Google Ads Bidding Strategies

Google Ads offers wide variety of bidding strategies. The two most frequently used for lead generation advertisers are: Target Cost Per Action (CPA) and Target Return on Ad Spend (ROAS). Most lead gen advertisers use Target CPA. The standard steps to implementing a Target CPA bidding strategy are:

  1. Tag your form confirmation page as a goal in Google Analytics
  2. Import that goal to Google Ads
  3. Determine the value of these leads
  4. Set your target CPA based on the value of these leads.

Google then optimizes your bids based on your target CPA. Google does it's best to optimize, but the CPA bidding algorithm works based on the assumption that every lead has the same value. This is obviously not the case. Some clicks and leads are significantly more valuable than others. A better method of optimizing bids is to use Target ROAS, which allows you to provide Google with more information about the value of the leads generated. 

What Are Offline Conversions?

The most basic conversion for an ad campaign is a user landing on your lead confirmation page. However, not all conversions happen on your website. Prospect behaviors such as a phone call, a store visit, or interactions with sales should be counted as conversions. These conversions that happen off of your website are considered offline conversions. 

For lead generation advertisers, the most common offline conversions a generate from CRM data. When a sales rep advances a lead to the SQL or SAL stage, these should also be recorded as conversions. These different conversions also have different values. An SAL should always be more valuable than an MQL.

What is Target ROAS?

Target ROAS is a bidding strategy that prompts Google to optimize bids in order to achieve a target return. ROAS is calculated like this:

ROAS = Conversion Value / Ad Spend

Conversion value is defined by the total value of the conversions generated by ad clicks. The ad spend is...the ad spend.

This bidding strategy was first widely used by e-commerce advertisers.If the cost of a specific click is $30 and that click generates 2 conversion (or online sales) with a value of $40 and $22, the ROAS for that click is 206% ($62 / $30). This allowed e-commerce advertisers to optimize their bids to maximize their ROI.

For the nuts and bolts implementation of offline conversions this article does a good job of defining it.

The power of the ROAS bidding strategy is in Google's data and algorithms. In the example above, the user generated an ROAS of 206%. Google likely has terabytes of data about this user. They knows their politics, their social status, their biggest dreams, their deepest fears, and their recent search history. Google analyzes all of those user attributes and learns what types of users tend to generate more conversion value. Google will increase bids when a users profile, recent activity and keyword are likely to generate more conversion value.

Target Return on Ad Spend for Lead Generation

This bidding strategy isn't just for e-commerce advertisers anymore. Lead generation advertisers can also send Google multiple conversions for a single click. Let's look at an example:

  1. User clicks an ad and the click cost is $48.
  2. The user completes a lead form. The projected lead value is $40.
  3. In CRM, the lead is advanced to the sales accepted stage, and another conversion is sent back to Google with a value of $162.

A key thing to note here is that the conversions are cumulative. The total conversion value for this click is now $202.

For this click, the ROAS is now 420% ($202 / $48). If we were only using a CPA bidding strategy with a target CPA of $50, this click would just barely be profitable. By using the Target ROAS bidding strategy we get a more accurate measurement of the profitability of a click.

Calculating Conversion Values

The first step in determine the value of your offline conversions is to calculate your average Customer Lifetime Value (CLV). The lead profitability section of this article provides the calculations need for this.

Advanced: Fine Tuning Conversion Values

Using offline conversions for SQLs and SALs is an improvement over CPA bidding, but this process can still be improved. Not all SQLs and SALs have the same value. A SaaS company might project the value of new prospects using number of employees in the company. A prospect with 1000 employees would have a higher projected value than a prospect with 50 employees. 

The key here is to develop a model for calculating conversion values based on a variable like the number of employees in the prospect's company. This requires the use of a data science model.