If you’re working in the world of paid media advertising, you know that it is evolving. There are some big changes coming to paid media advertising over the next couple of years.
The strategy itself isn’t new. But, the push to focus on it is coming directly from and through media giant Google itself.
Let me introduce you to value-based bidding, a great strategy that will revolutionize the way we use paid media marketing.
What is Value-Based Bidding?
Value-based bidding, also called smart bidding, is a strategy where the value of each bid counts more than the number of conversions that come from each ad. When a digital marketer is starting a campaign, one of the first things they look at is how much they’re willing to pay to run it based on various milestones or conversions.
There are different milestones or conversions that you can consider, including maximizing conversions, maximizing conversion value, target cost-per-action, and enhanced cost-per-click, among others.
With traditional bidding, advertisers judged how expensive an advertisement was to run by the number of clicks, or conversions, it received.
With value-based bidding, the focus is more on the value of the conversion, not the conversion itself. In order to provide more valuable leads, this strategy defines your keyword and ad group bids by advertising features. It comes in two major strategies: max conversion value and target ROAS, also known as tROAS.
Value-based bidding will narrow down your advertising focus and help you optimize your ads for conversions. A large number of customers could end up being a vanity metric if none of those customers are big-ticket buyers. With this type of bidding, you can base your budget on the true value of each customer, rather than the value of all your customers.
There are three core principles of value-based bidding.
- Share Better Data – Share data that is relevant to your business goal. It is important that this data is as accurate as possible. The more accurate your data is the more accurate Google Ads’ targeting will be.
- Assign Value Data – The system uses the data you receive to assign values to your conversions. These values are both available and close to your business objectives from transactional values to profits.
- Optimize Bids to Business Outcomes – Once the data is in your Google Ads account, optimize it to fit your goals. When you target your bids to the right people, it will maximize conversion value.
Incorporate these three core principles to maximize your growth.
Why is Value-Based Bidding Important?
Value-based bidding is essential to your marketing strategy. Even though it’s been available for a while, it’s not frequently used yet. Preparing a strategy now will get you ahead of your competitors.
Value-based bidding maximizes your conversion value and increases your return on investment. It’s a way to target the customers that are more likely to help you reach your business goals and objectives.
It is important to differentiate between your customers and the value of each. You must know which group to focus your time on, depending on your campaign-specific goals.
Google uses this data to teach the system where to bid. It will decide which potential customers are most valuable to which advertisers. By bidding to the most valuable customers, you can increase profitability.
According to estimates, you can expect a 14% median uplift in conversion value at a similar return on ad spend when you move from Target CPA (cost per acquisition) to Target ROAS (average conversion value).
According to Google, using this strategy of bidding will help you maximize your campaign’s success based on the goal you actually want to achieve. In order to make the most of your value-based bidding strategy, here is a breakdown of which strategy fits each specific goal.
Value-Based Bidding is for Everyone
Are you a big publishing house? A small-town business? The best part about value-based bidding is that it works across all business models! There is no need to tweak any part of this process to fit a specific industry.
Value-based bidding provides you with robust data on your customer base. Use this to base future advertising campaigns around.
It also gives Google Ads a clearer view of how much each customer is valued by your business. This helps you and Google to know which products drive the most profit while improving the quality of your leads.
When you focus on the products and customers that are more likely to increase your profitability, the return on your advertising investment also increases.
How Does Value-Based Bidding Improve Your ROI?
Value-based bidding increases your return on investment by focusing on common business objectives:
- Market Share: Grow the percentage share of a market within an industry, product, or service
- Volume: Increase the units sold, number of leads, or capacity of business
- Revenue: Grow the amount of money the business brings in
- Profit: Grow the amount of money the business has after subtracting costs
When you use smart bidding, you focus your bidding on which goal you want to achieve. Take control of your ad spend and tailor your ad content to your target audience and business goals.
The more you use smart bidding, the more data you will collect. Google Ads will get a better understanding of your customer values, building better targets for your ads. Down the line, you’ll have a better idea of which customers will react well to your different offers.
According to Google, using value-based bidding will set your brand up for success by enabling “direct optimization for sales conversion events.” It will also help when you have product selection full of different prices and shopping cart sizes. With value-based bidding, your bids will be adjusted based on each specific conversion, meaning you’ll pay less for conversions that will earn you less money, rather than paying one blanket bid price.
Breaking Down the 4 Stages of Smart Bidding Sophistication
There are four stages to bidding sophistication when it comes to smart bidding. In order to leverage this type of bidding, you’ll want to make sure you understand each stage.
- Stage 1: Volume: The goal of increasing volume is bidding to conversions. We can measure this by tracking conversion count using gtag. Bid to maximize conversion (purchase) volume while achieving the CPA target using Target CPA.
- Stage 2: Purchase Value ROAS: The goal here is bidding to purchase value. We can measure this by tracking the value for every transaction. Bid to maximize conversion value (purchase value) and achieve ROAS goal using Target ROAS.
