Google Ads for Entrepreneurs Part 2: Understand Google Ads Bid Strategies for Beginners

Google Ads for Entrepreneurs Part 2: Understand Google Ads Bid Strategies for Beginners

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What is the Difference Between Bid and Budget?

A bid is the price you are willing to pay to Google for one click or one conversion on your ad. On the other hand, the budget is the total amount you are willing to spend in a particular period of time. You set your budget on the daily basis. However, you are charged monthly. For example, if you set your daily budget to $10, you monthly spend would be $304. That is $10 multiplied by the 30.4, the average number of days in a month.

What happens when you reach your daily budget? Google stops showing your ads. For example, you set your maximum cost per click (max CPC) at $2 and Google showed your ad five times at the mentioned cost, you have exhausted your $10 daily budget. Now, Google will stop showing your ads.

Google’s Discretion to Exceed Your Daily Budget

There are some exceptions to the simple example described above. First, Google may choose to spend 20% extra on any given day. As in the above-mentioned example, Google may choose to show your ad sixth time. That will increase your budget to $12 for that particular day. However, Google will not exceed your monthly budget of $304. To compensate for this extra spend, Google will show your ads less frequently on other days, maybe on the days when there are less searches for your target keyword.

What are Ad Auctions and How Google Determines Which Ads to Show?

Second, setting your default bid does not mean that Google must charge you that amount every time someone clicks on your ads. Consider it as your maximum cost per click (max CPC). Google may charge you less than your max CPC.

Google calculates the cost of a click by the means of ad auction. The first point to note here is that you only need to pay the minimum amount required to hold your ad position – not the amount you chose as your default bid. Google calls it “second price auction.” It means that the advertiser needs to pay the amount slightly above the next competitor in the bid auction. For example, if you set your max CPC at $2 but you only need to pay $1.5 to maintain your ad position in the auction, you will be charged only $1.5.

Google does not select the winning Ads bidder solely on their bid price either. It uses Google quality score, and the quality score takes many factors into account. The most important factor in the Google quality score is “expected click-through rate.” Your click-through rate (CTR) is the likelihood, in Google’s eyes, of a user clicking your ad. If Google thinks that a user is more likely to click your ad as compared to your competitor’s ad, it will increase your quality score and show your ad even if your max CPC is less than your competitor. Other factors influencing your quality score include ad relevance to the search query and your landing page experience.

Your quality score is then combined with your bid to calculate what Google calls Ad Rank. The ads with higher Ad Rank are shown above the ads with lower Ad Rank. And if the Ad Rank is too low, the ads are not shown at all.

In the following video, Hal Varian, chief Economist at Google, explains Google Ads auctions and Ad Rank. 

Coming back to the Ads bid strategies, we have a number of options grouped into two categories: Automated bid strategies and Manual bidding.

Automated Bid Strategies

In automated bid strategies, you tell Google about your business goals, and Google manages your bids accordingly. Does this mean handing over your control to Google for the sake of convenience? The answer is both yes and not. It does give some additional control to Google, but if managed properly, automated bid strategies let you take advantage of what Google calls “machine learning.” This is the ability of Ads system to consider many “auction time” factors that you cannot consider while managing your bids manually. So, use automated bid strategies, but use caution and judgement and evaluate if these strategies outperform your manual bidding strategies. Following is the explanation of available automated bid strategies.

I.            Target Search Page Location Bidding Strategy

This is an automated bidding strategy where you tell Google where you want to show your ad, and Google adjusts your bid automatically. You have two options as far as your target ad positions is concerned: top of the first page results and anywhere on the first results page.

As the position of your ad depends on other factors like advertiser competition and quality score, in addition to your bid, Google does not guarantee the placement.

Although, you ask Google to set your bids automatically, you can have some control by setting a cap on the bids at campaign, ad group, and keyword level by setting your max CPC bid limit.

This strategy can be used with a single campaign or as a portfolio strategy.

II.            Target CPA (Cost-Per-Acquisition) Bidding Strategy

In target CPA bidding, you pay for every conversion, instead of every click. A conversion can be any goal you set like a visitor filling a contact form, calling on your phone, or making a purchase on your website. But how does Google know that a conversion has happened? For this, you need to set up conversion tracking. Conversion tracking uses different methods to track different types of conversions. To track conversions happened on your websites for example, Google uses a custom snippet of JavaScript added to some specific pages of your websites. Phone calls can be tracked by using Google forwarding phone number.

In target CPA bidding, Google tries to get you most conversion while maintaining an “average” cost you set for every goal (or acquisition as Google says it). Please note that Google may adjust the cost of every conversion above or below your target CPA. However, it will try to maintain your target average for all conversions.

The idea behind the target CPA strategy is that Google analyzes your past conversion data and estimates what kind of visitors are more likely to convert. According to Google, it takes into account the real-time signals like device, browser, location, time of the day, and remarketing lists, and more. After Google’s machine learning technology determines which users are more likely to convert, it increases your bid for that particular user, hence increasing the conversion chances. On the other hands, if it determines that a particular user is less likely to convert, it decreases the bid accordingly.

III.            Target Return on Ad Spend (ROAS) Bidding Strategy

Consider this situation. You have three conversions set up in your Ads account: a contact form conversion, a phone call conversion, and a sales conversion, and you want to pay depending on conversions, instead of clicks. As discussed in the previous section, you can set up a cost per acquisition (CPA) bidding strategy. However, here’s the catch. Each of your conversion has a different monetary value for you. According to your calculations, you value a contact form conversion at $10, a phone call conversion at $5, and different sale conversions at $100, $120, and $150. In CPA bidding, you can only set a single value to your conversions, but the things are very different here. It does not make sense to pay the same $30 for a contact form filling conversion as well as a sale worth $150 in profits. This is where target return on ad spend (ROAS) bidding comes into play. ROAS lets you attach specific values to different conversions and lets Google adjust your bid for each conversion depending on its value.

ROAS is a strategy of choice for ecommerce businesses because they usually have a number of products with different prices and profits. However, it may make sense for most of the other businesses that have multiple conversion goals with varying degree of monetary values.

IV.            Target Outranking Share Bidding Strategy

This portfolio bidding strategy helps you to outrank your competitor, that is to show your ads above your competitor’s ad.

Suppose your ads are doing well in other respects, but you see one of your competitor’s ad often showing above your ad. Or maybe, your ad isn’t showing at all while your competitor’s ad is showing often. In this scenario, you can use target outrank share bidding strategy to let Google raise your bid so that your ad shows above the ad of the specified competitor.

And what if you ask Google to outrank a specific competitor and your competitor also asks Google to outrank you. In this kind of competition, Google will keep increasing the bid of both advertisers and will only stop when it reaches the maximum bid limit of any these two. This way, the advertiser with the higher maximum bid will win, and this bid combined with the quality score will determine the ad position.

Well, use this strategy if you believe that outranking a specific competitor is really worth the additional cost. However, keep vigilant and keep analyzing your campaign performance to make sure that you are not wasting your money and the outranking the competitor is actually improving your performance.

Another word of caution! This bidding method does not change your bid for every auction; it changes it for certain keywords. So, if it increases the bid to outrank a certain competitor, the bid will remain increased even for the auction where your specified competitor isn’t participating.

V.            Maximize Clicks Bidding Strategy

In previous sections, we have seen some automated bidding strategies geared towards different goals revolving around getting a desired ad position, getting conversions within a specific spend, and outranking our competitors.

Maximize clicks bidding strategy is not concerned with any above-mentioned things. it is only concerned with getting maximum number of clicks, regardless of the conversions or any other quality metric.

What is enhanced CPC?

Enhanced CPC is a feature that is available for Maximize clicks and Manual CPC bidding strategies. According to Google, it looks your past conversion data and identifies the patterns. Next time when an auction happens, Google analyzes the factors like the searcher’s keyword combination, device, browser, location, time of the day, and remarketing lists, and more. It then compares these factors with your past conversion data and tries to identify the likelihood of conversion of that particular searcher. Depending on the likelihood of the conversion of that particular searcher, Google increases your bid for that auction up to 30% than your max CPC. In case it determines that the searcher is less likely to convert, it decreases the bid. In decreasing the bid however, Google isn’t limited to 30% and may decrease the bid by more than that.

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