Value-Based Bidding Unlocks GAds Potential
Value-based bidding allows Google’s advanced machine learning to focus on the total conversion value and quality of people who see your ads across the platform’s huge ecosystem of advertising networks.
Why Measuring CAC Isn’t Enough
When you just measure CAC (customer acquisition cost), you take all of the users and all of the conversions under one basket.
The main problem with focusing solely on CAC is that you fail to look into the quality of the customers that, in the long term, would bring you more revenue.
The Advantage of Value-Based Bidding
VBB high-value prospects will have more budget directed their way, while those who share qualities of lower value, will be pursued less aggressively. Prioritizing segments based on value can be a good strategy to maximize the return on your spend even if you have a tiered, license- or usage-based pricing model. In fact, value-based bidding for SaaS companies is a great way to make sure you don’t leave money on the table by optimizing for a blanket average conversion value.
Target CPA vs Value-Based Bidding
When running an automated bidding model like target CPA (target Cost Per Acquisition), you’re telling Google that all leads are worth the same. By doing so, you risk under-investing in your most profitable prospects and, in the long run, this can cause you to fall behind the competition.
With value-based bidding, you’re telling Google that you rather have high-quality leads, and the algorithm will give them to you.
If you’re running tCPA campaigns, chances are, Google will gradually start giving competitors who are bidding to value the higher-quality leads and funnel the low-quality leads to you.
The ATMB Project
A cloud-based platform, Anytime Mailbox allows users to view and manage their mail anywhere in the world, on any device, and at any time. You can select one or more addresses to set up your digital mailbox. At the moment, ATMB has over 1500 locations across the globe.
Being 10 years on the market, ATMB wanted to invest in marketing more efficiently and get the support needed to succeed.
Together, ATMB and Hop Online built a digital approach to take the account to the next level.
Building a VBB strategy
A VBB strategy is like a roadmap and, while it’s not set in stone, its guidelines help us get from measuring success through CPA and CAC to maximizing conversion value so that the client can spend more of their budget acquiring customers most likely to bring profit to the business.
While every business faces different challenges, following the steps below enabled us to build a clear, methodical VBB strategy that allowed us to uncover the most valuable sources of traffic for Anytime Mailbox.
Step 1: Map out the conversion journey & assign values
Anytime Mailbox and Hop Online collaborated to map out the conversion journey. This was a crucial first step that helped set the foundations for value-based bidding. It swept away foggy notions and assumptions about how prospects move through the funnel, allowing us to create an overview of the customer experience and remove obstacles to make the process more efficient. This step took into account ATMB’s different pricing plans and the business’ different types of users and their behavior.
Although ATMB’s old conversion was tracking new user registrations, it did not have any assigned value. In order for Google’s algorithm to prioritize more profitable conversions, however, we needed to assign a value to each conversion. Deciding what numbers to use when assigning conversion values for VBB, though, can be tricky.
One major advantage at this stage was Hop’s data science team. The team went above and beyond to examine years of data and figure out the main factors that gave out information about the type of user, their behavior, and their lifetime value.
Connecting the dots also helped us set the base for true value-based pricing – making better-informed decisions about the profit maximizing price and creating an experience that’s aligned with the customers’ expectations.
Step 2: Import the data to Google Ads
Once you start feeding the algorithm updated and relevant data – and the new conversion is working as expected – you can turn off the old conversion.
In the case of Anytime Mailbox, we let the new conversion gather data in the background for a month and, once the numbers of the new and old conversion aligned, we made the switch. This way, we asked Google’s algorithm to deliver the same results, but do so based on different characteristics.
While there may not be any “obvious” changes, this was another key part of the process of moving to VBB. By turning on the new conversion, Google can see not only the number of leads but also their quality and value.
Step 3: Let Google learn
As a rule of thumb, you need to give Google’s algorithm some time to learn and establish new baselines. It’s best to give it 1 to 2 weeks to go through the ramp-up, learning period.
Note: When making decisions about your campaigns, it’s important to consider data from that period forward.
Step 4: Use the proper type of VBB
Depending on your business goals – increase in revenue or improvement on ROAS – you can switch over to one of two value-based bidding strategies:
Target ROAS: Enables advertisers to bid in an auction while aiming to hit a specified return on ad spend. Bids are automatically optimized to get you to the desired return on the ad spend goal. Target ROAS can be calculated as a percentage based on the LTV to CAC ratio (e.g. 2:1 = 200%).
Maximize conversion value: Like tROAS, maximize conversion value strives to achieve the highest efficiency and return. Maximize conversion value, however, lets advertisers maximize specific KPIs or profit margins and will automatically try to maximize the value (e.g. get as much revenue as possible for the given budget). You can also run it with a tROAS focus.
Our primary goal with ATMB and value-based bidding is to, ultimately, target a specific return on ad spend. To get there, we need to test out the tROAS strategy and identify the campaigns in which it can be effective.
Unlike maximize conversion value, however, testing tROAS requires a minimum conversion volume (30-50 per month). As Anytime Mailbox started out with a low volume, we needed to test out maximize conversion value and meet the conversion volume threshold first.
In effect, this is enabling us to build up data that can be used as a stepping stone to test out target ROAS.
