Everything You Need To Know About Value-Bidding in Google Ads (With Real Example)
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Active User Rate
Return on Investment
Beyond Clicks: How Value Bidding Elevates Your Google Ads Campaigns
Welcome to the world of value-based bidding strategy in Google Ads, where maximising conversion value within your budget and optimising for your business goals takes centre stage. If you're unfamiliar with this strategy or looking to learn how to apply it effectively in real business cases, you've come to the right place. In this article, we'll explore the ins and outs of value-based bidding strategy through frequently asked questions, providing you with clear explanations, actionable insights, and helpful resources to enhance your understanding. So, let's dive in!
Before we begin, thanks Ginny Marvin for providing useful definition in LinkedIn which helps me expand based on a good foundation (you can find the credit and reference links at the end of the article).
What is value-based bidding?
Value-based bidding (VBB) is a bidding strategy that aims to maximise conversion value while adhering to your budget and, if desired, a target return on ad spend (ROAS). By optimising for auctions predicted to deliver high conversion value, VBB ensures that you generate the highest total value of conversions within your constraints. Unlike maximising conversions or target cost-per-action (tCPA) bidding, VBB focuses on delivering more valuable conversions rather than solely increasing conversion volume.
Value-based Bidding Implementation Steps
- Optimising towards long-term profits requires accurate projected customer values, starting with readily available values such as cost of sales and revenue.
- The next level of value-based bidding strategy involves the Profit bidding strategy, where the dynamic value of Cost of Goods Sold (COGS) or costs of each sale is imported, and the profit value is used as the conversion value.
- Tools that can help achieve this goal are Offline Conversion Upload and Google Tag Manager, enabling data tracking and reporting on profit data, though they may require some engineering effort.
Who should use value-based bidding?
Value-based bidding is suitable for a wide range of businesses, including lead generation, online sales, and brick-and-mortar establishments of various sizes and conversion cycles. To leverage this strategy effectively, you need to define the value you want to maximise, such as sales revenue, profit margins, or lifetime value, and ensure you have accurate conversion data integrated into Google Ads.
What is the significance of setting a target ROAS?
Setting a target return on ad spend (ROAS) provides an additional optimisation parameter for value-based bidding. By specifying a target ROAS, the bidding strategy will optimise towards achieving as much conversion value as possible at that target. This feature is available for individual campaigns or across multiple campaigns as part of a portfolio strategy.
Are there any conversion minimums to use value-based bidding?
To use max conversion value bidding, you need to have conversion values tracked in your campaigns. However, if you prefer to use target ROAS bidding, different campaign types have specific conversion minimums. These requirements determine the eligibility of campaigns to utilise either the maximum conversion value bidding or the target return on ad spend (ROAS) bidding. Meeting these minimum conversion thresholds ensures that the bidding strategies can effectively optimise towards desired performance goals.
Minimum Conversion Requirements for Value-Based Bidding ,Source: Google Ads Help Center
What if I don't have enough bottom-funnel conversions?
If you lack sufficient bottom-funnel conversions, I recommend optimising for your lowest-funnel conversion action, such as a purchase. However, if value measurement poses a challenge, you can consider using a higher-funnel conversion action, like checkout. This is similar to my article How to Optimise Your Facebook Ad Structure. Additionally, simplifying campaign structures, utilising shared budgets, and implementing portfolio strategies can help mitigate this issue.
How long should you wait to measure tROAS performance?
My article What's the Best PPC Bidding Strategy? gives a detailed run down on the best learning time for each bidding strategy. I typically recommend giving the bid strategy about 4 weeks or 15 conversion cycles before evaluating its performance. And please feed in your economic value as much as possible within 12 days of your significant edit. This timeframe allows the strategy enough time to learn and adapt to your campaign data. Keep in mind that it may take longer to gather sufficient conversion data for accurate evaluation.
Relevant Article: What's the Best PPC Bidding Strategy?
Doesn't Google know the meaning behind the values you pass for bidding?
Machine Learning is different from how people extract information and make analogies. Unlike humans, Machine Learning models do not have a knowledge base and do not extract information about a specific thing. Instead, they make predictions based on the probability and patterns of the sequence of words/data/parameters. As a result, they may pick up on patterns in your input that you may not be aware of.
