Why Value-Based Bidding is Essential for Google Ads

Want to maximise return on ad spend with Google Ads? Here’s how value-based bidding (VBB) lets you assign value to conversions and guides the algorithm to prioritise high-value actions.

Have you ever felt like your advertising budget wasn’t quite reaching its full potential? You’re not alone. 

Value-Based Bidding (VBB) is a game-changer for advertisers seeking to maximise the return on their ad spend. Using the concept of conversion value, VBB allows you to fine-tune your bidding strategy and target the most profitable customers.

As Google Ads evolves, learning the concept of value-based bidding is essential to stay ahead of the curve. But for many advertisers, VBB remains shrouded in mystery.

Here’s all you need to know about the concept of value-based bidding and how it prioritises conversions with the highest value for your business while maximising return on ad spend (ROAS). We’ll also walk you through the two main approaches to implementing VBB in Google Ads: Maximise conversion value and target ROAS.

What is value-based bidding (VBB)?

VBB goes beyond simply chasing conversion volume. It lets you prioritise conversions based on their importance to your business. Here’s the key: you assign values to different actions, guiding the bidding algorithm to focus on high-value outcomes.

Think of it like this: Imagine you’re running an ad campaign. You’d rather get one customer who makes a large purchase than ten customers who just download a brochure (though brochures can be valuable too). 

VBB lets you reflect these preferences in your bidding strategy.

How To Assign Conversion Values

  • Prioritise actions based on business goals: A sale is likely more valuable than a newsletter signup. Assign values accordingly.
  • Consider the conversion funnel: Early-stage actions (e.g., watching a video) might have a lower value than final conversions (e.g., completing a purchase).
  • Micro-conversions still matter: Actions like downloading a white paper can indicate customer interest. Assign them a lower value, but don't neglect them entirely.

Setting Conversion Values

With VBB, the algorithm takes your assigned values into account during auctions. Its goal becomes maximising the total value generated from conversions. So, it will prioritise showing your ads to users more likely to take high-value actions.

Optimising for Profitability with tROAS:

VBB can also work with a target return on ad spend (tROAS). This lets you set a specific profit target for your campaigns. VBB will then adjust bids to achieve that target ROAS, ensuring your ad spend translates to actual business profit.

In summary, VBB empowers you to:

  • Align your ad strategy with profitability goals.
  • Prioritise valuable customer actions.
  • Leverage the power of AI for smarter bidding decisions.

Traditional Maximise Conversions Bidding vs. Value-based Bidding

Traditional Maximise Conversions Bidding, now simply known as Maximise Conversions in Google Ads, is an automated bidding strategy designed to get you the most conversions possible out of your set budget. 

Here’s a breakdown of how it works:

  • Focuses on Quantity, Not Value: This approach prioritises maximising the total number of conversions, regardless of their individual value to your business. It treats all conversions equally, even if a phone call might be worth more than a form submission.
  • Limited Consideration of Buying Journey: It doesn’t account for the complexities of how customers convert. For example, phone leads might require follow-up calls that are easily missed due to spam filters or forgotten online forms.
  • Machine Learning Optimisation: Google Ads uses complex algorithms and your campaign’s historical data to predict which auctions are most likely to result in a conversion. Prioritising only total conversions can provide inaccurate data for Google’s bidding algorithms. This is especially true with smaller budgets where the “ideal” conversions (like large orders) are less frequent.
  • ‘Easier Conversions’ Trap: Advertisers often introduce “easier conversions” (e.g., email signups) to compensate. However, these don’t always translate to valuable conversions (e.g., booked events).

Overall, Traditional Maximise Conversions Bidding is useful for advertisers who want to get the most conversions possible from their Google Ads campaigns, provided they have a clear conversion goal and a set budget.

For Example: Party Venue Advertising

Challenge: A party venue with low margins and high-value bookings (weddings) has a limited budget for Google Ads.

Traditional Approach: Directly optimising for “booked weddings” is unrealistic with a small budget.

Value-based Approach: Identify valuable pre-booking actions like “watching a video about the venue” or “downloading a feature sheet” that capture email addresses.

