These days, it's rare to see a campaign running on Manual CPC, but why is it?
Of course, using automated bidding strategies, such as Maximize Conversions or Maximize Conversion Value (on Google) or their equivalents on Bing and Meta, is much simpler, but do the conveniences they add outweigh the extreme control we get from Manual CPC bidding?
Let’s find out.
Before diving in, I want to add an important note to the relatively simple bidding strategy question. This is, by the way, the most interesting question on this subject: How does changing Google Ads’ entire bidding eco-system towards automated bidding strategies affect how each of us manages our campaigns? Campaigns do not run in a vacuum, after all. And who earned from all this?
Hint: Google, but we too.
Price Per Click in Different Bidding Strategies
Up until a few years ago, every campaign ran on Manual CPC (with very very few exceptions), campaign managers used to know the ranking and actual CPC formulas by heart.
Ad Rank = (Quality Score * CPC bid) | The ard are ranked in the SERP by their Ad Rank - The higher it is, the higher our ad appears on the results page.
Actual CPC = (Ad Rank of the ad below us / Quality Score) + 0.01
Both are still in use today (so they’re worth memorising if you don’t know them) and recalculated in every auction. Or at least supposed to.. But that’s a rant for another day.
These days, most advertisers don’t even use manual CPC (even though we still pay for clicks, mostly). How does everything keep running so smoothly?
This is because even though we use different methods to bid more efficiently, Google still normalizes our bidding strategy to the same base metric: CPC bid.
CPC Bids in Different Bidding Strategies
This is important, so read it twice if you didn’t get it.
Maximize Conversions
When running on Maximize Conversion (especially with tCPA - target CPA), our conversion rate is taken into account when entering an auction. A tCPA of $100 with CvR of 8% will get us clicks at ~$8 - and the bid that would get us an actual CPC of ~$8 is the bid we’re going into auctions with (remember the actual CPC formula?).
Look at it as a general guide because each user has a different chance of converting. To determine a user’s chance of converting Google use the search term, location, and time of day, together with what Google already knows about the user, such as their interests, what other searches they performed, and other metrics used to find the overall likelihood of each query for a conversion. This results in a broader range of CPCs for the same keyword.
Maximize Conversion Value
In Maximize Conversion Value, there's an additional "layer" for the likelihood of a user converting: its worth.
Google estimates the users' value (taking into account its likelihood to hit that) and divides that by the tROAS. The higher the value or lower your tROAS, the higher the CPC bid you enter the auction with.
A Higher Conversion Rate Becomes an Interest of Google
Since an automated bidding strategy is tied to a campaign's success, the higher your conversion rate, the more volume you should expect for a given tCPA bid.
Let’s take the same $100 tCPA bid from earlier. If you manage to increase the CvR from 8% to 12%, it "allows" Google to get clicks at $12 instead of $8 and still hit the CPA goal. Assuming you’re not limited by budget, you’ll probably get significantly more volume, as if you raised your Max CPC by 50%, from $8 to $12.
If you read my marginal CPA guide, you should know that getting such an increase in volume without affecting your CPA is something worth doing.
A higher conversion rate has always been important for scaling up campaigns, but it's more important now than ever.
Real Time Bid Adjustments
Google indeed uses machine learning and its signals to do the same thing that we can do manually and achieve the same goal. That being said, a bot is more likely to win when it comes to understanding signals in real time.
Another interesting observation is that Google advises new accounts to start by creating a campaign using Maximize Conversions. This means that Google may even use signals from other similar advertisers, and not just from within an account, at least to kick off things
Automated Bidding vs Manual CPC
Let's say that two advertisers are running on the same keyword with the same Quality Score:
Advertiser #1 is using manual CPC with a bid of $5.
To make it simpler, let’s assume they pay what they bid.
Advertiser #2 is running tCPA bid of $40 with average CvR of 12.5%.
Overall, it’s pretty simple - they’ll both pay $5 per click on average.
However, advertiser #2 will pay more for users who are more likely to convert. This means that a user that Google thinks has a 20% chance of converting will still have a $5 CPC bid from advertiser #1, but advertiser #2 will bid $8 and have a higher chance of getting the click (thanks to a higher Ad Rank).
A user that is only likely to convert 6% of the time would get a lower CPC bid from advertiser #2, $2.4, while, as earlier, advertiser #1 will bid $5 for them.
This means that advertiser #1 will have a competitive edge over advertiser #2 for all the users who are less likely to convert. Sucks, isn’t it?
The Biggest Earners From The Shift to Automated Bidding Strategies
So, let's look at what happens these days, where the vast majority of advertisers are competing against each other using conversion-guided bidding strategies.
Three advertisers are running on similar keywords with roughly the same tCPA bid:
In each search, Google determines the CPC bid for these advertisers based on their tCPA or tROAS and the user's likelihood to convert for each. This practically ranks the ads in order of the user's likelihood to convert for each.
So when there are multiple searches for which all advertisers are qualified to show their ads, each is bidding more competitively for users who are more likely to convert, resulting in a much higher conversion rate for all of them. This is even though they did nothing but use an automated bidding strategy. Their average CPC is most likely increased by roughly the same rate, not changing their actual CPA.
Who Earns From the Use of Automated Bidding Strategies?
The advertisers are happy: their ads target users who are likely to buy their services or products rather than waste resources like free trials and sales representatives' time, their remarketing lists are better because of the same reason, there are less users for the same amount of conversions.
Google is happy: the average CPC rises, making each search more valuable.
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Even though I focused solely on Google Ads in this article, Microsoft is doing the exact same thing on Microsoft Advertising, so the same principle applies, just a bit less accurately and with some nuances.
Automated bidding strategies are worth trying if you haven’t given it a shot already, and if you have and it didn’t work, it’s in your best interest to figure out why. It’s true that Google is not hitting the goal 100% of the time, but it’s important to remember that it takes some time and that tCPA and tROAS are calculated over 30 days.
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My Google rep talked me into testing broad match keywords about three years ago instead of my beloved phrase match ones. I’m sorry to say that the broad won the test by a mile. After thinking about it, it was obvious why automated bidding worked so well with the most liberal match type. It’s just using the power of machine learning and the data Google has to your advantage. And what does Google get from it? Higher CPC. Everybody wins.
Bronze Star
you lucky bastard.
