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How Does Google Ads Bidding Work?

Google gives you a multitude of ways to bid for your ads, depending on what your end goal is. Most advertisers focus on clicks, impressions, conversions, or views (for video ads).

Google runs an auction every single time it has ad space available on a website or search result. Then the auction decides which ads will show at that moment in that space. Your bid puts you in the auction. Sounds simple enough, right? 

What to Focus On

Google Ads gives you several ways to bid for your ads, depending on what your business’s goals are, below we break down those options so you can choose which one would best suit your business goals. 

Bid Options:

  • Target CPA
    • Get the most conversions possible at target CPA set by you. This is best to use if you goal is to increase targets and leads
  • Target ROAS
    • Get the most Return On Ad Spend with this bidding strategy. Keep in mind, you should be comfortable spending up to 2 times your average daily budget with a Target ROAS strategy. Target ROAS is best to use for eCommerce campaigns without budget limitations. This is ideal if your goal is to increase profits
  • Maximize Clicks
    • With “Maximize clicks”, Google Ads automatically sets your bids to help get as many clicks as possible within your budget. This is ideal to use when you have a strong conversion performance and want to find more volume. If you want more clicks to your website, this is the strategy for you
  • Maximize Conversions
    • If your goal is to increase sales or leads, you can have Google automatically set your bids to help you get the most conversions within your budget. This strategy is great for using your entire budget in a single day- great for if you want to max out your spend every month.
  • Maximize Conversion Value
    • Google Ads automatically sets your bids to help you get the most conversion value within your budget. Google uses the info gathered surrounding device, location, time of day, demographics, query, and more to find the optimal CPC bid for each auction. 
  • Target Impression Share
    • Target impression share” automatically sets your bids to increase your ads’ chances of appearing in the search page area you select- this is ideal for achieving brand awareness

With so many options to choose from it can feel overwhelming and like you need to spend more to see results, but the good thing is, it’s not just about who is willing to pay the most on Google Ads. They take into consideration many other factors, including:

  • Geo location
  • Time of day
  • Device
  • Audiences your potential visitor is part of
  • Browsing behavior 
  • Intent
  • Expected CTR of your ad
  • Your Quality Score

So don’t feel discouraged if you don’t have a huge budget, Google will still help you reach your goals. 

Three Components of Google Ads Auction Rankings

Every Google Ads auction takes three major elements into account when it decides how your ad should rank:

1. Your max cost-per-click bid for the keyword

2. Your quality score for that keyword

3. Your ad extensions and their relevance to ad and keyword

Like I mentioned earlier, the Google Ads auction happens extremely fast (and extremely often). So it’s vital that you know what’s out there to take advantage of.

Finally, if you’re trying to reach the ultimate level of Google Ads success, then I highly recommend you read my post on Single Keyword Ad Groups (SKAGs), which has more than 250 comments since it was published.

In that post, I talk about the reason why you should care about the granularity of a Google Ads account and how it’ll give you even more of a positive bump for your Google Ads bidding strategies.

With all that said, it’s time to get deep into the details of Google Ads bidding.

Let’s dive in.

Manual vs Smart Bidding

What is manual bidding?

Manual bidding is a bidding method that lets you set your own maximum cost-per-click (CPC) for your keywords. With manual bidding, you only pay when someone clicks on your ad, not just views it. 

Pros

  • Manual CPC bidding gives you control to set the maximum amount that you could pay for each click on your ads.
  • The most granular control you can have over keywords in your campaign

Cons

  • Time-consuming

Potential for worse outcomes due to not using Google’s plethora of data on user behavior to drive bid calculations

It takes experience and deep knowledge of Google to make the campaigns effective, thus making it a bit difficult for new users

Doesn’t take Google’s machine learning into account when trying to find users who are most likely to convert on your offer.

What is smart bidding?

Smart Bidding is a subset of automated bid strategies that use machine learning to optimize for conversions or conversion value in every auction. This is a feature known as “auction-time bidding”. Smart bidding strategies include target CPA, target ROAS, maximize conversions, maximize conversion value, and Enhanced CPC (eCPC).

Pros

  • Uses machine learning to find users that are warmer to your offer than the average searcher
  • Wide range of contextual signals
  • Flexible performance controls
  • Transparent performance reporting

Cons

  • You lack visibility or control over the data being used
  • You lose some control of your budget
  • The broad data Google uses might not reflect your target audience but a more broad audience 
  • tCPA requires a healthy budget to perform properly (your daily budget needs to be at least 2x your tCPA goal for that campaign)

In earlier days when Smart Bidding was introduced, many marketers were skeptical about it, and for good reason. However, Google has done a tremendous job making Smart Bidding better and better and we highly recommend you consider adding it to your portfolio of bid strategies.

Google Ads Bidding Best Practices

Google Ads’ (and everyone else’s) auction-based bidding model originally got its name from the Latin word “augeō,” which means “to increase”.

But “to increase” means to pay more. We don’t want to do that.

We want to make more profit.

When you’re setting goals for your PPC campaign, especially in the context of bidding and the average cost per conversion, you have to factor in the balance between conversion volume and cost per conversion.

For example, you can keep lowering bids, but that will eventually hurt your conversion volume.

You can keep increasing bids too, which might increase your conversion volume. But that will eventually increase your cost per conversion as well.

Best Practices

  1. Make sure your conversion tracking is audited and correct
  2. Make sure you attribution model is audited and correct
  3. A/B test your bidding strategies with Google’s Draft & Experiments feature
  4. Research your goals and choose a bidding strategy that best aligns with that
    • Ex: If you want to increase brand awareness focus on impressions, not clicks
  5. Evaluate the performance of your ads and don’t be afraid to adjust based on your findings 
  6. Be patient and wait for enough data to make the right decision about your bid adjustments – run things until you’ve reached at least a 95% confidence level
  7. Simplify your account structure so you can easily make changes to your bid strategies

Set Clear Goals

When it comes time to decide what you want your ads to achieve it is important to set realistic and attainable goals. It is also important to consider that it is unlikely that all of your metrics will go in the same direction at the same time, but that is okay. When it comes to hitting your goal metrics, it is okay to sacrifice smaller metrics to hit you bigger ones. 

Goal 1.

  • Increase conversion rate by 20%

Goal 2.

  • Increase ROAS by 15%

Goal 3.

  • Decrease CPA by 45%

The Best Different Google Ads Bidding Strategies in 2021

Do you want to do things manually or automatically? The Google Ads bidding strategies we’re about to uncover can help you get closer and closer to your goals.

One thing to keep in mind, however, is that nothing should ever be set on auto-pilot.

You (or your agency partner) should always keep tabs on fluctuations in performance. And if you improve your conversion rates through landing page testing, understand that your bidding goals can improve and change very quickly (for example, higher conversion rates can support more aggressive bidding strategies).

Here’s a look at the different Google Ads Automated bidding strategies available today: