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Online campaigns are a great way to grow your customer base and drive more conversions. But not all conversions are created equal. Value-based bidding strategies help you reach people who are likely to bring more value to your business. Here’s how to use them to make your ad spend more effective.
What is value-based bidding?
Imagine two customers who engage with your brand. The first makes a one-off £100 purchase in your shop; the other spends £20 initially but goes on to become a repeat, high-value customer over time. Which is more valuable to your business?
Value-based bidding is a strategy in Google Ads that helps you identify and prioritise customers and actions that bring the greatest long-term value to your brand.
Unlike other strategies that optimise your bidding and ad placements based solely on the anticipated quantity of conversions, value-based bidding focuses on quality — with the help of Google AI.
How does value-based bidding work in Google Ads?
Value-based bidding in Google Ads is a specialised type of Smart Bidding, where the focus shifts from conversion volume alone to actions likely to bring the most value to your business.
This strategy allows you to define what “value” means, whether it’s sales revenue, profit margins, the likelihood of repeat purchases, or a combination of factors.
Incorporating metrics such as revenue and profit enables Google AI to tailor your bidding and campaigns accordingly. And it’s not just about sales — you can assign value to other conversions, too, such as customer enquiries, newsletter sign-ups, or location searches.
By emphasising the value of each conversion, guided by your first-party data and other relevant signals, value-based bidding enables you to adopt a longer-term perspective and utilise your marketing budget more efficiently.
Value-based bidding allows you to use your marketing budget more effectively by focusing on the value of each conversion.
What is a bid?
What are two types of value-based bidding strategies?
Google Ads offers two advanced value-based bidding strategies to help you grow your business and stand out from advertisers that use more basic approaches.
- Maximise conversion value: This strategy lets you define what a “valuable” customer means to your business. Is it a high one-time purchase, a loyal repeat customer, or a combination of factors? Google AI then optimises your campaigns to prioritise those most likely to bring you the greatest return.
- Target return on ad spend (ROAS): This strategy helps you maximise the value of your conversions while also achieving a specific ROAS. It ensures your ads not only drive high-value conversions but do so in a financially efficient way, delivering a strong return on investment.
Unlike bidding strategies such as Maximise conversions, which is focused and effective at increasing the total number of interactions, the strategies above prioritise customers and actions that provide greater long-term value to your business.
For example, say you use target cost per acquisition, where you set an average cost for each conversion. This can be helpful, but it might lead to paying similar amounts for a small and a large purchase. Value-based bidding allows you to decide what matters most.
Google data shows that those companies who moved from having target CPA to target ROAS strategies saw a median increase in conversion value of 14%, even when the return on ad spend was similar.1
5 essential strategies for effective value-based bidding
- Clarify your objectives. Start by defining what “value” means to your business. Depending on your strategic focus, this could be revenue, profit margins, or customer lifetime value.
- Harness quality first-party data. Understanding your best customers is the key to successful value-based bidding. Link precise data, such as email addresses, to sales to identify high-value customers. This allows for simple yet effective calculations, such as estimating customer value by multiplying their spending amount by their purchase frequency.
- Choose a Smart Bidding strategy aligned with your goals. Use Maximise conversion value and target ROAS to prioritise bids for different value-focused goals, whether it’s boosting revenue or meeting specific ROAS targets.
- Analyse your reports to gain deeper customer insights. Value-based bidding gives you more in-depth insights into your customers. Analyse reports to see how effectively you’re attracting those with the highest value to your business.
- Optimise your campaigns continuously. Adapt your campaign targets as your business goals evolve. Google Ads features a target simulator that can show you how much conversion value your ads may have generated if you had set different goals.
With value-based bidding on Google Ads, your advertising strategies align more closely with key business priorities such as increasing profit and revenue. Powered by Google AI and your first-party data, it’s a highly effective way to focus your marketing spend on driving conversions that deliver the greatest value in the long term and enhance the overall efficiency of your campaigns.
Source: 1. Google internal data, Global, March 2021
