Bid optimization is one of the most fundamental skills you can learn as a marketer.
To figure out what bid to set for your campaigns, you need to have a solid grasp of how to calculate the key performance metrics: CPM, CTR, CPC, CPA, and more.
The key metric you need to calculate is RPC: Revenue per Click. This is the amount of revenue you expect to make per click for that campaign.
Each campaign, ad group, and keyword performs differently, so they will have different expected values and, therefore, different bids.
Once you can figure out how much a click is worth for you and pivot that calculation by channel, device, or keyword, you can rapidly improve the performance of your campaigns.
Knowing how to calculate the value of a PPC campaign is a transferable skill: not every channel requires you to set bids, but if you can calculate the value of a click from any channel and compare it across channels, you can make much better budgeting decisions to improve your ROI.
Understanding key performance metrics
CPM (Cost per mile)
CPM, or cost per mile, measures the cost of 1,000 ad impressions. It’s often used as a pricing model for display advertising, and it helps advertisers understand how much they are paying for each exposure to their target audience.
CTR (click-through rate)
CTR, or click-through rate, is the percentage of people who click on an ad after seeing it.
It’s calculated by dividing the number of clicks by the number of impressions. A high CTR indicates that an ad is engaging and relevant to the audience.
CPC (cost per click)
CPC, or cost per click, is the amount an advertiser pays each time someone clicks on their ad.
It’s calculated by dividing the total ad spend by the number of clicks. Advertisers often use CPC as a key performance indicator to measure the effectiveness of their campaigns.
CPA (cost per acquisition)
CPA, or cost per acquisition, measures the cost of acquiring a new customer or lead through an advertising campaign.
It’s calculated by dividing the total ad spend by the number of conversions or acquisitions. A lower CPA indicates that a campaign is more cost-effective at generating new business.
RPC (vevenue per click)
RPC, or revenue per click, represents the amount of revenue generated for each click on an ad.
It’s calculated by dividing a campaign's total revenue by the number of clicks. A higher RPC indicates that a campaign generates more revenue per click, making it more valuable to the advertiser.
Calculating the value of a click: in-depth with examples
Understanding the value of a click is crucial for marketers as it helps them optimize their advertising campaigns, allocate budgets efficiently, and maximize ROI.
Here, we’ll go in-depth on calculating the value of a click using examples.
Step 1: Estimating conversion rates
The conversion rate represents the percentage of clicks that result in a conversion, such as a sale or lead.
To estimate the conversion rate for your campaign, analyze historical data or use industry benchmarks. For instance, let's say you have data showing that out of 1,000 clicks, 50 resulted in a conversion:
- Conversion rate = (Conversions / Clicks) * 100
- Conversion rate = (50 / 1,000) * 100 = 5
In this example, the conversion rate is 5%.
Step 2: Determining average revenue per conversion
Next, you need to calculate the average revenue generated per conversion.
This can be done by dividing the total revenue generated by the number of conversions. For example, let's assume the total revenue generated from the 50 conversions was $5,000:
- Average revenue per conversion = Total revenue / Conversions
- Average revenue per conversion = $5,000 / 50 = $100
In this case, the average revenue per conversion is $100.
Step 3: Calculating expected revenue per click
Once you have estimated the conversion rate and determined the average revenue per conversion, you can calculate the expected revenue per click by multiplying the conversion rate by the average revenue generated per conversion:
- Expected revenue per click = Conversion rate * Average revenue per conversion
- Expected revenue per click = 0.05 (5% as a decimal) * $100 = $5
In this example, the expected revenue per click is $5.
Step 4: factoring in channel, device, and keyword performance
Different channels, devices, and keywords may have different performance levels, which can impact the value of a click.
By analyzing the performance of your campaigns across these factors, you can better tailor your bids to maximize ROI.
For instance, let's say you found that mobile devices have a higher conversion rate of 7% compared to desktop devices, with a 4% conversion rate. You would calculate the expected revenue per click for each device as follows:
- Mobile: Expected revenue per click (Mobile) = 0.07 * $100 = $7
- Desktop: Expected revenue per click (Desktop) = 0.04 * $100 = $4
In this example, the value of a click from mobile devices is $7, while the value of a click from desktop devices is $4.
Bid optimization strategies: in-depth
Effective bid optimization is essential for maximizing the ROI of your advertising campaigns.
Here, we’ll explore various bid optimization strategies that can help you improve the performance of your campaigns and make the most of your ad spend.
Optimizing bids at the keyword level allows you to focus on high-performing keywords that generate the most conversions and revenue.
To implement this strategy:
- Identify high-performing keywords by analyzing historical data, such as conversion rates and revenue.
- Increase bids for high-performing keywords to improve their ad position and visibility.
