Value-based bidding is an innovative and increasingly popular advertising strategy that ensures your budget is spent on what really counts—actions that bring actual value to your business.
For instance, instead of paying for clicks that may or may not lead to sales, you’re focusing on results like purchases, sign-ups, or bookings. At its core, it’s all about that sweet return of investments all businesses crave.
It’s a method rooted in data and automation, making it both efficient and results-driven. But how does it actually work? Let’s break it down.
What Is Value-Based Bidding?
Imagine you own a store. Some customers come in and browse but leave without buying anything, while others spend hundreds. If you were investing in a campaign to bring more people into your store, wouldn’t you want to attract those big spenders?
That’s the basic idea behind value-based bidding.
In online advertising, this strategy allows you to tell platforms like Google Ads or Meta Ads (Facebook) how much a particular customer action is worth. It then adjusts your bids automatically, prioritising those actions that align with your business goals.
So, instead of paying for random clicks, you’re investing in conversions that are more likely to deliver a strong return on investment (ROI).
How Does Value-Based Bidding Work?
To understand how it works, think of value-bidding, like hiring an assistant to shop for you. Here’s how this “assistant” (the advertising algorithm) operates:
1. Define Conversion Value
You start by assigning a value to each outcome. For example, you might decide a completed purchase on your website is worth £100, while someone subscribing to your newsletter is worth £10. The assistant (algorithm) now knows what’s most important to you.
2. Gather Data
Using tools like Google Analytics or a Meta Pixel, your advertising platform collects data about user behaviour—what pages they visit, how they interact with your site, and whether they complete valuable actions.
3. Analyse The Data
The platform’s machine learning system takes this data and looks for patterns. For example, it might notice that users who click on a particular product page are more likely to make a purchase.
4. Make Predictions
Based on these patterns, the system predicts which users will most likely take high-value actions. It then adjusts your ad bids to prioritise these users.
5. Real-Time Bidding Adjustments
Whenever someone sees your ad, the system evaluates their likelihood of completing a valuable action and sets your bid accordingly. For instance, it might bid higher for a user likely to spend £100 and lower for someone less likely to convert.
6. Continuous Improvement
As more data comes in, the system refines its predictions and adjusts its bidding strategy, ensuring your budget is spent as effectively as possible.
Why Use Value-Based Bidding?
Value-based bidding has several advantages that make it a game-changer in digital advertising:
Focuses on Results That Matter: Rather than chasing clicks or impressions, it targets actions that genuinely benefit your business, such as purchases or qualified leads.
Boosts ROI: By prioritising valuable conversions, your advertising spend goes further, delivering a better return on your investment.
Saves Time and Effort: Automated systems handle the heavy lifting, so you don’t have to manually adjust bids or guess where to allocate your budget.
Adapts to Your Goals: As your business priorities evolve, you can easily adjust conversion values or targets to reflect your current objectives.
Common Use Cases For Value-Based Bidding
Value-based bidding is a flexible strategy that adapts to different business models and goals. Here’s how it shines in specific scenarios:
E-Commerce
For e-commerce businesses, value-based bidding can fine-tune your ad strategy to prioritise high-value transactions.
Let’s say your online store sells both premium and budget products; you can assign higher values to purchases of premium items, like a $1,000 laptop, compared to a $20 phone case. This guarantees that your budget is directed towards generating sales with the most profit potential.
Moreover, this approach allows for nuanced targeting of specific customer segments, such as repeat buyers or those with larger basket sizes. By optimising these high-value actions, you can maximise your return on ad spend (ROAS) and ensure your resources are used efficiently.
This makes value-based bidding particularly effective for online retailers dealing with various products and customer types.
Lead Generation
For service-based businesses, value-based bidding helps focus on acquiring leads more likely to convert into high-paying clients.
We all know that not all leads are created equal. A potential customer looking for a kitchen renovation might be more valuable than someone inquiring about a smaller repair.
Assigning a higher value to leads associated with larger projects or long-term contracts ensures your ads target the right audience. This strategy also works well for industries like finance, real estate, and healthcare, where a client’s lifetime value can vary significantly.
The system uses comprehensive data to identify patterns and adjust bids to attract leads with the highest potential value. As a result, businesses can improve their campaigns’ efficiency and focus on quality over quantity when it comes to customer acquisition.
Subscription Services
For businesses with sustained revenue models, such as software platforms or subscription box services, value-based bidding helps to prioritise sign-ups and upgrades.
Since the long-term value of a subscription customer is often much higher than a one-time sale, this strategy ensures your advertising spend targets actions with sustained benefits. If a basic subscription is worth $30 per month and a premium subscription is worth $70, you can assign higher values to actions leading to premium sign-ups.
Value-based bidding also enables these businesses to optimise campaigns for customer retention, focusing on users who are likely to stay subscribed longer. By aligning your bidding strategy with customer lifetime value, you can maximise profitability and allocate resources effectively across your marketing efforts.
Event Registrations
Organisations hosting events, such as conferences, webinars, or fundraisers, can use value-based bidding to attract attendees with the greatest potential impact.