Value-Based Bidding Results & Insights
Partnering with Hop Online is certainly paying dividends for Anytime Mailbox. Here’s a quick overview of the results and insights.
VBB Results
To put the magnitude of value-based bidding into perspective, let’s walk through the results we achieved during the first VBB experiments with Anytime Mailbox:
Ad spend increased by 20% while conversion value increased by 30%
ROAS is improving, going from 225% to 260% (or a 15% increase)
CPA decreased by 12%
Conversion volume increased by 27%
CPCs remained stable with 0% change
Although there were expansions across multiple middle and top of funnel campaigns and audiences, the average CPCs remained stable. Compared to the ad spend increase (20%), we achieved a faster conversion value growth (30%), indicating that the experiments were successful.
Note: Each VBB experiment needs to be at least 6 weeks long – 2 weeks for Google to set the baseline for the algorithm and 4 weeks for the experiments. For Anytime Mailbox, we ran the experiments during the span of 3 weeks, with each test running for 6 weeks.
A/B Tests
While our goal for ATMB is to, ultimately, target a specific ROAS, this strategy has a minimum conversion volume requirement. This is why we A/B tested, and continue to test, target CPA versus VBB (both tROAS and MCV).
This helps us to determine whether it’s best to run campaigns on tCPA or MCV in order to collect enough data and be able to apply a tROAS strategy.
The first testing batch included 6 experiments. Here’s what we found out:
Both value based strategies worked as expected – the MCV experiments achieved higher conversion value than the base campaigns while the Target ROAS ones maintained the trial campaigns’ ROAS at +/- 10% of the selected goal, which as indicated by Google is considered success for this type of experiments.
50% of the tROAS tests showed a higher number of conversions and higher conversion value.
Maximize conversion value brought lower ROAS, however, it boasted more conversions, higher conversion value, and higher ad spend than the base (tCPA) campaign. From one side, this was expected considering that the Target CPA we were running the original campaigns on was severely restricting campaign growth – left uncapped, with MCV as strategy, the campaigns trived. From another, we saw a higher % change in total conversion value than in ad spend – as you can see from the graphs below, we are used to seeing a parallel growth in those metrics in our base Target CPA campaigns.
Overall, considering the mechanics of both VBB strategies (MCV focusing on conversions + conversion volume and tROAS focusing on higher ROAS), we can conclude that 5 out of the 6 tests were successful.
VBB Insights
ATMB and Hop Online worked together to create several experiments with the two different VBB strategies. Here’s what we learned from implementing VBB with Anytime Mailbox:
Target ROAS eligibility is 15 tracked conversions in the last 30 days
Maximize conversion value has 0 conversion eligibility. This means that it doesn’t require any historical data in order for the algorithm to work as intended. That said, it’s important to note that maximize conversion value will always try to spend out its budget.
Use historical performance to effectively set the initial target ROAS. The math is: conversion value divided by ad cost for at least the past 30 days.
Choose 2-3 medium-high volume campaigns for the testing phase. This allows Google’s algorithm to collect more data and optimize your bids more efficiently. Although the conversion volume can be zero, the higher it is, the better the end result.
The impression share should be lower than 75% so that the campaign has enough room to grow.
Set budget at 30% higher than campaign daily spend.
Moving from marketing goals to business objectives, having the skill to test and optimize, and the staying power to observe returns gave our client what they wanted and much more – improved ROAS, higher ad spend, and a boost in conversion rates.
Data science has been excelling at optimizing auctions, but did you know you can use it to gain deeper insights from your digital efforts? Here’s how to get started with data science in marketing.
FAQ
What Is Value-Based Bidding?
Value-based bidding (VBB) is a Google Ads automated bidding strategy that helps advertisers maximize the conversion value of their ad spend.
What Are the Types of VBB?
VBB comes with two main bid strategies – Maximize Conversion Value and target ROAS.
By considering a variety of signals, such as intent, user location, and expected CPC, maximize conversion value bidding strives to bring in conversions that will give the highest return.
With target ROAS bidding, Google will predict future conversion and conversion value performance based on historical data. The bids are adjusted in real time to maximize conversion value while aiming to achieve a specific ROAS goal.
What Type of Businesses Should Do VBB?
Historically, bidding for higher revenue and value has been reserved for e-commerce.
That said, while the value of a lead in lead gen businesses is often harder to determine, once you move past that mental block you’ll see that VBB has plenty to offer for lead gen.
What Are Some Limitations to VBB?
If you have a very low conversion volume, due to either your budget or your campaigns being brand new, VBB might not reap any noticeable benefits.
How to Implement VBB Right?
To implement value-based bidding the right way, start by setting up conversion tracking correctly and calculating conversion values. From there, you’ll need to decide on the account structure and targets, start running VBB experiments, and carefully evaluate performance.
How Google Calculates Ad Spend?
Google Ads calculates the budget on a daily basis. To determine the monthly budget, you’ll have to multiply the daily budget by 30.4 (the average number of days in a month). To better manage your spend in GAds, set an average daily budget, view costs from reports, and optimize your spending.
What Makes VBB Successful?
Conversion data makes or breaks your success with bidding to value. To start your campaign on the right foot, set up and track accurate high-touch actions and conversions that align with your business goals.
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