Value-Based Bidding Brings the Best of eCommerce to SaaS
Picking the right bidding strategy when launching campaigns on Google Ads is an essential, yet often challenging task. When chosen wisely, automated bidding strategies are a great way to save time while using complex algorithms to optimize an account.
Target ROAS (tROAS) is a particularly helpful smart bidding strategy for SaaS companies, as it brings the best of eCommerce Bidding to SaaS marketing.
As a subset of automated bid strategies, Google Ads Smart Bidding (like Target ROAS and Target CPA) uses AI-powered technology to optimize for conversions or conversion value.
Read on to learn how Google’s Value-Based Bidding offers the perfect opportunity to move from Target CPA to Target ROAS bidding and how that benefits SaaS brands.
What Is Target CPA (Cost per Acquisition)?
If your campaign’s primary goal is to drive conversions at a certain acquisition cost, then the Target CPA bidding method (for non-eCommerce companies) will focus on just that.
With this method, Google Ads will automatically set the campaign’s bids based on your cost per acquisition (CPA). Do note that individual conversions here may have CPAs above or below your target CPA, but Google will generally try to balance that out over time.
While Target CPA can be a viable bidding strategy for SaaS, if you dig a little deeper, you will come to realize that you can still segment leads in ways that they have different values.
How Does Value-Based Bidding Work?
Instead of bidding towards conversion value or specific goal CPAs, this method allows you to give unique values to different types of conversions so that Google can bid towards conversion value, using the bidding strategies Maximize conversion value and Target Return on Ad Spend (tROAS).
Shifting to Target ROAS can be especially useful for SaaS companies with tiered, licenses- or usage-based pricing models. The reason is that once you assign unique values to each type of conversion, you can let Google’s AI take a portfolio bidding approach across an entire group of campaigns.
Target ROAS throws many marketers for a loop, mainly because it might require importing 3rd party offline conversion data into Google Ads in real-time. However, once you manage that, Target ROAS can work wonders for your SaaS business.
How to Transition to Target ROAS Bidding
The first thing you will need for successful value-based bidding is a good understanding – and approximation – of customer lifetime value (LTV) for all conversion actions.
Similar to your gross profit on an eCommerce product sale, the customer lifetime value is what tROAS will be based on.
Your ability to import third-party offline conversion data into Google Ads in real-time also plays a big part in the success of your campaign. If you’re using Salesforce or Hubspot as your CRM, this connection is a simple checkbox in Google Ads settings. If not, you’ll have to connect via API.
To keep things simple, let’s consider the following example – $100 LTV, 40% trial churn, and a new customer signing up for a 14-day trial for 8-seats. Based on this, the value that should be pulled from the CRM into Google Ads would be:
100 x (1-40%) x 8 = $480
If the target ROAS is set at 100% (i.e. you want to generate $2 for each $1 spent), this will indicate to Google that it needs to auto-bid to deliver this conversion at a cost of $240.
How Value-Based Bidding Benefits SaaS Brands
For SaaS marketing campaigns, Value-Based bidding can transform your conversions into almost all e-commerce products. It gives static or dynamic values to different types of conversions so that Google can bid on a target ROAS, as opposed to a fixed target cost per acquisition.
In essence, with Value-Based Bidding, you can “productize” your conversions with different values.
For example, you might consider more valuable leads those that sign up for service X rather than service Y. What you need to do is set up two separate conversion actions for signing up for each service in Google Ads and assign either static values based on the LTV value multiplied by closure rate, or dynamic values added from the Sales team in your CRM. Switch them on and let Google optimize the campaigns with priority on the conversions with higher value.
SaaS companies whose pricing models are tiered will find the value-based pricing model especially useful. The benefits are clear – you stop optimizing for a blanket average conversion value and start optimizing for a specific required return on each individual conversion based on its expected value.
Getting Started With Value-Based Bidding
Google Ads automated bidding strategies aim to take the guesswork out of the PPC experts’ struggles and efforts to boost conversions, decrease cost-per-click, and make PPC campaigns as effective as they can be.
If set up and used correctly, target ROAS can get you great value. When leveraging a bidding strategy for better sales, remember to set your conversions based on historical conversion data and monitor your campaigns to ensure they’re still achieving your goals.
Ready to dive deeper into digital marketing? Check out our blog to discover the difference between performance and growth marketing.