More advertisers are exploring the potential of value-based bidding (VBB). But what exactly is this method and why does it matter?
This article explains what you need to know about value-based bidding, how it differs from “Maximize conversions,” and two approaches to implementing VBB in your Google Ads account. We’ll also explore the PPC community’s perspective on this evolving strategy.
What are Value-Based Bidding?
Value-based bidding allows you to prioritize conversions differently based on their value to your business. You can assign values to multiple actions, directing the bidding algorithm to optimize them for higher value results.
This gives you a more nuanced way to bid beyond just chasing conversion volume, aligning your ads with profitability goals.
Questions:
Which conversion action is preferred: A, B, C or D? If an advertiser has a stronger preference for B over A, B is assigned a value of $10 and A is assigned a value of $3. If the advertiser equally prefers C and D, but each has more business value than B, then both options can be assigned a value of $15.
These priority values can be attributed to conversions, including actions such as:
Complete a form. Watching a video Download a white paper. Use of specific website functionality, such as a chat or quote system.
These lower-value conversions are also called “micro-conversions,” indicating that they are smaller actions with business value, but are not necessarily the preferred conversion event.
The bidding algorithm, with the value data provided, can now consider different actions based on the assigned values, with the goal of maximizing the overall value generated from the set of conversions.
During auction time, VBB looks to optimize the most valuable results as defined by the advertiser and can also work with a tROAS to align with profit goals.
Contrast: Traditional “Maximize Conversions” offers.
Traditional offers to maximize conversionon the other hand, it usually revolves around counting conversions and maximizing volume.
While this approach can be effective, it has its drawbacks. Specifically, traditional bidding tends to focus solely on increasing the total number of conversions without considering the different values associated with different conversion actions.
The shortcomings become apparent when considering the complexities of the purchase journey.
Clarifying the value of phone calls and contact forms can be crucial for certain businesses.
Sometimes phone calls can result in higher customer lifetime value or larger orders compared to form submissions.
When submitting a form leads to a return call, the call center may find it difficult to reach the lead or simply forget that they filled out an online form.
Blocking calls from unknown numbers using spam filtering is another scenario, fill out the form.
Maximizing the number of conversions would not account for this additional business knowledge.
The algorithm is known to follow the path of least resistance. If the form is easy and all conversions are treated equally, it’s possible to end up with an account optimized primarily for form filling.
This approach may not be ideal for Google’s algorithms either. Prioritizing conversion maximization can generate inaccurate data for Google’s bidding and machine learning algorithms.
This is especially evident in accounts with smaller budgets. Sometimes advertisers simply can’t afford the preferred conversion. As a result, less data is available for algorithms to make effective bids.
The traditional way to counter this is to add “easier conversions”. However, these easier conversions are not all created equal.
Let’s consider a local party and wedding venue as an example. This type of business operates on low margins, but has a high price associated with a “booked event”. The advertiser may not be able to afford a large budget in Google Ads.
The traditional approach would be to optimize the account for a “booked event”. A single booked event can generate $10,000 in revenue for a wedding. However, if your monthly advertising budget is only $2,000, optimizing for a “booked wedding event” may not be feasible.
Moving forward, you can focus on bidding for actions like “watch a video about the event space” or “download a feature sheet” to capture leads and continue the sales process.
From business savvy, you know that downloading the feature sheet, which provides the company with an email address, allows you to build a relationship and become a “booked wedding event.”
This is where a values-based approach can be applied. By incorporating sales knowledge into the advertising strategy, the business can make informed decisions about which actions are likely to lead to successful conversions and provide the bidding algorithm with enough data based on their budget to make an optimal bid.
If the above scenario were used indiscriminately, the algorithm would favor the path of least resistance, potentially undermining your true goals, and the result could be a large number of “video views”, which is not the best path for a “booked event”. “
Dig deeper: 5 tips for effective PPC bidding on a budget
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The traditional application of value-based bidding
Value-based bidding in Google Ads is standard practice for e-commerce websites. The value of each purchase is returned to the interface, and campaigns, ad groups, and keywords can then be optimized based on ROI.
