how value based bidding works

How Value-Based Bidding Works: A Comprehensive Guide


Hello there, dear reader. Today, I invite you to join me on a journey through the intricacies of value-based bidding. This powerful strategy, when mastered, can elevate your Google Ads campaigns to new heights, ensuring that every dollar you spend brings you closer to your business goals.

So, let’s explore the mechanics, key metrics, and real-world examples of value-based bidding.

Understanding the Mechanics of Value-Based Bidding

Unlike traditional bidding methods that focus on clicks or impressions, value-based bidding prioritizes the actual value each conversion brings to your business. By leveraging data-driven insights and assigning monetary values to different types of conversions, advertisers can fine-tune their campaigns to focus on high-value actions.

What is Value-Based Bidding?

Value-based bidding is a strategy that aims to optimize your ad spend by focusing on the value each conversion brings to your business. Unlike traditional bidding strategies such as CPA (Cost Per Action) or CPC (Cost Per Click), which focus on the cost of actions or clicks, value-based bidding emphasizes the revenue generated from those actions.

This approach not only enhances the efficiency of marketing efforts but also aligns closely with business goals, ensuring that every dollar spent contributes to achieving the desired outcomes. In this section, we will delve into the mechanics of value-based bidding, exploring its components, implementation steps, and the benefits it offers for driving business growth.

How Does Value-Based Bidding Work?

At its core, value-based bidding involves assigning specific values to different conversion actions. This requires accurate conversion tracking, which serves as the backbone of your bidding strategy. By understanding the true value of each customer interaction, you can guide your automated bidding to target the most valuable conversions.

You can choose between transaction-specific values and average conversion values. Transaction-specific values provide the most accurate data, as they reflect the actual revenue generated by each conversion. However, if transaction-specific data isn’t available, average values can be used to approximate the value of your conversions​​.

Setting Up Value-Based Bidding

Setting up value-based bidding in Google Ads is a straightforward process. Here’s a step-by-step guide to get you started:

  1. Sign in to your Google Ads account.
  2. Set up conversion tracking if you haven’t already.
  3. Assign values to your conversion actions:
    • Navigate to the “Conversions” section under “Measurement.”
    • Select the conversion action you wish to value and click “Edit settings.”
    • Under “Value,” input the average conversion value identified by the calculator.
  4. Switch to value-based bidding:
    • Go to the “Campaigns” section.
    • Select the campaign you want to edit and click “Settings.”
    • Open “Bidding” and choose “Conversion Value” from the drop-down menu.
    • Optionally, set a target ROAS (Return on Ad Spend) percentage​​​​.

Key Metrics Involved in Value-Based Bidding

To effectively implement and optimize value-based bidding, understanding and tracking key metrics is essential. These metrics provide insights into the performance of your campaigns and help ensure that your bidding strategy aligns with your business objectives. By closely monitoring these metrics, advertisers can make informed decisions, refine their strategies, and maximize the value derived from their ad spend.

Conversion Value

Conversion value is the cornerstone of value-based bidding. It represents the monetary value attributed to each conversion action, allowing you to understand which actions are most beneficial for your business. Accurate calculation and tracking of conversion value ensure that your bidding strategy is aligned with your revenue goals.

ROAS (Return on Ad Spend)

ROAS is a critical metric in value-based bidding. It measures the revenue generated for every dollar spent on advertising. Setting and measuring ROAS targets help you gauge the effectiveness of your campaigns and adjust your strategy to maximize profitability.

Other Relevant Metrics

In addition to conversion value and ROAS, several other metrics play a crucial role in value-based bidding:

  • Conversion Rate: The percentage of clicks that result in conversions.
  • Cost per Conversion: The total cost divided by the number of conversions.
  • Total Conversion Value: The sum of all conversion values.
  • Impression Share: The percentage of impressions received compared to the total eligible impressions.

Best Practices for Value-Based Bidding

Successfully implementing value-based bidding requires more than just understanding the mechanics. It necessitates following industry best practices to fully leverage its potential. These best practices serve as a roadmap to optimize your campaigns, ensuring you get the most value from your advertising efforts.

Optimizing Budget Allocation

When optimizing for a target ROAS, it’s advisable to use uncapped budgets to ensure you don’t miss out on valuable conversions. For those aiming to maximize conversion value, set your daily budget to a comfortable level, as this strategy will strive to spend your entire budget each day​​.

Campaign Structuring Tips

To maximize performance, consider merging campaigns and using a portfolio bid strategy with shared budgets. Avoid over-segmentation, as it can hinder your campaign’s efficiency.

Setting and Adjusting ROAS Targets

Use historical data to set realistic ROAS targets. Avoid setting targets too high, as this can restrict your reach. Ensure your targets are based on a 30-day historical ROAS, considering any delays in conversion value reporting.

Measuring Performance

Allow your bid strategy time to stabilize before evaluating performance. Assess your campaign based on value-based metrics, such as conversion value and ROAS, rather than focusing solely on clicks or other non-revenue metrics​​.

Examples of Value-Based Bidding in Action

Here are a few examples of how you might use value-based bidding in practice.

Example 1: E-commerce Store

Consider an e-commerce store selling a variety of products. By implementing value-based bidding, the store can prioritize high-value conversions, such as purchases of premium products. This strategy can lead to a significant increase in overall conversion value and an improved ROAS.

Example 2: Lead Generation Campaign

A lead generation campaign aiming to acquire high-quality leads can benefit greatly from value-based bidding. By assigning higher values to leads that are more likely to convert into sales, the campaign can focus on acquiring the most valuable leads, ultimately boosting the ROI.

Troubleshooting Common Issues

There are a few problems that arise from time to time. Here are some of the most common along with some recommendations for solving them.

Budget Constraints

If you’re hitting your daily budget too quickly, consider adding more budget or adjusting your target ROAS. Regularly check the Recommendations page in Google Ads for budget opportunities and optimization tips.

Performance Concerns

To address performance issues, remove bid adjustments and audience list exclusions, ensure proper conversion data reporting, and review any recent changes to your attribution model, creative, or keywords. The Recommendations page can also provide valuable insights for improvement.

Maximize the Value of Your Conversions

Value-based bidding is a powerful tool for optimizing your ad spend and maximizing the value of your conversions. By understanding the mechanics, key metrics, and best practices, you can harness the full potential of value-based bidding to drive better results for your business. Now, it’s your turn to experiment with value-based bidding strategies and see the transformative impact they can have on your Google Ads campaigns.

Additional Resources