For example, if you’re running a business seminar, a registration from a senior executive might be more valuable than one from a student. You can refine your ad targeting by assigning higher values to registrations from target demographics or attendees likely to engage further.
This strategy is also helpful for fundraising events, where specific donors or sponsors may make greater financial contributions. The system ensures your budget prioritises these high-value attendees, increasing your event’s overall success and profitability.
Additionally, value-based bidding can adapt to different event goals, from maximising attendance to ensuring quality participation, making it a versatile tool for event promotion.
Setting Up Value-Based Bidding: A Step-by-Step Guide
Implementing value-based bidding requires thoughtful preparation and a clear understanding of your business objectives. Here’s a detailed guide to help you set up your campaigns effectively:
1. Define Your Goals
The first and most critical step is to identify what you want to achieve with your campaign.
Are you aiming to drive more purchases, generate high-quality leads, or encourage app downloads?
Defining these goals provides the foundation for your entire bidding strategy. Be specific and prioritise actions that align with your broader business objectives. For instance, if your focus is on sales, decide whether you’re targeting high-ticket purchases, repeat customers, or specific product categories.
Having a set of clear goals will guide every decision you make in the setup process and ensure your campaign stays on track.
2. Assign Conversion Values
Once your goals are set, the next step is to assign monetary values to each type of conversion. This involves evaluating how much each action is worth to your business.
If an average customer purchase generates $100 in revenue, you can set this as the value for a completed sale. Similarly, a newsletter sign-up might be valued at $30, reflecting its potential to drive future sales.
These values should be data-driven, so historical performance should be analysed, and the long-term value of each customer action should be considered. By accurately assigning these values, you’re helping the bidding algorithm understand what’s most important to your business.
3. Implement Conversion Tracking
Conversion tracking is the backbone of value-based bidding, enabling you to collect the data necessary for optimisation.
Use tools like Google Tag Manager or Meta Pixel to monitor key actions on your website, such as completed purchases, form submissions, or downloads. These tools record user interactions and feed this information to the advertising platform. Proper tracking ensures the algorithm can learn from past performance and make informed decisions about where to allocate your ad spend.
Ensure your tracking setup is thorough and accurate, as even small errors can lead to ineffective bidding.
4. Choose a Value-Based Bidding Strategy
With tracking in place, it’s time to select a bidding strategy that matches your goals. Platforms like Google Ads offer options such as “Maximise Conversion Value,” which focuses on driving the highest overall value, or “Target ROAS”.
Evaluate these options based on your campaign’s needs and how aggressively you want to pursue your objectives. For example, if you have a defined profit margin, Target ROAS might be the better choice, whereas Maximise Conversion Value is ideal for maximising overall returns without strict cost constraints.
5. Launch And Monitor
After setting up your campaign, launch it and begin tracking its performance. Pay close attention to key metrics such as return on ad spend (ROAS), total conversion value, and cost per conversion.
These indicators will show whether your campaign is meeting its objectives. Monitoring also helps spot potential issues early, such as high spending on low-value actions. Reviewing performance data regularly is important to ensure your campaign is running efficiently.
Remember, even though the bidding process is automated, success requires active oversight and analysis.
6. Optimise Over Time
Value-based bidding isn’t a “set it and forget it” strategy—it thrives on continuous improvement.
As your campaign progresses, refine your approach using the performance data you’ve gathered. This might involve tweaking conversion values to better reflect changes in your business, adjusting ad creatives to improve engagement, or experimenting with audience targeting.
Additionally, seasonal trends or shifts in customer behaviour may require updates to your bidding strategy. By consistently optimising, you can ensure your campaign remains effective and continues to deliver meaningful results.
Conclusion On How Does Value-based Bidding Work
Value-based bidding is an advanced advertising strategy that maximises outcomes that bring your business value. While it requires clear goals and proper setup, the potential for improved ROI makes it a game-changer for businesses looking to optimise their campaigns.
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Frequently Asked Questions About How Does Value-based Bidding Work
What Are The Common Pitfalls Of Value-Based Bidding?
Pitfalls include insufficient data for accurate predictions, setting unrealistic targets, and over-reliance on automation without regular monitoring.
Should Small Businesses Use Value-Based Bidding?
Yes, if they have sufficient data to accurately assign conversion values. Focusing on high-value actions can help small businesses maximise their limited budgets.
Are There Risks Associated With Value-Based Bidding?
Risks include potential overbidding for high-value conversions and difficulty assigning accurate values for certain actions.
When Should You Consider Value-Based Bidding?
Use it when you want to prioritise quality over quantity in your conversions, especially if your goal is to maximise ROI.
What Platforms Support Value-Based Bidding?
Platforms like Google Ads, Meta Ads, and Microsoft Advertising offer value-based bidding options.
Is Value-Based Bidding Suitable For Non-E-Commerce Businesses?
Absolutely. It works well for lead generation, subscription services, and any scenario where conversions can be assigned a monetary value.