So no, Google doesn't have specific knowledge of the meanings behind the values you provide for bidding. In Instead, Google interprets these values as a scale to inform bidding decisions, helping you hit your desired targets.
Relevant Article: An SEO's guide to understanding large language models (LLMs)
What are the best practices for using multiple conversion actions with different values?
- Gauge the average value of stages in your sales funnel based on the data you currently have is my best advice (you can see my Linktree example below).
- Typically, I don't mix different types of conversion actions in one campaign. This means that if I'm looking at profit, revenue, or paid subscriptions, those are the actual numbers that represent the income earned. However, if I'm looking at the total cart value for actions like adding items to a cart or completing a checkout, those are just approximate numbers that represent the importance of those actions. It's important to keep these separate and not mix actual income with estimated values in one campaign.
- It's important to note that any conversion actions included in the "conversions" column (as primary action) are used to inform the maximum conversion value or tROAS bidding. If you mix up the conversion action value together, when they different meanings, it will not be good for the machine to find the pattern. Therefore, it's crucial to keep the actual income separate from the estimated values and not mix them in one campaign. This ensures that the machine can accurately identify patterns and make informed decisions for optimal results.
Why did your tROAS tests result in much lower traffic & conversions?
Value-based bidding (VBB) may drive less volume than conventional conversion-based bidding. VBB prioritises maximising conversion value within your budget and ROAS constraints, so it may bid away from conversions that don't meet these parameters. Use bid simulators to understand the tradeoff between ROAS and traffic. Lowering your ROAS target will increase your reach, while raising it will likely decrease traffic but yield more valuable conversions. Make sure to evaluate via experiment and testing.
Check out the image below to see why you should shift your bidding strategy to value/profit-based bidding. If you're using a tCPA (target CPA) strategy, Google won't adjust bids for opportunities that could bring you higher conversion value. It sticks to a fixed bid as long as the auction threshold is higher than your target CPA. But, if you opt for a value bidding strategy like maximum conversion value or target return on ad spend, Google will dynamically work towards your ROAS goal without sacrificing potential conversion opportunities. So, mate, it's time to consider value-based bidding to get the most out of your ad campaigns and boost those ROAS figures! Give it a go and see the results for yourself! 🚀
Can you set negative conversion values for leads you don't want to optimise for?
Currently, it's not possible to set negative conversion values directly. But I use the value below 1 to offset the true value that action should represent. And you can utilise conversion retractions.
Are there different options in SA360 & Google Ads for VBB?
Yes, there are some VBB features unique to SA360 that might interest you:
- Bid to proxy or predictive values using unified management & bid strategy optimisation across accounts & engines. While Googld Ads claims that they use account-level data for smart bidding, SA360 is able to use Google Ads, Bing Ads, Facebook Ads data if you get all connected in SA360.
- GMP stack integration to combine data sets, attribute & model across media channels & devices.
- Budget bid strategies to automatically optimise spend toward your target during a plan.
- SA360 Conversion value rules for Google Ads store sales/store visits, in addition to device, location, audience. These can be applied at the campaign & sub-manager level.
- Custom variable adjustments using Custom Floodlight Variables to adjust conversion value for bidding using advertiser shared data.
Finally, Here is a step-by-step guide to bidding like a pro, with clear and structured instructions:
The logic is simple:
1. Define your profit formula and design your bidding stages:
Start by having a clear definition of the formula you’re trying to optimise. For example, for a retailer, it could be the sum of the product margin generated by Google Ads minus its Google Ads investment. For an insurance company, it could be the sum of the 3 year forecasted CLV of all the policies generated by Google Ads minus its Google Ads investment. For a retailer, it could be the the value of revenue minus costs of good sold (COGS).
2. Create a live dashboard:
Work with your Google team to create a live profit dashboard, updated daily, and share it with Google, your agency, your company’s C-suite, and your marketing team. This dashboard should become your main optimisation criteria. If you don’t want to share profit data & prediction with third parties, you can create the same dashboard by indexing your results.
