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August 17, 2022

Smart bidding strategies: How to choose when constrained by business metrics (Part 2 of 2)

Ben Malka
Growth and Operations Manager

Smart bidding strategies offer a ton of convenience for growth teams that know exactly how to make the most of them (based on desired needs and/or outcomes). However, it all comes down to choosing the most fitting strategy, and using it in the most optimal manner. 

In part one of this series, we went over two of the four main bidding strategies which are constrained by budget: Maximize Conversions Bidding, and Maximize Conversion Value Bidding. If you haven’t already, I highly recommend you give that post a look, as this one is a continuation of it. 

In this post, we will expand on the strategies that are constrained by business metrics: Target CPA Bidding, and Target ROAS bidding.

And as we stated in the previous post, the likelihood of your campaigns being victorious exponentially increases when using predictive marketing technology, alongside the human intelligence of your growth team. 


The differences between the smart bidding strategies

Target CPA bidding

Similar to the Max Conversions strategy, this bidding strategy is best to maximize conversions, particularly when the value of the conversion is secondary. Growth teams tend to use this when they know how much they are willing to pay for each conversion. That amount depends on the conversion rates from each stage, to the next stage in the funnel, to be aligned with your average revenue for each user and channels conversion rates to paying users. Google search is mostly different from other display campaigns in this regard. It is also commonly used when optimizing for different funnel events.

This strategy sets bids for you to get as many conversions as possible. When you create the Target CPA bid strategy, you set an average cost you'd like to pay for each conversion. Target CPA bidding automatically finds an optimal bid for your ad each time it's eligible to appear by using historical information about your campaign and evaluating the contextual signals that are present at auction-time. Because of this, some conversions will cost more, while others cost less than the target CPA.

It is also worth noting that with this strategy, bid caps are available for portfolio level use. Inversely, they are not available if you’re targeting individual campaigns. 

There are three points we recommend you bear in mind, should you decide to use this strategy:

  • You need to enable conversion tracking
    Similar to Max Conversions, and Max Conversions Value, conversion tracking would need to be enabled for this strategy, otherwise it would be rendered useless because you wouldn’t know whether it is driving conversions.

  • Minimum conversion data will be needed
    A certain amount of conversion data would be needed for the ad network to be able to make smart decisions. Without enough conversion volume, the algorithm can’t make smart decisions, which would mean you may be better off with a different strategy. It is recommended to have at least 30 conversions, if not 50, in the past 30 days before testing tCPA bidding.

  • Make your target realistic
    It’ll be in your team's best interest to set realistic goals when you get started with Target CPA. For instance, if your campaign has had an average CPA of $50 over the past six months, it wouldn't be ideal to set a target CPA of $25, because that would limit the ad network in the auctions it can enter in and learn. With that in mind, it is recommended to plan on the first couple of weeks being a learning phase to find your groove.

Target ROAS bidding

This strategy analyzes and intelligently predicts the value of a potential conversion every time a user searches for products or services you’re advertising. Then, it automatically adjusts your bids for these searches to maximize your return on them. Your future conversions and associated values are first predicted by the ad network, using your reported conversion values. Max CPC bids are then set to maximize your conversion value, while trying to achieve an average ROAS that is equal to your target.

Lots of times there is a big difference between the desired tROAS to what is actually needed to set as tROAS in your campaigns. One of the challenges preventing marketers from using this strategy is the lack of a sufficient amount of signals sending enough conversion events with value. Also—there is a myth running between marketers, that tROAS doesn't work well. To the contrary, it actually does work very well! tROAS has shown great results for customers we support, which includes B2B’s. In fact, using predictive tROAS is the next level of tROAS!

The traditional tROAS bidding strategy optimizes for short-term cost efficiency (within the conversion window) by sending the initial transaction value that a user committed. You could take it to the next level with predictive AI, by signaling the ad networks of cohorts that are your long-lasting vs. your potential “one and dones”, allowing you to optimize for long-term cost efficiency (i.e. LTV/CAC).

For brands that have little variance in the first purchase value, predictive tROAS can have a significant impact on bidding efficiency. If two customers have the same first purchase value, and you are able to predict that one will churn after the first month, and the other will remain a loyal customer for six months, wouldn’t you want to bid on them differently?

Now when it comes to things to be aware of before applying this strategy, it’s actually all the same cautions as that of tCPA. 

Target CPA in action

For the sake of continuity, I am going to start the demonstrations here the same way we did in the previous post. 

We’ll assume you have five users in the world, and you know how much you are willing to bid for them. We will also assume that Google knows how much those users are worth to you, and that the cost for the first user is $1, while it is $2 for the second user. This (as per the chart below) will be the example used for the rest of this post. 

Now let’s bring these strategies head-to-head: Target CPA versus Target ROAS. With these strategies, you’re asking the ad networks to not only control bids based on budget, but to also avoid spending the full budget if it can maintain a level of control. 

So in the case of “Target CPA” you’re essentially telling the ad network, “Hey, bring me as many conversions as you can, BUT limit the target CPA.” Essentially, that’s you asking for maximum conversions, with a flag for CPA turned on.

So again, with the budget of $12, you took away the users that cost the most, bought users 1, 2, and 3, and got to a CPA of $2 after spending only $6!

Target ROAS in action

I’m sure you’re getting the hang of it by now. Now if you’re going for “Max conversions value,” you can also pair that with “Target ROAS.” By doing so, you’ll be telling the ad network, “Hey, instead of just spending $11, spend it AND also guarantee a ROAS of 500%.” 

In doing so, you will let go of the first three users who provide a less-desirable ROAS, which would then make your CPA $4… which sounds bad at first but hold up—your ROAS will be a whopping 625%!!! Sweet!

And you’re set! Between the previous post, which covered Maximize Conversions Bidding, and Maximize Conversion Value Bidding; and this post, which covered Target CPA Bidding, and Target ROAS bidding—you are good to go in terms of initial discussion points for your team on the next campaign strategy. And if you would like to further lessen their workload, you can always turn to the power and potential of a codeless AI-powered predictive growth platform to really ramp up your growth efforts with greater efficiency than ever before! 🚀🚀🚀

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