- Monitor your adjusted bids' performance and continue refining them as needed.
Different devices may yield different results for your campaigns. Analyzing the performance of your ads across various devices, such as desktop, mobile, and tablet, can help you optimize your bids accordingly.
- Segment your campaign data by device to identify trends in conversion rates and revenue.
- Adjust bids for each device based on their performance to maximize ROI.
- Continuously monitor and refine your device-level bids to ensure optimal performance.
Location-based bidding allows you to target specific geographic areas and adjust bids based on the performance of your ads in those locations.
- Analyze campaign data to identify high-performing locations with higher conversion rates or revenue.
- Increase bids for high-performing locations to capture more traffic and conversions.
- Monitor the performance of your location-based bids and adjust them as needed to optimize results.
Some campaigns may perform better during specific times or days of the week. Optimizing your bids based on these time-sensitive factors can maximize your ad spend efficiency.
- Analyze historical campaign data to identify trends in performance based on time of day or day of the week.
- Adjust your bids to increase or decrease ad visibility during specific time periods based on performance.
- Monitor and refine your time-sensitive bids to ensure optimal performance.
Automated bidding strategies
Many advertising platforms offer automated bidding strategies that use machine learning algorithms to optimize your bids based on your campaign goals. Common automated bidding strategies include:
- Target CPA (Cost per Acquisition): This strategy optimizes your bids to achieve a target cost per acquisition.
- Target ROAS (Return on Ad Spend): This strategy optimizes your bids to achieve a target return on ad spend.
- Maximize Conversions: This strategy optimizes your bids to achieve the highest number of conversions possible within your budget.
- Maximize Clicks: This strategy optimizes your bids to achieve the highest number of clicks possible within your budget.
To implement automated bidding strategies:
- Choose the appropriate automated bidding strategy based on your campaign goals.
- Set your target CPA, target ROAS, or budget based on your desired outcomes.
- Monitor the performance of your automated bidding strategy and adjust your targets or strategy as needed.
Monitoring and adjusting bids: in-depth
Regularly monitoring and adjusting your bids is crucial for ensuring the optimal performance of your advertising campaigns.
In the next section, we'll walk you through the process of monitoring and adjusting bids with examples.
Step 1: Tracking campaign performance
Begin by tracking the performance of your campaigns using key metrics, such as:
- Click-through rate (CTR)
- Cost per click (CPC)
- Conversion rate (CVR)
- Cost per acquisition (CPA)
- Return on ad spend (ROAS)
For example, consider a campaign with the following performance metrics:
- CTR: 2%
- CPC: $1.00
- CVR: 5%
- CPA: $20
- ROAS: 4.0
Step 2: Identifying opportunities for optimization
Analyze your performance data to identify trends and potential areas for optimization. Look for:
- High-performing keywords with low bids
- Low-performing keywords with high bids
- Variations in performance by device, location, or time of day
- Conversion rate fluctuations
For instance, let's say you've noticed that a particular keyword has a high CVR of 8% but a relatively low bid of $0.80. This keyword could be an opportunity for optimization.
Step 3: Adjusting bids based on performance insights
Using the insights gained from your performance analysis, adjust your bids accordingly:
- Increase bids for high-performing keywords, devices, locations, and time periods to improve ad position and visibility. In our example, you might increase the bid for the high-converting keyword from $0.80 to $1.20 to capture more conversions.
- Decrease bids for low-performing keywords, devices, locations, or time periods to reduce wasted ad spend. For example, if a keyword has a low CVR of 1% and a high CPC of $2.50, consider decreasing its bid to $1.50.
- Test bid adjustments incrementally, monitoring their impact on your campaign's performance.
Step 4: Monitoring the impact of bid adjustments
After adjusting your bids, monitor the impact on your campaign performance. Look for changes in:
- Clicks, conversions, and revenue
- CTR, CPC, CVR, CPA, and ROAS
- Ad position and visibility
For instance, after increasing the bid for the high-converting keyword to $1.20, you might observe:
- An increase in clicks and conversions
- A slight increase in CPC, but a decrease in CPA
- Improved ad position and visibility
Step 5: continuously refining bids
Successful bid management requires ongoing refinement. Continuously review your bids and make data-driven adjustments as needed:
- Test different bid levels to find the optimal balance between ad spend and performance.
- Monitor external factors, such as seasonality, competition, and market trends, which may impact the performance of your bids.
- Consider implementing automated bidding strategies to optimize bids based on your campaign goals.
Summary: Bid optimization
Monitoring and adjusting bids is an essential aspect of effective digital advertising. You can maximize your ad spend and drive the best possible ROI by continuously analyzing your campaign performance and making data-driven bid adjustments.
Stay ahead of the competition by regularly refining your bids and responding to changes in performance and market trends.