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Adjusting Bids to Maximize Profits: Google Best Practices

Four steps to profit driven bidding in AdWords


Introduction

What digital marketer doesn’t want to knock their CPA and ROI targets out of the park? You’re in a profession that celebrates efficiency, and that’s a good thing. But with the relentless focus on cutting CPAs and raising ROIs, it’s easy to overlook the most important number of all: total profits.

At the end of the day, higher profits are what running a successful business is all about. So how do you make sure your AdWords campaigns achieve what really matters to your business?

More and more advertisers are using a profit-based bid strategy to attain success. They optimize for total profits instead of maximum CPAs or target ROIs. Only then can they find the sweet spot between volume and efficiency.

In this guide, we’ll show you how to discover where your current bids are leaving potential profits on the table. What’s more, you’ll see how broad-scale testing can help you spot those opportunities before your competition does.

Let’s shift your AdWords campaigns into high gear and start bidding for higher profits.



Define a formula that calculates total profits from AdWords

First things first: understand the full value you’re bringing to the table. When you know how much value you create, you’ll know the extent of your profitable bid opportunities — and frankly, you’ll get more credit for your work.

Here’s our recommended approach: First, understand the full value of each AdWords customer. Estimate her total lifetime purchases, for all conversion types (on and off the web) and including any word-of-mouth referrals she may make. Make reasonable assumptions about the value of each factor and total them to estimate revenue. Then factor out gross margins and subtract AdWords cost to get total profit.

The calculation looks something like this:

You own a shop that sells metal detectors, shovels and other treasure hunting supplies, and you want to understand the full long-term value of every new customer acquired through AdWords. You estimate profit per customer using things you already know or have a good guess for.

Profit Formula

$250 Total orders online over 3 years + $50 Cross-device and in-app orders + $100 In-store orders + $50 Orders from word-of-mouth referrals x 50% margin - $25 AdWords CPA = $200 (or $450 * 50% - $25) Profit per new customer

See Leading a Conversation on Profits: A Practitioner’s Guide to learn more about how to define profit and convince your stakeholders that it’s a better KPI.


Run a broad-scale manual bid test

AdWords is flexible, so use that to your advantage. Run bid tests to see what happens to your profits. Start testing as broadly as possible at the account or campaign level. Uncover opportunities faster by casting a wide net.

 

Here’s a recommended approach to testing:

Improve your chances of success by testing at the account level. As you measure account-wide changes, you’re able to account for benefits more holistically. Capturing new impressions for generic keywords (like treasure hunting) might also create more conversions for your brand keywords (like Acme shovels).

Testing Steps Flow
  • Identify what to test. Pick something that’s easy for you to manage and will give you enough conversion data to work with.
  • Test a bid increase of at least 20–30%. Changing a bid from $1.25 to $1.30 is unlikely to give you truly noticeable results. Make your changes big enough so that you can measure the effects. If you’re using a bid automation platform, adjust your target CPA by the desired bid increase. For example, if your automation platform is targeting a $25 CPA for your account, change its target to $30 if you’d like to test a global bid increase of 20%.

Tip

Google Internal data suggests that a bid increase of at least 20–30% helps separate results from changes due to other auction activity, such as shifts in user queries or other advertisers’ bids.

 
  • Set the right time period. Some businesses need weeks to gather enough data; others may need months, especially if they have a longer sales cycle. Choose a period that fits your business.

Tip

Test when you expect stable levels of traffic. You don’t want seasonal or holiday fluctuations in traffic to disrupt your results.

 
  • Monitor the results. Once you start your test, don’t just “set it and forget it.” It’s important to keep tabs on progress. Try to minimize any “noise” that can cloud test results. Set rules with your teammates, agency and the vendors who have access to your account.

Tip

Track spending to make sure your test campaigns aren’t limited by budget. You’ll limit your volume potential when you lose impression share due to budget.


Evaluate results and measure your profit

This is it: the moment of truth. Look to see how overall profit has changed before and after your test.

Look at the big picture and then dive deeper to uncover opportunities for even more profits. For example, plug total conversions for your account into your profit equation and compare the test period against a previous time period of equal length. Then find out which campaigns or ad groups were responsible for the overall change, and which ones didn’t help. If your business is highly seasonal, compare year-over-year results as well. Try to isolate the effects of the bid change as much as possible.

In this example, raising the account’s CPA by $10 led to a surge in overall profits. Inspecting results at the ad group level, however, showed that metal detectors outperformed shovels.

When results are more profitable, give yourself a pat on the back. You just made money! Now keep testing higher bids to see if even more profits can be made. For areas that didn’t increase your profits, lower bids partially or completely back to the original amounts. But keep in mind: monitor account level performance when you’re making these adjustments at a more granular level. You risk bidding down an ad group or keyword that could assist conversions with other parts of your account. Your goal should be to optimize for aggregate account profits, not individual ad group or keyword performance.

The key is to test, grow, and optimize.

Account Level

Avg Pos

Converted
Clicks

CPA Cost Profit
Previous bid 3.9 80 $25 $2,000 $16,000
Test bid 2.1 200 $30 $6,000 $39,000
Last year   70 $25 $1,750 $14,000

Ad Group Level

Avg Pos

Converted
Clicks

CPA Cost Profit

Metal
Detectors

2.0

40

$30

$1,200

$7,800
Test higher bid

Shovels

1.5

10

$275

$2,750

$500
Test lower bid


Use automation to adjust your bids

Face it: There’s an opportunity cost to updating bids and measuring profit manually. You could be using that time to strategize and think of new ways to stay ahead of the competition. What’s more, customer values and competitor’s bids are always subject to change: a bid that earns you more today may need to be updated tomorrow.

So think about how to scale your bidding strategy so that it’s easy to manage. You can use the Target CPA flexible bid strategy in AdWords to help you optimize toward a CPA that factors in total long-term profit. If you use a bid automation platform, update its goals to start optimizing for long-term profits. Automation tools can update bids across thousands of keywords daily, allowing you to focus on aggregate outcomes.

If you aren’t ready to apply automated bidding to your account, focus your manual bidding efforts at the account or campaign level. Find the right balance between the time you need to update bids across your account and the time better spent on other opportunities.

After all, time is money — or should we say, profits. Optimize and make the most of both.

 

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