Use these actions as conversion goals in your bidding strategy, allowing the algorithm to optimise for attracting potential customers and nurturing them toward “booked weddings.”

A value-based bidding approach leverages business knowledge to prioritise valuable conversions and provide bidding algorithms with the right data to achieve your goals, even with limited budgets.

Value-based Bidding: Powering Profitable E-Commerce Campaigns

Value-based bidding is a game-changer for e-commerce advertisers in Google Ads. It goes beyond simply chasing conversions and delves into the heart of what truly matters – maximising your return on investment (ROI). 

Here’s a breakdown of how it works and its key benefits for e-commerce businesses:

Unlocking Profitability:

  • Conversion Values: Unlike traditional bidding, value-based bidding allows you to assign a specific value to each conversion (purchase) in Google Ads. This value can be based on your product’s profit margin, average order value, or even customer lifetime value.
  • ROI-Driven Optimisation: With conversion values in place, Google’s bidding algorithms can now optimise your campaigns to prioritise conversions that generate the highest profit. This means your ads will be shown to users more likely to make high-value purchases.

Optimising for Profit, Not Just Volume

Prioritising Profitable Products: Campaign structure plays a crucial role. By segmenting your campaigns and ad groups by product categories or profitability, you can allocate budget strategically. This ensures that products with higher profit margins receive a larger share of the budget.

Data-driven Decisions: Value-based bidding provides valuable insights into your campaign performance. You can see which keywords, ad copy, and landing pages drive the most profitable conversions, allowing you to refine your strategy for maximum impact.

How To Get Success:

  • Accurate Conversion Values: Setting accurate conversion values is essential. Analyse historical data to determine the average profit margin per product category or consider using dynamic conversion values that adjust based on real-time sales data.
  • Campaign Segmentation: Structure your campaigns to reflect product profitability. Create separate campaigns for high-margin and low-margin products to ensure optimal budget allocation.
  • Data Analysis and Iteration: Regularly analyse campaign performance data to identify top-performing keywords, ad copy, and landing pages. Double down on what's working and refine what isn’t to continuously optimise for profitability.

By leveraging value-based bidding, e-commerce businesses can transform their Google Ads campaigns from conversion-focused to profit-driven powerhouses. It allows you to make informed decisions based on real data, ultimately maximising your return on investment and achieving your business goals.

Value-based Bidding for Lead Generation

Value-based bidding (VBB) has revolutionised how e-commerce advertisers optimise campaigns for profitability. However, for lead generation advertisers, VBB adoption remains lower despite its potential benefits. Let’s explore the reasons behind this and how to leverage VBB effectively for lead gen campaigns.

Challenges of VBB Adoption in Lead Gen:

  • Advanced Approach: VBB requires a deeper understanding of customer journeys and assigning value to different lead types. This can be daunting for some advertisers, leading them to stick with familiar conversion-focused strategies.
  • The ‘Easier Conversions’ Trap: The fear of inflating conversion numbers with “easier” actions like browsing can deter advertisers from implementing VBB. However, this ignores the power of VBB to prioritise valuable conversions within that larger pool.

VBB for Managing Multiple Lead Types:

The true strength of VBB lies in its ability to optimise for a variety of lead actions, not just a single conversion type. Here’s how:

  • Assign Lead Values: Not all leads are created equal. Identify high-value leads based on their likelihood to convert into paying customers (e.g., qualified form submissions, demo requests). Assign higher values to these conversions in your VBB strategy.
  • Prioritise Valuable Conversions: VBB algorithms will prioritise showing your ads to users who are more likely to become high-value leads. This ensures you’re attracting leads with a greater chance of converting into sales.
  • Filter Out Irrelevant Actions: Don’t be afraid to exclude browsing or low-intent actions from your VBB strategy. VBB allows you to focus on the actions that truly indicate customer interest and lead to valuable conversions.

VBB is not a one-size-fits-all solution, but for lead generation advertisers willing to invest in understanding their customer journey and lead value, it offers a powerful way to optimise campaigns for maximum return on ad spend (ROAS).

