Focusing Media Strategy on Value-Based Bidding

Profile picture for user Dexter Laffrey

Dexter Laffrey
Head of Search APAC

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Digital media platforms are continuously becoming more automated. The KPIs you ask your platform and machine learning algorithms to optimize—and the data you share with these algorithms—is one of the most important competitive advantages in your online ads strategy.

Bidding to value isn’t new. In fact, a lot of advertisers have been doing it for many years. Where an advertiser is supplying revenue data directly to the platform, such as revenue from a tag or linked ecommerce data from Google Analytics, value bidding is already taking place. However, for businesses with more complex or longer sales cycles, or driving multiple channels of interaction with customers, understanding value can be an arduous and complex task.

Use value-based bidding to maximize ROI.

In a nutshell, when you use bid strategies in your media buying platforms, the main difference between a Target CPA (cost per acquisition) and a Target ROAS (return on ad spend) bidding strategy is that while Target CPA adjusts your campaign bids to help you meet a predefined cost per conversion goal, Target ROAS adjusts bids to help you maximize the value of conversions you’re receiving as a result of your advertising, and thus focuses on ROI. 

For Google Ads and the new Search Ads 360 in particular, Google has been clear about the fact that CPA bidding or bidding for conversions is limiting the ability of bidding algorithms to eke out performance, as you are assuming that all customers that interact with ads are bringing in the same business value. 

However, we all know that this is not the case. Customers come in all shapes and sizes; some will take longer to make decisions to purchase or interact with your business, some are going to be customers interested in smaller purchases, while others still will be looking at larger purchases or longer sales cycles. This can also become even more complex when customer touchpoints move from online to offline, such as an outbound call center. 

It wouldn’t make much sense to bid for all of these customers with the same value logic. By focusing on segments of customers based on the value they would bring to us, we can maximize our return on our ad spend. This is especially true for B2B or subscription businesses, where not all prospective clients are equal. 

The complexity of value-based bidding only needs to be as complex as you need it to be for your business, but the level and complexity of the data you are sending to your performance platform will provide you with much more robust reporting metrics, and more data for bidding algorithms to get things done.

A chart showing values growing higher due to value-based bidding

Value-Based Bidding sets you a step closer to bidding to business outcomes. Optimizing towards long term profits will require accurate projected customer values. Google recommends starting with readily available values, such as cost of sales and revenue.

As we can see, as we move up the complexity of our bidding goal, moving away from clicks/conversions to value and then profit, we need to supply the platform with less proxy metrics, and more revenue and value data. At the most mature stage, the ultimate goal for businesses is to send customer lifetime value data to the platforms to enable automated bidding and to predict future customer buying behavior based on their previous purchasing patterns.

Test and set up value-based bidding using proxy metrics.

For direct sales and subscription businesses, value-based bidding would of course involve simply passing back the value of the sale or rolling subscription back to the platform as an offline conversion, for example in Campaign Manager or Google Ads. However, if your marketing is targeted towards lead generation and longer sales cycles, bidding for value becomes slightly more complex, requiring the use of proxy value metrics. 

For example, let’s say that you have four stages within a typical sales journey, all trackable via conversion tags or Google Analytics, or perhaps via integration with CRM as an offline conversion. It could look like this:

Lead Submitted (25%) → Marketing Qualified Lead (20%) → Sales Qualified Lead (15%) → Closed Deal 

We need to work backwards from the Closed Deal value, to assign a value to a Lead submission:

Closed Deal $1000 → SQL $150 → MQL $30→  Lead Submitted $7.50

Given that a Closed Deal is worth $1000 in this example, we divide each subsequent stage by the prior stage conversion rate.

We can now understand the value of the first conversion point in the customer sales cycle and assign a value to the lead submission, then perhaps do the same for other conversion points on your site (for example, phone calls or “contact us” forms). These values can then be assigned to our bid strategies to assign the real value of customers to your business. Remember, machine learning is only as useful as the information that is being supplied to it!

Once you have values assigned to conversion points, you can use features such as Custom Columns in Search Ads 360 or Google Ads to add these values for your automated ROAS bid strategies, then let the platform algorithm do all the hard work with this new information. 

Look ahead to predicted lifetime value.

Of course, the ultimate goal we should seek with bidding in performance media is to add more of a predictive value to our target, so that the bid strategy is able to bid on keywords that are likely to drive longer lifetime value, rather than one-off purchases, short-term subscribers or low value B2B customers. This can be done by adding predictive intelligence to our bidding platform, and involves integration of CRM with a data platform and machine learning tool, such as Google BigQuery and BQML. 

You can then export these predicted values to your platform of choice as offline conversion data, and point the bid strategy at this particular goal to maximize, which in this case predicts lifetime value. This is where we think all marketers should aspire to be and plan towards, and it’s something we bring up often with clients as an important horizon goal to have with the future of their first-party data. 

Customer value-based bidding, combined with media platforms bidding algorithms, will help you monitor the real impact of advertising on your business and make the right decisions to develop growth strategies, ultimately allowing you to capture the customers that generate the most value, and those that matter most. Again, the data you share with platform algorithms is a crucial factor in competitive success, and unlocking insights related to value will prove crucial to brands looking to improve performance within an intensely competitive digital landscape.

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