Value-Based Bidding

Digital advertising is evolving beyond simply driving conversions. Marketers who focus only on volume risk missing out on the real objective – maximizing revenue and profitability. Value-based bidding (VBB) offers a more refined approach, allowing you to allocate your ad budget based on what matters most: high-value conversions.

This guide covers the fundamentals of value-based bidding, how it differs from traditional bidding methods, and the best practices to ensure success in your campaigns.

What Is Value-Based Bidding?

Value-based bidding is an automated strategy in Google Ads that prioritizes conversion value over conversion count. Instead of treating all conversions equally, you assign different values to different conversion actions based on their contribution to business goals. The system then adjusts bids dynamically to maximize the total value rather than the total number of conversions.

For example, if an e-commerce store knows that a repeat customer is worth more than a first-time buyer, it can assign higher values to repeat purchases. Similarly, in lead generation, a lead from a high-intent form fill may be assigned a higher value than a simple newsletter signup.

How Value-Based Bidding Works

Google’s algorithm adjusts bids in real time using first-party data and conversion values. The process involves several key components:

• Defining Conversion Values: You determine how much different actions are worth to your business.
• Optimizing with Target ROAS: The algorithm aims to achieve the highest possible return on ad spend (ROAS) within your budget. In fact, advertisers who switched from target CPA to target ROAS saw an average 14% increase in conversion values.
• Real-Time Bid Adjustments: Google’s AI modifies bids for each auction based on the likelihood of generating high-value conversions.

Value-Based Bidding vs. Traditional Bidding

Why Conversion Value Matters

A campaign that simply drives the most conversions may not necessarily be the most profitable. A business that sells high-ticket items or operates with varying margins needs a strategy that aligns with revenue, not just conversion count.

This is especially crucial because PPC traffic converts 50% better than organic traffic. However, without a value-based approach, businesses risk spending their ad budget on low-value conversions rather than maximizing revenue and profitability.

Why Value-Based Bidding Matters

Traditional “Maximize Conversions” bidding treats all conversions equally. A form submission from a high-value prospect counts the same as one from a low-value lead. Value-based bidding changes this dynamic completely.

Consider a B2B software provider with limited budget. A single enterprise client subscription might generate $20,000 annually, but with only $5,000 in monthly ad spend, optimizing strictly for enterprise sign-ups provides insufficient data for Google’s algorithms.

Value-based bidding allows the company to assign different values to various actions in the customer journey:

• Watching a product demo video: $10
• Downloading a whitepaper: $30
• Requesting a free trial: $100
• Scheduling a sales call: $250
• Upgrading to an enterprise subscription: $1,500

Google’s algorithm can then use this data to optimize for the highest overall value rather than just conversion count.

When to Use Value-Based Bidding

Implementing VBB is particularly advantageous in scenarios where conversion values vary significantly. Consider adopting VBB if:

• Diverse Product or Service Offerings: Your business offers a range of products or services with varying profit margins. VBB allows you to allocate more budget to high-value items, maximizing overall profitability.
• Customer Lifetime Value Focus: If retaining customers yields higher long-term profits, assigning greater value to repeat purchases or subscriptions can enhance customer loyalty and revenue.
• Lead Quality Variation: For businesses where leads differ in potential value, such as B2B companies, VBB enables prioritization of leads more likely to convert into high-revenue clients.

By focusing on the value each conversion brings, VBB ensures your advertising spend is aligned with your business objectives, optimizing for profitability rather than sheer volume.

Before You Begin

Prior to implementing VBB, it’s essential to lay a solid foundation to ensure effective optimization:

• Accurate Conversion Tracking: Ensure all conversion actions are meticulously tracked within your Google Ads account. This includes setting up conversion tracking codes on your website or app to monitor user actions accurately.
• Assign Meaningful Values to Conversions: Determine the monetary worth of each conversion type. This could be the direct revenue from a sale or the estimated value of a lead based on historical data.
• Sufficient Data Collection: Gather ample conversion data to provide Google’s machine learning algorithms with the necessary information for effective bid optimization. A robust dataset enhances the accuracy of bid adjustments.
• Set Clear Performance Goals: Define specific objectives, such as a target Return on Ad Spend (ROAS), to guide the bidding strategy and measure success effectively.

Establishing these elements ensures that VBB operates with precise data, leading to more informed bidding decisions and improved campaign performance.

Implementing Value-Based Bidding

Step 1: Define Your Conversion Values

Start by analyzing your business model. Assign values to different conversions based on their impact on revenue and profitability. Some ways to define values include:

• Revenue-Based: Assign a value directly linked to the sale amount.
• Profit-Based: Factor in costs to optimize for net profit rather than gross revenue.
• Customer Lifetime Value (CLV): Assign values based on predicted future revenue from a customer.

For businesses without direct revenue tracking, proxy values can be used. For instance, a high-intent lead might be worth 3x more than a low-intent one.

Step 2: Set Up Conversion Tracking

Accurate tracking is crucial for value-based bidding to function effectively. Use:

• Google Tag Manager or the Google Ads Global Site Tag to track conversion actions.
• Offline Conversion Tracking to measure customer actions that happen beyond the initial ad click.
• Enhanced Conversions to improve data accuracy by integrating first-party data with Google’s AI.

Step 3: Choose the Right Bid Strategy

Google Ads offers two primary bidding strategies for value-based bidding:

• Maximize Conversion Value: Automatically adjusts bids to generate the highest possible conversion value within your budget.
• Target ROAS (tROAS): Sets bids to achieve a specific return on ad spend target.

