Given the constantly-evolving nature of media buying, advertisers and marketers looking to place ads in front of relevant audiences in order to obtain leads for a business need to look for ways to innovate as well. These advertisers have access to the same ad spaces, but if they want to use their budget efficiently, it is recommended that they look for strategies to optimize their campaigns towards their goals and achieve higher returns on investment. 

One approach that has gained traction and success is Google Ads’s Value-Based Bidding (VBB), a strategy that uses machine-learning to make data-driven decisions on which potential customers to bid on and how much to bid, all Based on a prediction of the potential value that such customers could contribute towards a marketer’s goals. In this article, we will delve into the concept of Value-Based Bidding, its benefits, drawbacks, and how advertisers can leverage this powerful technique to elevate their marketing campaigns to new heights.

Understanding Value-Based Bidding

In digital advertising, most platforms offer traditional bidding methods in which, after a target audience is defined, the marketer or advertiser with the highest bid will have their ad appear on the top of that ad space. These traditional bidding methods focus on how much it costs to bid for a space and how many impressions an ad will have in it. 

Google’s access to a large set of data from its several products and platforms allowed them to release machine-learning capabilities for marketers and advertisers so that they can make a better use of their money when advertising on one of their platforms. These capabilities would come to form what is known as Smart Bidding, where algorithms let you focus on certain goals or strategies. Among the strategic options available under Smart Bidding are Maximize Conversions, which is a strategy that attempts to get as many conversions with a set budget (a conversion is a digital event that is valuable to a business such as downloading an app, or filling out a form), and Target Cost Per Acquisition (tCPA) which focuses on trying to obtain leads or potential clients at a steady average cost, previously set by the marketer or advertiser. 

Value-Based Bidding (VBB) is a newer option now available on Google Ads that goes beyond these previous uses of machine learning to make data-driven decisions, as it now can predict the potential return on investment for each ad placement opportunity. This strategic approach to media buying emphasizes the true value of each impression rather than simply focusing on acquiring the highest number of impressions at the lowest cost, which is especially useful in businesses that don’t value each conversion equally. 

For example, if your business is a mobile app that has app downloads set as conversions, it might not matter to you if Person A or Person B is the one that downloads the ad and converts, and you would likely make equal bids to show them ads because they both have the same potential value to your business. Nevertheless, if your business is an ecommerce and your conversions are set to purchases, Person A and Person B might not necessarily have the same Value to your business. Person A could make a purchase twice as expensive as Person B, or Person B could make cheaper purchases but make them five times more often than Person A. 

The previous example is an oversimplification of what a business might be interested in, but it ultimately goes to show that the revenue brought by potential leads might be much different even if under Smart Bidding they would be counted as equal conversions. Value-Based Bidding allows you to give Google Ads more information on what customers bring the most value to your business, and it thus allows Google to train the algorithm to place higher bids on potential leads that might be more likely to bring you closer to your goals. 

Benefits of Value-Based Bidding

Enhanced ROI
Value-Based bidding enables advertisers to allocate their budgets on placements that are likely to yield higher returns on investment. This focus on ROI ensures that ad spend is optimized, which leads to an improved overall campaign performance.

Precise Audience Targeting

By evaluating the value of each impression based on the audience’s potential, advertisers can better target specific user segments. This approach ensures that ad impressions are shown to the right people, increasing the chances of conversions and customer engagement.

Improved Campaign Performance
Value-Based Bidding allows advertisers to analyze which placements have historically performed well and generated valuable outcomes, and then prioritize them. Consequently, campaigns are likely to deliver better results and meet desired Key Performance Indicators (KPIs).

Flexibility in Bidding Strategies
Advertisers can employ various bidding strategies based on the perceived value of impressions. For instance, higher bids can be set for audiences with higher conversion potential, while lower bids can be placed for less valuable impressions, something not possible in other strategies.

Drawbacks of Value-Based Bidding

Complexity of implementation
This bidding strategy requires a significant amount of data collection, analysis, and interpretation for Google to make accurate predictions, so before it can be implemented, you are required to have already completed a certain amount of conversions  in the near past under Smart Bidding. This might be challenging for new or small advertisers.

Data Accuracy and Availability
The success of Value-Based Bidding heavily relies on the quality and availability of data. If the data used for calculating the value of impressions is inaccurate, outdated, or insufficient, it can lead to erroneous bidding decisions and suboptimal campaign performance.

Increased Costs
Value-Based bidding may result in higher bidding prices for placements that are deemed more valuable. While this can lead to improved ROI for high-value impressions, it can also increase overall advertising costs, especially in competitive markets.

Implementing Value-Based Bidding

As previously mentioned, if you are looking to implement Value-Based Bidding you will need to start running your campaign with Smart Bidding first. Just like there are two strategies under Smart Bidding, Value-Based Bidding offers two possible strategies that correlate: Maximize Conversion Value, and Target Return on Advertiser Spend (tROAS).

As stated by Google, “Max conversion value bidding allows you to maximize the total conversion value of your campaign within a specified budget,” while “campaigns with tROAS bidding lets you tap into value based bidding by setting a tROAS for your campaign.”

The difference between these two campaigns is that the first one focuses on conversions and the other on return value. The two strategies under Smart Bidding share this difference between each other, and since you need to start with Smart Bidding before you move on to Value-Based Bidding, there is a relationship between the strategies in both types of bidding: if you want to implement Max Conversion value, you will need to start your campaign under Maximize conversions; if you want to implement Target ROAS, you will need to start your campaign under Target CPA first.

In order to make the switch to a Value-Based Bidding strategy from a Smart Bidding strategy, you are required to have at least 30 conversions within the last 30 days. After you complete that, you will see the option to switch bid strategies under “Bidding” in your Google Ads account.

Once again, Value-Based Bidding might only be appropriate to you if your business values your conversions differently from each other. Google prepared a table to make it easier for you to determine if you should pursue Value-Based Bidding:

If you need more help setting up your Value-Based Bidding strategy, you can also look at this Google Ads Help page. 

Conclusion

Value-Based Bidding represents a paradigm shift in media buying, allowing advertisers to move beyond conventional approaches focused solely on impressions and costs. By evaluating the true value of each impression and aligning bids with potential ROI, advertisers can unlock unprecedented efficiency and campaign effectiveness. While it might not be a strategy useful for everyone, this data-driven approach ensures that ad spend is allocated wisely when used, resulting in improved ROI, precise audience targeting, and overall better campaign performance. Embracing Value-Based Bidding in media buying is not just a trend; it is a transformative strategy that empowers advertisers to make informed decisions, stay ahead of the competition, and achieve their marketing objectives with remarkable success.