Automatically Bid To Maximize Return On Ad Spend

/Automatically Bid To Maximize Return On Ad Spend

Last Thursday, October 3, 2013, Google announced a new AdWords automated bidding strategy.  If you’re already advertising in AdWords, then this is very exciting news to help you improve performance with less time managing your bids.  If you’re not advertising in AdWords, then this might be a good reason to get started soon.

 

AdWords Can Automate Your Bidding?

Yes, indeed.  I’ve been a huge fan of Google’s Conversion Optimizer tool for several years.  Conversion Optimizer will automatically bid on your keywords (for Search network ads) and website placements (for Display network ads) in order to achieve your defined cost per conversion.  A conversion can be any action on your website, but typically it’s a lead via a contact form submission or an online sale.

Conversion Optimizer used to be a Campaign wide setting, which meant you had to set the same target cost per conversion for EVERY keyword and placement in a single campaign.  Not ideal… So this past May Google released Flexible Bid Strategies to give advertisers more flexibility to assign different targets for keywords and placements within campaigns.

That brief history lesson brings us to the latest version of AdWords Flexible Bid Strategies, which is called “Target Return on Ad Spend” or “Target ROAS” for short.

 

All Conversions Are Not Created Equal

As I said earlier, I’m a fan of Conversion Optimizer, and it works great if you assume every conversion has the same value to your business.  But that’s simply not true.  For one of my clients I see the value per conversion range from $100 up to $200+ depending on the keyword the prospect searched.  Some keywords lead to higher transaction values from multiple purchases and upgrades to premium versions, while other keywords driver lower value sales.

Can you now see the glaring flaw in Conversion Optimizer? If you set a single target cost per conversion, then you could end up bidding too high for the low value keywords and too low for the higher value keywords. So you’ll unintentionally hurt your return on investment (ROI) and lose out on sales for the most valuable keywords.

 

Introducing Target ROAS Bidding

Target ROAS bidding solves the problem with Conversion Optimizer because it takes the value of the conversion into account when setting the bid.  If you’re not familiar with return on ad spend (ROAS), then here’s the very simple equation to calculate your ROAS:

ROAS = (Revenue from Ads) / (Ad Cost) x 100

If you want to generate $5 for every $1 you spend in advertising, then your ROAS would be 500%.

ROAS = $5 / $1 x 100 = 500%

So with Target ROAS bidding, you simply set your desired ROAS goal and Google will automatically bid to try to hit your target.  Like all of the automated bidding within AdWords, Target ROAS factors in the device the prospect is using, the browser, the operating system, the prospect’s geographic location, and the time of day to optimize your bids.  This all happens automatically within split seconds every time your ad has an opportunity to be displayed for your prospect.

 

Requirements to Get Started

Unfortunately, not every AdWords campaign is a good fit for automated bidding like Target ROAS.  If you do not have conversion tracking set up properly, then clearly there’s no way for the system to determine how to bid.  Plus, for Target ROAS to work, you’ll obviously have to assign a value to each of your conversions or else there would be no way to calculate ROAS.

Finally, Google requires sufficient data to make bidding decisions.  You’ll need at least 30 conversions in the last 30 days and at least 30 days worth of conversion data.  As well as a consistent conversion rate for at least a few days.  This is to ensure the automated bidding program can make the best decisions for your keywords.

If you meet the requirements above, then I recommend you test this new tool.  For larger campaigns, this can be a huge time saver versus manual bidding.

 

Google AdWords Webinar

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By | 2017-11-12T10:20:12+00:00 October 7th, 2013|Categories: Pay Per Click Advertising, Tracking and Analytics|Tags: , , , , |

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