3. Use Smart Bidding:
If you’re not using Smart Bidding, start by testing Maximum Conversion Value (MCV) if available. The equivalent strategy in SA360 is called Budget Bid Strategy. MCV is built to maximise the sum of your forecasted profits for a given marketing budget. You can then find the marketing budget that maximises your profits. Use MCV at the portfolio level across your entire account and turn on Data Driven Attribution (DDA). If you’re using another Smart Bidding strategy, test it against MCV if it makes sense. If MCV is not appropriate, use Target ROAS.
4. Pass back the best conversion signal(s) possible:
Ideally, you should share with Google all the important steps of the first 14 days of the customer journey. For example, an education company should share when a prospective student requested information, started an application, finished an application, answered a call from the education company... You should also share data about your entire business, not only your online business.
5. Pass back the Economic Value created by each conversion:
Pass back to Google a single number for each conversion, the “Economic Value” of that conversion. This Economic Value represents your best estimate of how much money the conversion has (or will) create for your business. It could be the immediate profits, the forecasted CLV profits, profits based on a lead scoring algorithm...
6. Share your attribution model:
This only works for the company that has its own attribution model & attribution credits for each touchpoint. If your attribution model is different from the one Google uses for Smart Bidding, make sure you share the results from your model. You can do this by changing the number you pass back to Google to include your attribution model. For example, if your attribution model only credit 40% for Google Ads touchpoint then you should apply that 40% to the conversion value.
9. Improve the Economic Value forecast over the next 12 days:
If, at any time over the next 12 days, you can significantly improve your estimate of the Economic Value of a conversion, upload that data back to Google.
10 . Find the profit-maximising budget or we call it - Diminishing Returns Point:
MCV will maximise your profits automatically for a given daily marketing budget. The trick is then to find the marketing budget to invest every day with MCV that maximises overall profits. In order to find the profit-maximising budget:
- - Make sure all campaigns are under one portfolio with a shared budget if the conversions are low.
- - Use Google’s Campaign Budget Simulator tool, which forecasts the number of future conversions at different budgets, to help you set a starting point for your daily budget.
- - Use that starting point and then increase your daily budget until you find the budget that maximises your profits. This is what we call diminishing returns point. The point of diminishing returns refers to a point after the optimal level of capacity is reached, where every added unit of production results in a smaller increase in output. It is a concept used in the field of microeconomics
- - Then adjust your daily budget based on historical seasonality to find the optimal budget every day.
- - Repeat this process often to continue to optimise budgets.
Let's Wrap This Boring Part Up
Value-based bidding strategy in Google Ads is a powerful tool that enables advertisers to optimise for conversion value, aligning their campaigns with business goals and budget constraints. By understanding the concept of value-based bidding and applying it correctly, you can maximise the impact of your ad campaigns and achieve greater success. Remember to set your conversion values accurately, track the right metrics, and continuously monitor and evaluate your bidding strategy's performance. With the insights provided in this article and the resources linked below, you're now equipped to embrace value-based bidding and drive exceptional results in your advertising endeavours.
Value Bidding Real Example - Apply Bidding For Profit in Company A
Due to the confidentiality, I will call this company as Company A. Company A is a SASS company aims to get leads, sign up users, paid users and more. Similar to Linkr.io or Linkin.bio from Later.com. If you don't know what they are. You prob should read one of my link in bio articles here first to learn about the product, hence user journey:
- Linktree vs Linkr.bio - See Who Reigns Supreme On #Linkinbio
- Linktree vs Linkin.bio By Later.com – Which Is Better?
- Linktree vs Flow Page - See Who Comes Out on Top in #linkinbio
My first goal starts simple - assign a proper value to every meaningful step(conversion action). In order to achieve that in A, I need to map the user journey before they make a purchase:
Landing on the website ---> View Pricing Page ---> Register For A Free Account ---> View Upgrade Page ---> Convert from Free User to Paid Users.
I was thinking about applying the following steps to achieve a bid-for-profit strategy in our account.
- Stage 1 - Paid Revenue only - Standard conversion value tracking.
