lesser than the average ROAS you have achieved in the past. This will let the algorithm understand what ROAS it should optimize for and does not exhaust spending the budget quickly.
How to Setup Value Based Bidding?
First things first, let’s get started with setting up Conversion tracking for all the events you want to track. User’s actions that matter to you should be tracked to give you a clear picture of the users journey & how your bidding strategy is working.
If you want to manually track all the conversions, you can go with Google’s step by step guide to set up conversion tracking for your website. Alternatively, you can also use CustomerLabs’ No code event tracker to set up the conversion tracking for your website. Custom websites or built on platforms like WordPress, WooCommerce, Shopify, BigCommerce or any other platform, the No code event tracker works for all.
Conversions with monetary value:
Generally, the currency of the conversion value is the currency of your Google Ads billing account. However, if you have different currencies, you can set up your conversion currency in Google Analytics and then automatically the currency will be shown in the currency of your google ads billing currency.
Conversions without monetary value:
Let’s say you are running a free webinar and want to track the conversions that happen for people who click the ‘sign up for webinar’ button. For these conversions, you do not want to assign any monetary value because they do not bring in direct revenue. However, you need conversion values to be assigned to compare and measure relative performance of various conversion events. So, you have to simply enter the value, let’s say ‘4’ to register for the webinar and choose the “No currency set” option. This will show you the conversion value irrespective of the currency used.
Setting up the Conversion values:
Once the conversion tracking is setup, go through the following steps to set up the conversion value.
Here’s the catch. In the value, what is the value you give? You find three options as below
If you have the same value for every conversion, then go with the first one.
When you have more than one product with different values, and want to track the conversion value, use the second option. And when you use this, in the next step, it will ask you to give the specific conversion values for every product. You have to change the value in the code and place it on your pages on your website.
Now how do you calculate the conversion value? If there is only one product and all the conversion values are approximately the same, then you can use the conversion value calculator.
Recommended if you have differential pricing: Use transaction-specific conversion values. You should setup your conversion tracking for every single differential pricing by copying the event snippet code by altering the currency value and currency code.
To use offline store conversions, you have to set up the store sales on your Google Ads account. And only then you should use the conversions from clicks using GCLID. After you do this, you should import the offline conversions.
Once you import them, you should bid for those actions that are close to the final purchase. This will help the algorithm to optimize for the higher conversion value, thus, adding more value from your ad campaigns.
Setting up Value based Bidding Strategy:
Next step to do after you set up conversion values is wait.
Yes, you heard it right. After you assign the values to all your conversion actions, you should wait for five to six weeks and valid conversions. Bookmark this blog link, add a reminder for six weeks to your google Calendar and come back to this blog again to continue. Lol, just kidding..
So, once the wait of six weeks is over, select any of the conversion values or target CPA bid strategy campaign to switch to value based bidding.
Change the bid strategy to Conversion value on Google Ads. Now, if you want to go with target ROAS, select the checkbox and give the ROAS value. The ROAS target you assign should be a little lower than your historical average ROAS value while you account for the delays in the conversions. The value in the column displaying conversion value / cost is the value you have to consider for tROAS.
Recommended Practices & Additional information on Value based Bidding:
In addition to what you do above, there are a few recommendations you have to keep in mind to leverage the full potential of value based bidding.
Before you start with the tROAS bid strategy you have to wait for a particular number of conversions to happen. They are as below:
How value based bidding works for businesses in various industries:
Value Based Bidding in Finance Industry:
Financial Institutions including banks have a huge opportunity to leverage value based bidding. Either to retarget the existing audience in the mid & bottom funnel or to target the top of the funnel audience. People who are searching for loans, credit cards, finance options, investment options, etc., and are in the top of the funnel (ToFu) audience. The ToFu can be targeted using search campaigns & other campaigns that find similar audiences.
Loans are the crucial assets for any financial institution and will try to increase their assets. If you are in the finance industry, run your ad campaigns using the value-based bidding strategy with First-party data.
Let’s understand the customer journey, touchpoints and then see how the value based bidding comes into play.
In this journey, the action closer to the final conversion is ‘apply now’. The other conversions like clicking on Home Loans on the home page, clicking on the Mortgage does not offer much value.
The value of lead for a customer clicking on Apply Now is $200. For this customer, the conversion value will be $16. How it is calculated is demonstrated below.
The conversion rate from the last step to the second step is 20% and from that to the first step is 40%.
20% of $200 is $40 and 40% of $40 is $16. So, the $200 traces down to the lead conversion value of $16. You have to input this lead conversion value to Google Ads.
In general, the customer might also visit the bank in-person. Then that also has to be mapped into the customer journey and the offline conversion data also is to be synced with Google.
Value Based Bidding in Fashion Industry:
If you are a fashion brand, you most probably by now have in-store (offline) and eCommerce (online D2C store) sales. Each and every product has a different pricing and different margin value and a different conversion value. Now, it will be meaningless if you simply assign the same conversion value for all the products and for all the conversions.
With value based bidding, you can actually bid for the transaction specific conversion values and therefore achieve higher profit margins rather than focussing on maximizing conversions.
Here’s how a typical customer journey looks for a eCommerce store
Now, let’s say the average cart value is $200. And for that, the lead conversion value that you should input to Google Ads is $3.7
You can see how we have arrived at the $3.7 value as the average lead conversion value by understanding the customer journey.
Now, for every product, the final cart value will be different. Therefore, the conversion value also differs. Use the calculator to find the conversion value.
Therefore, you can segregate all your audiences and retarget them based on their value rather than targeting every single customer with the same ad spend.
Value based bidding for SaaS / B2B:
If you are running a B2B or SaaS business, you will have many conversions that need a value but in monetary terms, it actually does not add any value to your business.
Now, it does not make sense if you spend the same amount of money for both conversions as one brings in revenue while the other does not.
With value based bidding, you can specifically input the transaction specific conversion value to the ad platform and help the algorithm learn about the value for various conversions using the conversion tracking. Once you do this, the ad platform’s algorithm will run your ad campaigns very optimally by targeting the high value conversions.
Below can be the customer journey of a customer visiting your SaaS/B2B website.
Lands on the website home page > Click on Schedule Demo > Clicks on Sign Up
Now, below will be the conversion rate and conversion value for the customers going through this journey. Let’s assume that the final conversion value will be $150
For the given conversion rates the conversion value that you have to input to Google Ads comes to around $16.8.
Therefore, as you have come up with the conversion value for people who land up on your home page. With this, you can come up with the optimal ad spend and make your SaaS/B2B business successful.
Perfect Bid strategy: Be crystal clear on what bid strategy you want to use – Maximize conversion value or tROAS when you are going for a value based bidding strategy on Google Ads.
Clear Goal: Have one goal for your smart bidding strategy and work towards it. Do not confuse the algorithm and yourself. Smart biddings are devised to focus on one single objective and your job is to train the algorithm to achieve that objective with an optimized cost.
Input good audience signals: Sync audience signals without loss with the ad platforms. With third-party cookies going away and no more client-side tracking, it is better if you shift towards server-side tracking and collect your first party data.
First-party data: Give the ad platform first-party data of both known and anonymous users. Doing so will help the ad algorithm learn better to make your ad campaigns work better.
Train the algorithm: The ad platforms algorithms are like learners forever. You need to keep updating the algorithm with the data to help it learn better. That optimizes your ad campaigns better.
Overall, value based bidding proves to be an effective strategy to run your ad campaigns profitably by spending optimal amounts and gaining higher revenue with high value conversions.