Efficiency vs. volume in PPC: 4 tips to strike a balance in incremental conversions
Take a step back, look at the business overall and understand how incremental spend or savings would impact the business.
Another way to frame this is the tradeoffs between efficiency and volume. The terms you are bidding on will eventually convert (unless you are bidding on utterly unrelated terms). But the question is, was that spend efficient and valuable?
In this article, I will share some insights about striking the right balance between efficiency and volume, a productive and healthy debate search marketers can have with businesses.
1. Determine how the business is operating
We always suggest starting with how the business is operating overall. Each business has some important metrics that drive its decision-making.
- Is the business profitable?
- What is the available capacity of the team or product line?
- Are there specific seasonalities or unique market forces that may alter the normal state of the business (supply chain, holidays)?
For example, if the product is highly profitable and there is capacity in the business, you would be willing to pay more for additional traffic and sales.
The opposite is true. If profitability is poor or capacity is limited, it might be desirable to limit the amount of traffic or only find really profitable sales.
If you are in a seasonally driven business you might have to make hay while the sun is shining. These are just a few factors that might impact your efficiency vs. volume debate.
2. Forecast at various levels
A great place to start is Google Ads Performance Planner tool which can be found under Tools > Settings in the top menu bar. This tool lets you get a sense of the opportunity for your existing campaigns.
You can select which of your search or Performance Max campaigns you would like to forecast the opportunity. Input and select some options to help generate some results.
Google will then create an output that looks like the one below. It creates a curve that provides the expected output of conversions for a variety of spend inputs.
You can create something like this for as few or as many campaigns as possible. Certainly, the input data and output curves will adjust. Often, the more granular you go the more specific and varied the curves will be.
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3. Evaluate the incremental cost per conversion
Now that you have this curve, the next step is to evaluate the incremental cost per conversion at various levels.
As a search marketer, it can be easy to focus on just the total CPA within search. However, there are other potential options that a business could use to invest in.
What we recommend is to review the impact of various spend levels and what the next level of investment will do to the metrics. A table like the one below is a simple approach to this.
To get the incremental cost per acquisition, take the forecasted spend and conversions at various levels and subtract the new level from the prior level.
Often, brands just look at the total CPA in aggregate and ignore incremental cost per acquisition. Looking at it at the incremental level will give you something to compare to other opportunities.
For example, in the table above, going up from a total CPA of $351 to $405 is only a 15% increase in CPA. However, the incremental CPA is $891 or 120% above the total CPA of $405.
This should spark the question, what else can I invest in that will drive a lower CPA than $891? This could be anything from product enhancements or advertising spend outside of search (display, social, programmatic).
If something else can help you beat the $891 incremental CPA, then it is a better investment. Certainly, there are other things to consider, like level of effort and resourcing.
4. Choose your bid models
Look at Google Ads’ different automated bid models as you decide. You can set target CPA, ROAS, or impression share or maximize event outcomes (conversions, clicks, conversion value).
These models also play a part in incremental cost decisions.
- If you choose to target a CPA, the optimization will prioritize hitting that CPA goal.
- If you look to maximize conversions, the CPA target will no longer be in control and volume will be the primary metric.
Both models have a purpose depending on your business metrics and the priorities of the business at any given time. We see brands shifting between these models depending on their specific business objectives.
Deciding between efficiency vs. volume in PPC
There is no “right” option to this matter and it certainly isn’t a static decision.
The choice between efficiency and volume should always be discussed and tested. Search is incredible in this regard. You can always adjust your aggressiveness levels on a near real-time basis.
I once managed paid search campaigns for mortgages for four different banks simultaneously. All four had vastly different CPA targets given their business metrics and goals at the time.
So take a step back, look at the business overall and understand how incremental spend or savings would impact the business.
- What is the incremental opportunity?
- How else can you find incremental results?
- Should you spend in other areas, improve the conversion flow, and just save the money?
Once you start using data and understand how your potential actions will impact the broader business, you will be well on your way to balancing efficiency and volume. (Until you need to debate it again, that is. Because trust me, you always will.)
Opinions expressed in this article are those of the guest author and not necessarily Search Engine Land. Staff authors are listed here.