A Gift From the Google Gods: Return On Ad Spend Bidding Strategies

Today is a momentous day! The Google Gods have looked upon us kindly, and granted us one of our prayers – PPC managers can now set automated bidding strategies to target a specific return on ad spend. This is to Ecommerce sites what CPA bidding is to Lead-gen – and we couldn’t be happier!

Image from blessendanielwordpress.com.

Yay! Let’s party! (…but, say again what it is?)

How bidding strategies are selected

Ok, so advertisers usually pick their bids based on how valuable they believe the search traffic is to them. If an enquiry on my site is worth £50 to me, and I think there’s a 10% chance a visitor will enquire, I may be willing to pay up to £5 for each visitor from PPC. Problem is I’d have to keep re-evaluating the campaign and adjusting my bids based on that 10% chance always changing. Luckily, for a long time Google has been able to automate this to some extent, by using historical performance data to estimate the likelihood a customer will convert, and change the bids for you, all the while trying to roughly maintain the £50 cost per enquiry. This is pretty nifty, and frees up an advertisers time to focus on more productive things such as ad copy and keyword research.

Why it’s been harder for ecommerce

However this doesn’t work for ecommerce advertisers, as each sale will potentially have very different values to an advertiser. For sales around £100, an advertiser may be happy to pay £10 in getting that customer in the first place, but for sales around £400 they may be willing to pay £40 to get them. There’s lots of names for the ratio between the amount spent on the ads, and the revenue generated – Return On Investment (ROI), Return On Ad Spend (ROAS) and what us at Attacat often call it Ad Spend : Revenue ratio (AS:R ratio). Ecommerce advertisers tend to decide on this ratio before they start advertising, and then optimise their bids based on the revenue generated to try and maintain this ratio.

But it’s actually been even harder than that for ecommerce

So if I want my Ad Spend: Revenue ratio to be 10% (so every £1 spent on ads generates £10) , and my campaign has generated £1000 in revenue over the past month but has spent £125, then I may lower my bids by 20%, so that in the future it may only spend £100, keeping the AS:R at 10%. Complicated? Try doing it for dozens of campaigns, 100’s of ad groups and 10’s of thousands of keywords!

Tweaking, optimising, re-tweaking and re-optimising bids for an ecommerce account takes up a huge amount of an account managers time, and to be honest, it’s impossible to keep up. Which is why this latest update is so important – by automating this process the bids can be re-evaluated with every click to determine the cost efficiency, and adjusted accordingly.

Why it’s now actually even easier than ever

Google AdWords new Target Return On Ad Spend option in the Bidding Strategies section.

Rolling out over the next few weeks, ecommerce advertisers on Google will be able to select their target Return On Ad Spend and leave the bidding up to Google. It’ll be easy to setup, but it’s important to remember that there will be pitfalls similar to CPA bidding –  if a problem occurs with your tracking and sales stop being recorded, your traffic will take a nosedive until the data returns; if you’re a small site, you may find a few good or bad days playing havoc with your traffic levels. Enjoy this blessing from the Google Gods, but remember – with great power comes great responsibility!



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