Google’s New “Maximize Conversion Value” Smart Bidding Strategy: How Does it Work?
In August 2019, Google released what is arguably one of the most impactful Google Ads features announced in the last few years to Google’s Smart Campaign Product Suite: a new Smart Bidding Strategy, “Maximize Conversion Value.”
This new smart bidding strategy leverages Google Deep Learning (machine learning algorithms) plus historical client and account-specific performance data to help users maximize revenue while also allowing them to set a return on ad spend (ROAS) goal.
“The ability to tap into Google’s massive data set, including years of user-level shopping patterns and in-market intent data signals across Google properties, in order to empower Google ads efforts by merchants is a game-changer," says JJ Bannasch, SVP of Marketing Services at BVAccel.
eCommerce merchants can now leverage this new Smart Bidding Strategy to focus on maximizing revenue generation for campaigns rather than focusing purely on ROAS or transactional volume, freeing up this extra time for strategy and higher level marketing needs.
“My team has been leveraging different types of Smart Bidding campaigns while in Beta for many of our clients and have exceeded goals and seen stronger monthly ROAS and transaction scale than in previous months," said Cem Kuscu, Paid Search Supervisor at BVAccel.
"A handful of our clients have had record breaking months as a result of Smart Bidding campaigns," Kuscu said.
To put the magnitude of this new feature into perspective, the results speak for themselves. We tested Smart Shopping campaigns for numerous clients and have seen as high as a 130% increase in ROAS at a 105% higher spend. We have also tested Maximize Conversion Value with BVA clients and saw a 26% higher ROAS.
So what’s the difference between the Target ROAS Bidding Strategy and the new Maximize Conversion Value Bidding Strategy?
The Maximize Conversion Value bidding strategy takes order value into consideration just like target ROAS, but will automatically try to maximize the value. But does that mean target ROAS is going to be forgotten? No! And as a merchant, you most definitely should not forget either strategy.
According to Google, “This automated bidding strategy helps you maximize the total conversion value of your campaign within your specified budget.” The key part to note from Google’s statement is, “within your specified budget. What does this mean? If the campaign has an open budget (i.e.: $500 daily budget, but spends only $200 due to ROAS goals) switching to Maximize Conversion Value will most likely push the campaign to spend more.
To better explain this, let’s look at two scenarios:
- Scenario 1: $200 daily spend & $300 revenue = 150% ROAS
- Scenario 2: $300 daily spend & $320 revenue= 106% ROAS
In this example, Maximize Conversion Value bidding strategy is more likely to go with Scenario 2 if there is no ROAS goal set because $320 in revenue (Scenario 2) is obviously greater than $300 in revenue (Scenario 1), even though the ROAS is lower. Understanding this, it’s easy to see how important it is to set the new bidding strategy correctly.
In order to utilize the Maximize Conversion Value bidding strategy and expected results, it’s important to adhere to these considerations:
- Set a ROAS goal to be on the safe side
- Decrease your open daily budget to daily spend average and start testing it out
- Try out the campaigns that are limited by budget without setting a ROAS goal
Limited budget campaigns
If your campaign is limited by budget and you are already happy with the performance (assuming you don’t have more budget) try using the Maximize Conversion Value bidding strategy without setting a ROAS goal. This way, max conversion value means max ROAS.
For example, let’s say your limited daily budget is $200 and your revenue goal is $300. In this case, it’s ideal to increase your budget if you are happy with the ROAS. But, chances are, you don’t have more budget. The next best thing to try would be to increase the Target ROAS until the campaign stops losing impressions share.
Well, the good news is, Maximize Conversion Value will now automatically do this for you! It will go after a higher revenue goal in this case, which means higher ROAS (remember the daily budget is limited in this scenario).
That being said, ROAS and revenue arenotthe most advanced eCommerce goals. Why? Because higher ROAS don’t necessarily mean higher profit.
Let’s look at two scenarios to investigate this concept further:
Which one is the best scenario? ROAS-wise, it’s Scenario A. But is it really the winner? Let’s calculate the profit based on the profit margin.
Scenario B generated a higher profit than Scenario A although it has a lower ROAS. Based on this example, lower ROAS could be better profit-wise.
Scenario C generated the highest revenue at a lowest profit. Meanwhile, Scenario A generated the Highest ROAS at a lower profit in comparison to Scenario B. This could be the case for your campaigns as well.
Is Scenario C the worst-case scenario here? We can’t really tell without looking at the new vs. returning customer ratio. If it’s generating more first-time customers compared to other scenarios, it could be more beneficial in terms of CLTV and long-term profit.
Customer Lifetime Value (CTLV) is also important to consider. By looking into data, you can identify the average spend per customer. For example, let’s say based on the data, the average spend per customer is $300 (including repeat purchases). Therefore, it wouldn’t hurt to spend $200 at a negative ROAS to win a new customer.
Now, using the Maximize Conversion Value bidding strategy, you can create a separate campaign for acquisition, exclude all the previous converters, site visitors, branded terms and use target cost per acquisition (CPA) (under average customer spend) to win new customers!
Do you feel ready to go try out the new Maximize Conversion Value bidding structure?? We hope we’ve prepared you with everything you need! If not, don’t hesitate to reach out. Happy bidding!