- April 28, 2023
Mastering Value-Based Bidding: Optimize Google Ads ROI with Conversion Values
Calculate Conversion Values to Bid Effectively: An In-Depth Guide
Bidding towards conversion value is a crucial tactic to reach your most valuable customers and maximize return on investment (ROI). Generating leads involves measuring various on-and-offline events in your conversion funnel, making it challenging to determine which aspects to optimize. This comprehensive guide will help you identify the events you should bid towards and set up, measure, and troubleshoot your value-based bidding strategy for optimal results.
Understanding the Importance of Conversion Values
Conversion values allow you to quantify the worth of each conversion action in your sales funnel, helping you allocate your budget more effectively. By assigning values to each stage, you can focus on the most critical actions that drive revenue for your business. In turn, this enables you to make data-driven decisions when optimizing your ad campaigns.
Preparing for Value-Based Bidding
Consider the Following Factors
Before diving into the calculations, consider these factors:
- What are the highest-priority stages in your sales cycle? (Typically 3-6 actions)
- Do you have conversion tracking set up?
Gather the Required Data
In order to calculate your conversion values effectively, you will need the following data:
- Average revenue you receive from the last stage in your lead-to-sale journey (e.g., sale, policy signed, subscription)
- Conversion rate between each stage in your lead-to-sale journey
This calculator uses average values, but we recommend transaction-specific values for a more accurate sense of ROI. If your goal is to generate leads, it’s best to import your offline conversions and bid towards an action closest to the final sale.
The Ultimate Guide to Value-Based Bidding
Here’s the ultimate guide to value-based bidding, including how to set up, measure, and troubleshoot.
*Google internal data, Global, March 2021.
Value-based bidding strategies, like Maximize conversion value with an optional target return on ad spend (ROAS), can give you a better return on investment by bidding toward your most valuable customers. Because some customer interactions are worth more to your business than others, it’s essential to guide your automated bidding strategy by assigning values to the conversion actions you track in your campaigns. On average, advertisers that switch their bid strategy from having a target cost-per-action (CPA) to a target ROAS can see 14% more conversion value at a similar return on ad spend.*
How to Set Up Value-Based Bidding
- Ensure conversion tracking is set up and working correctly. Before you can implement a value-based bidding strategy, you must have conversion tracking in place. This allows you to track and measure the success of your campaigns accurately. If you haven’t set up conversion tracking yet, follow Google Ads’ guidelines to get started.
- Define and prioritize the stages in your sales cycle and assign values to each conversion action. Determine the most critical actions in your sales funnel and assign a monetary value to each. This process may involve analyzing historical data, customer lifetime value, and other business-specific factors. By doing this, you can effectively allocate your budget towards the most impactful actions.
- Select an automated bid strategy, like Maximize conversion value, with an optional target ROAS. Google Ads offers several automated bidding strategies that can help you optimize for value. For example, using the Maximize conversion value strategy with an optional target ROAS will enable the system to adjust your bids automatically to achieve the desired return on ad spend.
- Monitor your campaign performance and adjust your target ROAS as necessary. Regularly review your campaign’s performance to ensure you’re meeting your ROI goals. If you’re not achieving the desired results, consider adjusting your target ROAS or refining your conversion action values.
Measuring the Success of Value-Based Bidding
To evaluate the effectiveness of your value-based bidding strategy, you should track the following metrics:
- Overall conversion value
- Return on ad spend (ROAS)
- Individual conversion values for each action in your sales cycle
By monitoring these metrics, you can identify opportunities for optimization and fine-tune your bidding strategy to achieve your desired ROI. Additionally, consider tracking other key performance indicators (KPIs), such as click-through rate (CTR), cost per click (CPC), and cost per conversion, to gain a comprehensive understanding of your campaign’s performance.
Troubleshooting Value-Based Bidding
If you’re not seeing the results you expected, consider the following steps:
- Review your conversion tracking setup to ensure it’s capturing all relevant actions. Double-check your conversion tracking tags and settings to verify that they’re correctly implemented and recording data accurately.
