Value-based bidding in Google Ads is an advanced bid strategy that optimises your ads based on the value of each customer. Instead of just trying to get as many clicks or conversions as possible as with Max Clicks or Maximize Conversions, this approach targets users who are most likely to bring the most value to your business.
A value based bidding strategy uses both conversion values and probability of purchase to allocate bids. Google considers:
- Past internet searches
- Location
- Previous ad clicks
These signals help Google Ads to identify which users have the most value for your business and make it easier to get higher conversion values from your ad spend.
How does Value-Based Bidding Work?
Accurate information is key to implementing a value-based bidding strategy. While Google Ads relies on algorithms and historical data to predict the value of users, you also need to feed the system with your first party data to make it more accurate.
Google’s automated bidding strategy is smart but it doesn’t know everything about your business or customers. Your own conversion tracking is key to helping you assign values to different actions users take on your website. By looking at customer lifetime value, past behaviour and conversion actions you can help Google understand which leads or sales are most valuable to your business.
First Party Data
To get the most out of value-based bidding you need to feed first party data from your website and CRM systems into Google Ads. This data will help Google Ads’ automated bidding strategy to identify high value customers.
For example if you have data on your customers buying habits, average order size or likelihood of repeat purchase you can assign dynamic conversion values based on that. By doing so you will be able to tell Google Ads which users are worth more bids and increase the efficiency of your ad spend.
Value-Based Bidding Components
There are several components to consider when implementing value-based bidding in your Google Ads account:
1. Conversion Tracking
You need conversion tracking in place to measure the actions that matter most to your business. Whether it’s a sale, lead form submission or newsletter sign up, tracking these conversion actions allows Google to optimise your bidding around those events.
2. Target ROAS
Target ROAS (Return on Ad Spend) is a key metric in value-based bidding. It helps you set your goals for your campaigns by telling Google how much revenue you want to make for every dollar spent on ads. For example if you set a target ROAS of 300% Google will adjust your bids to focus on conversions that are expected to generate 3 times the ad spend.
3. Conversion Values Assignment
Assigning values to different conversion types is key in a value-based bidding strategy. If you’re an e-commerce store the conversion value may be the total transaction amount. More complex set ups may factor in profit margin and target higher value conversions that bring in higher profit margins and more value.
If you’re a lead gen business you may assign higher values to leads further down the funnel, such as those who request a demo or download a product brochure.
4. Customer Lifetime Value
Understanding customer lifetime value (CLV) is important for optimising your bids. Value-based bidding goes beyond immediate sales and looks at long term profitability. Customers who have a higher lifetime value may be worth higher bids even if their initial purchase is smaller. By including CLV in your bidding strategy you can increase your chances of targeting customers who are more valuable to your business over time.
How to Use Value-Based Bidding Strategy
To use value-based bidding start by looking at the conversion values you want to optimise for. Based on your goals you will need to decide whether you want to optimise for maximum conversion value, high value conversions or another metric that’s important to your business.
Optimise for Maximum Conversion Value
One of the most common strategies in Google Ads is to maximise the total conversion value by prioritising high value conversions. You can use Target ROAS to automate this. Google will adjust bids based on the likelihood of conversions that will bring in the highest profit margins.
Conversion or Conversion Value
When setting up your Google Ads campaign you have the option to optimise for conversions (i.e. the number of conversions) or conversion value. For businesses that sell products with different price points optimising for conversion value is often the better choice. This means you’re not just driving more sales but maximising revenue.
Assign Values to Conversion Actions
To implement value-based bidding you must assign values to different conversion actions. For example for e-commerce businesses the average order value or transaction specific conversion values can be used. For lead gen you may assign higher values to leads further down the funnel. This means your ads and ad spend are focused on the actions that bring the most business value.
Value-Based Bidding Benefits
The biggest benefit of value-based bidding vs. a strategy like Target CPA is the ability to focus on the customers who bring the most value to your business, not waste ad spend on lower value prospects. By targeting high value customers you can increase profitability and reduce wasted ad spend.
Additional benefits:
- Better ROAS: By focusing on conversion values you can ensure your ads are profitable by bidding more for customers who will generate a higher return.
- More Efficient: Value-based bidding automates bid adjustments, saves time and ensures your budget is spent where it matters most.
- Long Term Value: By focusing on high value customers you can increase customer lifetime value and profitability over time.
Value-Based Bidding Risks
While value-based bidding has many benefits, it’s not without risks. Here are some of the key challenges:
Misaligned Target Audiences
If your Google Ads campaigns are optimised for the wrong conversion values or target audiences you could end up spending too much on low value customers. Regular monitoring and adjustments are key to avoiding this.
Conversion Lag
Value-based bidding strategies can take more time to gather enough data before they start to be effective. During this learning period you should avoid making rash decisions about campaign performance.
Changes in Customer Behaviour
Changes to your customer base or the market can impact value-based bidding. For example a new product launch or a shift in audience preferences may mean you need to re-think your bidding strategy.
Why You Should Use Value-Based Bidding
In today’s competitive world a value-based bidding strategy is a must have for businesses looking to get the most out of their ad spend. By focusing on conversion values and high value customers you can improve your Google Ads and get better results. Whether you’re optimising for immediate sales or customer lifetime value, value based bidding strategies ensure your ads are focused on the most profitable opportunities.
Regular analysis, conversion tracking, and a deep understanding of your customer journey will help you make the most of this powerful bidding strategy.