- Stage 3: Margin ROAS: The objective with Margin ROAS is to bid to your margins. Measure this by importing conversions and margins (values) via offline conversion import. This is done to calculate the margin post-purchase. Bid to maximize conversion value (margin) and achieve ROAS gaol using Target ROAS.
- Stage 4: Customer Lifetime Value ROAS: This stage is the most advanced level of smart bidding. For this stage, you’ll bid to forecasted customer lifetime value. Measure this by importing conversions and customer lifetime value via offline conversion import. You can achieve your ROAS goal by bidding to maximize conversion value and using Target ROA. If you’re looking for customers who will stick around for the long haul, this is the stage you’ll want to focus on. Remember though, that it can take time to build up enough data to focus your bids at this stage.
To help you achieve this, there are a few guidelines you should follow:
- Make sure you are sharing accurate data with Google. If you are not tracking and sharing accurate information, your conversions won’t match your business goals. You should share both online and offline conversions to get the best results.
- Always assign clear conversion values. Google needs to know your estimated value, the implementation, and the frequency. This data must be as consistent as possible and you should make sure it is shared daily.
- Create rules for conversion values. Let the system know if you want your value traffic based on location, audience, or device. You can also use conversion adjustments, data exclusions, or pre-import adjustments to modify your value.
- Before getting started, make sure you pick the right bidding strategy. Discovering the right target ROAS will help you earn the biggest profit possible.
Ensuring that Google is receiving accurate and consistent information is key to achieving success with value-based bidding. The closer you are aligned with Google, the better.
How to Implement Value-Based Bidding
First, familiarize yourself with automated bidding. There are a lot of nuances to learn and a lot of different ways to use this strategy. Luckily, Google provides a lot of educational tools on the subject.
Next, you’ll want to set up conversion tracking. Most customer relationship management systems (CRMs) will help you pull data from Google. This data explains which customer is benefiting the most from which action in your funnel. You can always call in a professional to set this tracking process up for you.
When you’re setting up your conversion tracking, consider whether the conversions will provide a monetary value or not. If your conversion is getting people to sign up for a free webinar, you shouldn’t assign it a monetary value. Choose the “no currency set” option in the dropdown menu.
After your tracking process is set up, you’ll want to decide on your budget settings. How much do you want to spend on which type of customer? What is your overall objective? Don’t look at your overall marketing goals but rather, focus on your business objectives. Do you want to see an increase in market share, volume, revenue, or profit?
Here is a step-by-step guide on how to set up your value-based bidding:
- To get started, go into your Google Ads account.
- Click on “Tools & Settings” in the upper right-hand corner.
- From there, click “Measurement” and then “Conversions”.
- Find your desired conversion in the list. If you cannot find it in the list, it means you did not set up the conversion tracking correctly.
- Once you’ve clicked on the conversion you’re interested in, click “Edit Settings.”
- Once in the settings tab, change the value.
The difficult part about value-based bidding is that you’ll need to wait between four and six weeks after you assign values to your desired conversions before it will really provide accurate data.
When the six is up, you can go into campaign settings and switch the bidding to “Conversion Value.”
How to Assign Value to Customers
A big part of value-based bidding is assigning value to your conversions. You can do this by looking at the data you’ve already collected.
Start by identifying your customer value. Regardless of what their final conversion was, all of them are important and valuable so do not delete any of your data. However, at this moment, you want to focus more on which type of customer you want to attract for this campaign.
Ask yourself the following questions:
- Which customers are leads?
- Which are marketing-qualified leads?
- Which are sales-qualified leads?
- Which are closed deals?
As you’re trying to hit certain business values, the answers to these questions will be critical in shaping your conversion values.
Look at your customer value data to track the real impact of advertising on your business. This will help you make the right decisions to develop growth strategies. This allows you to capture the customers that generate the most profit.
For example, saying you need 300 leads a month is a very vague goal. Rather than think of it that vaguely, get more specific. What type of leads do you need? Three hundred marketing qualified leads could turn the same profit as 100 sales qualified leads. Since you’ll need fewer sales-qualified leads to reach your goal, it is more beneficial for you to use smart bidding to target customers who are more likely to be sales-qualified leads.
Wrapping Up with Value-Based Bidding
In the fast-moving world of online advertising, it’s always important to stay on top of the trends.
Staying up to date with what is working best right now will help you spend your advertising dollars.
We recommend exploring value-based bidding, because of the high return on investment. This type of paid advertising provides you with more insight into your audience.
Look into value-based bidding before your next ad campaign. This can help you achieve those big goals you’ve set for your business!
FAQs About Value-Based Bidding
1. What is value-based bidding?
Used in paid media advertising, value-based bidding is a bidding strategy where the campaign cost depends on the desired conversion. Digital marketers use value-based bidding to adjust how much they’re spending on each lead, depending on the end goal. It is also called smart bidding.
2. What does ROAS stand for in value-based bidding?
ROAS stands for Return on Ad Spend. It is a key performance indicator and critical in a value-based bidding campaign.
3. Can a value-based bidding strategy be implemented immediately?
Since a value-based bidding strategy is so data-driven, it takes about four to six weeks for Google to collect enough data on your leads to truly be beneficial to your bottom line.