- Reevaluate the values assigned to each conversion action to ensure they accurately represent their importance to your business. Reassess your assigned values based on updated information, industry benchmarks, or feedback from sales and marketing teams.
- Adjust your target ROAS to better align with your desired return on investment. If your campaign is consistently underperforming, consider lowering your target ROAS to increase competitiveness. Conversely, if your campaign is exceeding expectations, consider increasing your target ROAS to maximize profitability.
- Ensure your campaigns have sufficient data for the automated bidding strategy to work effectively. This may require running your campaigns for a longer period or increasing your budget to collect enough data for Google Ads’ algorithms to optimize your bids accurately.
- Analyze your account structure and ad creatives to identify areas for improvement or optimization. Review your ad groups, keywords, and ad copy to ensure they’re relevant and targeted to your audience. Make necessary adjustments to improve performance and align with your value-based bidding strategy.
Example: Calculating Conversion Values for a Lawyer’s Phone Consultation Forms
Imagine a lawyer specializing in personal injury cases who uses a website to collect phone consultation forms. Let’s walk through the process of calculating conversion values for this lawyer’s Google Ads campaign.
Step 1: Identify the Sales Cycle Stages
For this example, let’s consider the following stages in the lawyer’s sales cycle:
- User clicks on the Google Ad and visits the website
- User fills out and submits the phone consultation form
- Lawyer conducts the phone consultation
- User decides to hire the lawyer and signs a contract
Step 2: Determine the Average Revenue and Conversion Rates
Let’s assume the following data for this lawyer’s business:
- Average revenue per signed contract: $10,000
- Conversion rate from form submission to phone consultation: 60%
- Conversion rate from phone consultation to signed contract: 30%
Step 3: Calculate Conversion Values
To assign conversion values to each stage, we’ll work backwards from the final stage of the sales cycle:
- Signed contract: As the average revenue per signed contract is $10,000, the conversion value for this stage will be $10,000.
- Phone consultation: To calculate the conversion value for this stage, we’ll multiply the signed contract conversion value by the conversion rate from phone consultation to signed contract: $10,000 * 30% = $3,000.
- Form submission: Similarly, we’ll multiply the phone consultation conversion value by the conversion rate from form submission to phone consultation: $3,000 * 60% = $1,800.
Based on this calculation, the lawyer should assign a conversion value of \$1,800 to each phone consultation form submission in their Google Ads campaign.
Step 4: Implement Value-Based Bidding
With the conversion value calculated, the lawyer can now set up a value-based bidding strategy in their Google Ads campaign. They can choose an automated bidding strategy like “Maximize conversion value” and input the conversion value of $1,800 for each form submission. This will help optimize their ad spend to target potential clients who are more likely to complete the phone consultation form, leading to more signed contracts and higher ROI.
Understanding the importance of calculating conversion values and effectively implementing value-based bidding strategies is essential for optimizing your Google Ads campaigns. By following this in-depth guide, you can reach your most valuable customers and maximize your return on investment. Utilize the conversion value calculator and set up, measure, and troubleshoot your value-based bidding strategy to achieve your desired results.
As you continue to refine and optimize your value-based bidding strategy, remember that digital marketing is an ongoing process. Stay up-to-date with industry trends, best practices, and new features in Google Ads to ensure your campaigns remain competitive and effective. Regularly review and adjust your strategy to respond to changing market conditions and customer behavior. By consistently monitoring, analyzing, and optimizing your campaigns, you’ll be well-equipped to drive sustainable growth and success for your business.
Finally, don’t forget that collaboration between your marketing, sales, and customer success teams is crucial for maximizing the potential of your value-based bidding strategy. Share insights and data across departments to ensure everyone is aligned and working towards the same business objectives. By fostering a culture of data-driven decision-making and cross-functional collaboration, you can unlock the full potential of value-based bidding and drive meaningful results for your organization.
Co-Founder of PPC Ad Editor. I am a leader in digital marketing, specializing in strategic planning, implementation, and optimization.