- Stage 2 - Assign a proper value to free signup with country differences (based on conversion rate, LTV:CAC ratio)
- Stage 3 - Import email verified signups conversion, calculate CPVL & CPVA, and assign a positive value to verified users on country-level. （using value rules）
- Stage 4 - Set target ROAS for each country in order to make LTV:CAC above 2
- Stage 5 - Introducing server cost & other business cost into conversion value tracking and only deliver net profit into every conversion action in Google Ads
Challenges I was facing:
Record cancelled Order ID & GCLID, Conversion Name after the free trial. If the account is deleted, turn the conversion value into the total value the user has paid, if downgraded to free, turn to that country's free signup value. We have to record these action within 30 days since Google Ads click attribution window is 30 days max.
Step-by-Step Guide to Implement Value-Based Bidding with Proper Value Rules
Step 1: Calculate Base Values for Each Conversion
To start with value-based bidding, we need to calculate the base values for each conversion action in our sales funnel. Here are the formulas for each conversion type:
- Paid Subscribers:
- Value: The actual amount the customer pays when they subscribe (X). If the customer doesn't subscribe, the value (X) will be set to the lowest plan value available which was 7 USD.
- Upgrade Billing Page:
- Value: 35.75% of X (the amount paid by the subscriber).
- Free Users:
- Value: 0.45% of X (the amount paid by the subscriber).
- Your Information Page:
- Value: (1.215% + 78.05% * 0.45%) of X (the amount paid by the subscriber).
Step 2: Incorporate Country-Specific Values
To reflect the differences in customer value across countries, we need to consider the "Core 4" countries (US, CA, UK, AU, and DE) where customers tend to pay more or subscribe for longer durations. We will apply a "deviation" logic to account for these variations.
Step 3: Calculate LTV Mean Average and Deviation
The logic is "deviation" logic. With all the LTV exists, there should be a mean average. We use all the LTV values combined / the total number of countries = LTV mean average. This gives us the LTV mean average.
Next, we calculate the deviation of each country's LTV from the mean average. We then find the average value of these deviations.
Step 4: Decide on Using Standard Deviation
Considering our business strategy and based on subjective observations and experience, we decide to use STD deviation, which is more logical and suitable for our needs.
Note: Standard deviation vs. Average deviation: Standard deviation is also a measure of variability within a data set, as it shows the size of deviation between all values in the data set. The main difference between the two is that the resulting values from subtracting the mean from the value of each data point are only written as absolutes when calculating the average deviation. To calculate standard deviation, the resulting values are not written in absolutes, but squared. Then, you need to calculate the mean of all the squared values. The square root of that mean is the standard mean.
Step 5: Apply Weight in Google Ads Value Rule
Now, we compare the LTV of each country with the calculated STD deviation. If the country's LTV is greater than the deviation, we will calculate a weight to apply in the Google Ads value rule. If the LTV is less than the deviation, no action will be taken.
Step 6: Calculate Additional LTV Value
Using the formula (Country LTV - STD Deviation), we determine how much additional LTV value falls outside of the standard deviation in each country.
Step 7: Determine the Percentage Adjustment]
I used (LTV - STD Deviation) = how much additional LTV value falls outside of the standard deviation. Finally, I use the subtracted value / STD= how much % I should add in the Google Ads value rule. (Due to the confidentiality I can't reveal the final result to the country level)
By implementing this value-based bidding strategy with proper value rules, we can optimise our Google Ads bidding to focus on countries that deliver higher value and revenue to our business. This approach ensures that our ad spend is maximised for conversions that align with our business goals, ultimately leading to improved campaign performance and profitability.
- How to Optimise Your Facebook Ad Structure
- Conversion value calculator: https://ads.google.com/home/tools/conversion-value-calculator
- Bid simulators: : https://support.google.com/google-ads/answer/9634060
- Traffic quality resource for advertisers: https://www.google.com/ads/adtrafficquality/advertisers/
- Conversion retractions: https://support.google.com/google-ads/answer/7686447
- Budget bid strategy: https://support.google.com/sa360/answer/13384420
- Conversion value rules: https://support.google.com/sa360/answer/13609922
- Custom variable adjustments: https://support.google.com/sa360/answer/11955557
Google Support Articles
LinkedIn Reference coming from Google Ads Spoke Person Ginny Marvin
- How to build a money machine with Google