Unveiling the Power of Value-based Bidding: Two Key Approaches

Value-based bidding (VBB) empowers you to move beyond simple conversion volume and optimise your campaigns for what truly matters – maximising your return on investment (ROI). Here, we’ll delve into the two key approaches within VBB, each offering distinct advantages:

Method 1: Ranking Values – A Stepping Stone 

This approach assigns importance rankings (1, 2, 3, etc.) to different conversion actions. While it’s a step forward from maximising conversions, it has limitations:

  • Limited Precision: Ranking values indicate importance, but don’t directly translate to ROI. It’s difficult to gauge the true impact on your bottom line.
  • ROAS Ambiguity: The resulting ROAS may not be a reliable indicator of campaign effectiveness. It lacks the granularity to accurately reflect the actual value generated by each conversion.

Using Ranking Values:

  • Start Simple: If you’re new to VBB, ranking values can be a good starting point. It allows you to prioritise high-value leads without needing complex calculations.
  • Transition Plan: Consider this method as a stepping stone. As you gain comfort with VBB, plan to migrate towards calculating true conversion values for a more precise picture of ROI.

Method 2: True Conversion Value – Google’s Recommendation 

This, Google’s recommended approach, involves assigning an actual monetary value to each conversion action. This value considers:

  • Customer Lifetime Value (CLV): The total revenue a customer is expected to generate over their relationship with your business.
  • Profit Margin: The difference between your product's cost and selling price.
  • Sales Process Knowledge: Understanding how different conversions contribute to a sale (e.g., a demo request might be worth more than a simple website visit).

By integrating true ROI, you gain a clearer understanding of campaign performance:

  • Precise Evaluation: True conversion values provide a more accurate picture of campaign effectiveness. You can see which ad groups and keywords generate the highest ROI leads.
  • Data-driven Optimisation: With precise data, you can optimise your campaigns with greater confidence. Focus on strategies that attract high-value leads and maximise your return on ad spend (ROAS).

Remember: The optimal approach depends on your comfort level and access to data. 

Ranking values offer a good starting point, while true conversion values deliver a more precise picture of ROI.  Ultimately, both methods aim to move you away from simply chasing conversions and propel you towards maximising the true value generated by your advertising efforts.

The Value of Value-based Bidding: A Data-Driven Path to Success

Value-based bidding (VBB) is no longer a “maybe” – it's a powerful tool for advertisers seeking to maximise their return on investment (ROI) in the ever-evolving landscape of Google Ads. But the key to unlocking its full potential lies in understanding your data and employing the right strategies.

Unlocking the Power of VBB:

  • Defining Conversion Value: Go beyond volume and assign a true monetary value to each conversion action. Consider factors like customer lifetime value (CLV), profit margin, and the conversion's role in the sales process. This provides a clear picture of which actions contribute most to your bottom line.
  • Segmentation is Key: Segment your campaigns by conversion type or customer journey stage. This allows you to tailor your VBB strategy to each step, ensuring you prioritise the most valuable actions at each touchpoint.
  • Embrace Automation (with Strategy): VBB leverages Google’s automated bidding algorithms, but remember, it’s not “set it and forget it.” Leverage your business knowledge to inform your bidding strategy and campaign structure for optimal results.
  • Continuous Analysis: Regularly analyse conversion data to identify trends and optimise your campaigns. Double down on what's working and refine what isn’t to continuously improve ROI.

The Verdict: Data + Strategy = VBB Success

The success stories in VBB belong to advertisers who take the time to understand their data, define conversion value, and apply strategic thinking. In today’s competitive landscape, VBB empowers you to move beyond basic automation and achieve the “strategic mindset” that separates high performers from the rest. So, embrace VBB, leverage your data, and unlock a world of advertising success.

Need a fresh perspective? Let’s talk.

At 360 OM, we specialise in helping businesses take their marketing efforts to the next level. Our team stays on top of industry trends, uses data-informed decisions to maximise your ROI, and provides full transparency through comprehensive reports.

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