New users should start with Maximize Conversion Value to gather enough data before introducing Target ROAS.

Step 4: Optimize and Refine

Once the campaign is running, ongoing refinement is necessary to improve performance. Key actions include:

• Review Performance Regularly: Use Google Ads reports to analyze conversion values, ROAS, and cost per acquisition.
• Adjust Values Based on Data: If certain conversions are more profitable than initially expected, update their assigned values.
• Use Data-Driven Attribution: Move away from last-click attribution to get a more accurate picture of how different touchpoints contribute to conversion value.

Common Pitfalls and How to Avoid Them

1. Setting Unrealistic ROAS Targets

A high target ROAS may restrict ad delivery, limiting conversions. Start with a reasonable target based on historical data.

2. Ignoring Conversion Delays

Some conversions take time to complete, especially in high-ticket industries. Consider conversion lag when analyzing performance.

3. Using Generic Conversion Values

Assigning arbitrary values reduces accuracy. Use real business data to set values that reflect profitability.

4. Underutilizing First-Party Data

Uploading offline sales data and integrating CRM insights improves bid accuracy and campaign effectiveness.

Is Value-Based Bidding Right for You?

Value-based bidding works particularly well for various scenarios. Here are a few examples:

Ecommerce Businesses with Varying Product Values and Margins

For ecommerce stores selling products with different price points and profit margins, VBB ensures that the ad budget is allocated towards the most valuable conversions rather than just increasing order volume.

Example:
A fashion retailer sells both low-margin accessories and high-margin designer handbags. Traditional bidding might optimize for total conversions, leading to more sales of accessories. With VBB, the retailer can assign higher values to handbag purchases, encouraging Google Ads to prioritize customers more likely to buy high-ticket items.

Lead Generation Advertisers with Differing Lead Values

For businesses where not all leads are equal, VBB helps prioritize high-value prospects.

Example:
A SaaS company generates leads through free trial sign-ups and enterprise demo requests. While both are valuable, enterprise clients have a significantly higher lifetime value. By assigning a higher conversion value to enterprise demos, VBB ensures the campaign focuses on acquiring more of these premium leads.

Advertisers with Limited Budgets Who Need to Prioritize High-Value Prospects

Smaller businesses or those with constrained ad budgets benefit from VBB by focusing their spending on the most profitable users rather than just increasing traffic.

Example:
A boutique law firm has a small marketing budget and offers multiple services, from simple consultations to high-value legal retainers. Instead of optimizing for any inquiry, VBB allows them to assign higher values to leads requesting high-revenue services like business litigation, ensuring the budget is spent attracting the most lucrative cases.

Businesses with Complex Sales Funnels Where Early Actions Indicate Purchase Likelihood

For businesses with long or multi-step sales cycles, early customer interactions can signal eventual conversion likelihood. VBB ensures ad spend is directed towards users showing strong intent.

Example:
A B2B software provider offers whitepapers, webinars, and product demos as lead magnets. Historically, users who attend a webinar are far more likely to become paying customers than those who simply download a whitepaper. By assigning a higher value to webinar sign-ups, the company ensures its ad budget is optimized for users most likely to convert.

Companies with Significant Offline Conversion Data Enhancing Google’s Optimization

Businesses that track sales beyond online interactions can leverage offline data to enhance their VBB strategy.

Example:
A luxury car dealership tracks leads from online inquiries but converts sales offline. By integrating offline conversion tracking with Google Ads, the dealership can determine which ad interactions resulted in actual car sales. Assigning higher values to interactions that historically lead to purchases allows them to optimize their bidding strategy for actual revenue rather than just lead volume.

Advanced Tips for Maximizing Performance

Segment Conversion Values by Audience

Different customer segments have different lifetime values. Use Google Ads Value Rules to adjust conversion values based on:

• Customer location
• New vs. returning users
• Device type

Test Value-Based Bidding with Experiments

Run A/B tests to compare performance between Maximize Conversions and Maximize Conversion Value.

Optimize for Profitability, Not Just Revenue

If margins vary across products, focus on optimizing for profit instead of gross revenue. Consider reporting profit-based conversion values.

Increase Data Accuracy with Enhanced Conversions

Enable enhanced conversions for leads and purchases to refine Google’s AI decision-making.

Value-based bidding is a powerful tool for businesses looking to improve profitability from Google Ads. By prioritizing high-value conversions over conversion volume, you can make data-driven decisions that align with real business outcomes.

The key to success lies in accurate tracking, realistic goal setting, and continuous optimization. Whether you’re running an e-commerce store, a lead-generation business, or a SaaS company, value-based bidding provides a smarter way to allocate your ad spend for better results.

Start small, refine based on performance insights, and scale once you have a winning strategy in place.

Value-based bidding is a powerful strategy that ensures your ad budget is allocated toward the most profitable conversions. However, executing it effectively requires a deep understanding of data, bid strategies, and continuous optimization. Done right, it can maximize your revenue and improve campaign efficiency – but it’s just one piece of the puzzle when it comes to PPC management.

At DevriX, we know every aspect of PPC inside and out. From advanced bidding strategies to audience targeting and ad optimization, we craft tailored campaigns that drive real business results. Get the right strategy in place and let us optimize your ads for maximum impact.

Ready to take your PPC campaigns to the next level? Let’s talk.