The account structure can be configured to allocate a budget based on the products that offer the highest return on investment.
Dig Deeper: How non-retail advertisers can adopt value-based bidding in Google Ads
Exception: Value-based bidding for lead generation advertisers
VBB is not yet the default implementation in most Google Ads lead generation accounts because it is considered a more advanced approach.
Another factor contributing to VBB’s lower adoption rates is the tendency for advertisers to avoid adding conversions that are considered “easier.”
Including conversions related to browsing can artificially inflate conversion numbers and create the illusion of better performance for an account.
Experienced ad managers prioritize optimization for result and have been operating this way for years.
This exchange at X shows that adding conversions indiscriminately can hurt the advertiser. The answer presents VBB as an approach to handle multiple conversions.
As Melissa Mackey (@beyondthepaid) points out in the thread, VBB is a viable solution. The algorithm will generally focus on the highest value conversions to maximize value.
Value-based bidding approaches
Within value-based offerings, two key approaches emerge, each offering its own unique advantages.
Method 1: The ranking values method
This approach involves assigning importance rankings to conversions (1, 2, 3, 4, 5, etc.), directing the algorithm to prioritize higher ranking actions. However, this method lacks the precision needed to accurately represent ROI. The assigned value only means importance.
This method is more sophisticated than the approach of maximizing conversion. However, the return on advertising investment (ROAS) achieved using this method would be insignificant.
Method 2 (recommended by Google): Calculate the actual business value of each conversion action
This approach involves assigning a real monetary value to each conversion, taking into account factors such as customer lifetime value, profit margin and knowledge of the sales process.
Integrating true ROI into the advertising platform provides a more accurate assessment of campaign effectiveness.
This is also the approach that Google recommends. Google has created a tool to help calculate the values that can be accessed here.
There was also a thread on X where Ginny Marvin, the Google Ads link, addressed this answer.
In the thread, @theJoeShmow asked about the first method described above, and the recommendation is to take the time to calculate the true meaning of your business.
Michael De Boeck posted on LinkedIn that he doesn’t like value-based bidding because it’s positioned as the “ultimate upgrade” for lead generation campaigns.
De Boeck points out that “value-based strategies are biased to suit higher-value conversions.” It also highlights the importance of asking key questions about the sales process when taking this tendering approach.
Miles McNair at X recommends trying VBB with the experiments, ranking it as his most recommended test.
Finally, @theJoeShmow at X suggests that VBB could be a method for Google to gather more information from advertisers to gauge how much bid thresholds can be raised.
The verdict on value-based bidding
Like most answers in advertising, the answer lies firmly in your data.
Optimizing accounts for “easier conversions” makes sense for advertisers with smaller budgets and limited data. This allows advertisers to realize the benefits of paid advertising without optimizing for the most expensive result, which can be quite costly.
Prioritizing conversion value over volume allows you to bid for desired actions while maximizing overall ROI.
Regularly analyzing data and segmenting actions is essential to making decisions about marketing effectiveness.
In essence, value-based bidding allows advertisers to define and prioritize valuable conversions, applying a target ROAS strategy to achieve their advertising goals.
Success in advertising depends on advertisers taking the time to analyze the data and define the value of actions, while those who neglect this step can face failure.
The crucial factor lies in leveraging business intelligence with the right goal-aligned automated bidding strategies.”
Advertisers who analyze their business and plan strategically will outperform those who set it and forget it in the automated world of Google Ads.
Success comes from a strategic mindset, not just automation. In 2024, VBB stands out as a powerful tool for advertisers who want a more advanced and strategic approach.
Dig deeper: How to make PPC automation work for lead generation
The views expressed in this article are those of the guest author and not necessarily Search Engine Land. Staff authors are listed here.
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