How Google makes automated bid system work?

The Ultimate Guide To AdWords Automated Bid System

We know how Google AdWords run. Advertisers bid on Actions they want their prospects to take to make their campaign successful, for example, click on an ad, call us at, etc. After verifying the Ad group relevancy, Google offers Ad placements for different keywords. Although bidding alone does not decide the placement of your ad, but it is definitely one of the most crucial factors. Let us understand it like this, suppose your ads have a high-quality score, but it will never get placed if the bid is too low. So quality score cannot be a major component to decide the success of the ad. And if the bids are too high, and then you will end up burning holes in your pockets. So you have to find a way out to make a balance between both extremes. 

But this becomes a little tricky and tiresome to monitor the bidding each time. So, rather Google has offered an Automated Bidding System that takes care of your concerns. But, again, it is also not as easy as clicking a button, switching on the automation and retiring to sleep. We need to know how this technology works and how it can be leveraged correctly so that the end results are not a disaster. 

But How is Automated Bidding Helpful?

Automated bidding worksWe have heard many people saying that Automatic Bidding did not work for them, but one should not draw the conclusion of never using it for their account. They might have experimented and failed due to various reasons, including not putting in sufficient time and effort. We need to test it to be able to know whether it is good for us or not. For example, you chose Manual CPC Bidding and set an equal bid for all users. So, if there are 5000 people searching for “4 G Smartphone”, it is foolish to assume that every one of those deserves the same bid.

With Automated Bidding, Google can hone in on the specific User on the basis of their searches and other variables, to know what type of users are genuinely interested in your Ad.  Google knows that the users who have browsed your competitors hold high chances of making a purchase. So, to be on the safe side, you can trust Google here to automatically decide the bid as per each user and their preferences, to help us make the most of our investment.

Google bid system

Manual CPC Bidding relies on the search term, whereas, Automated bidding works on users’ behavioral signals that are much more effective. This paradigm works pays prime focus on Conversions and ROAS (Return on Ad Spend). CPC (Cost Per Click) will automatically increase when your ad focuses on prime traffic. 

Not CPC? Then what metrics help Google create algorithms to identify target audience?

Conversion rate is a metric that needs all of your attention here. You must be very creative about the data in your campaigns that help Google create effective algorithms. You must also know Enhanced CPC, which is a hybrid strategy where you will enter 50% of auctions with manual Bid and the rest 50% with smart Bid. But, it is not the correct bid strategy. Why?

Because the Algorithm will not be able to access the 100% of the data and we know little knowledge is very dangerous, as a result of which, it might work in reverse.

So, higher quality traffic will come at a premium cost (via Automated Bidding) and if you are not willing to spend on that, then you will be left with the low quality traffic that is not at all useful.

Okay, But what is Google’s Smart Bidding Algorithm then?

1. ‘Maximize Conversions’ Bidding algorithm: 

Maximum conversions

Here, a large number of Conversion Rate is the primary factor that drives the entire algorithm. Maximize Conversions Algo ignores all the other factors like Cost per click, Cost per conversion, ROAS, etc. Keeping in mind that all conversions are not equal, because some conversions are simply more expensive than the others. Maximize Conversion Algorithm buys you all kinds of conversions irrespective of their cost.

If you have an unlimited budget, then you will get all the expensive conversions and acquire as many conversions as possible, and you will become a market leader at the blink of an eye. But this is neither correct nor economically viable. Therefore, this bidding strategy is best used for campaigns with a limited budget. If you limit the budget, the algorithm tries to focus on the least expensive conversions to acquire you the good quality conversions. For example:

If your daily ad budget is $100, the algo will not straight away spend the entire budget on just two $50 conversions. In fact, it will convince potential customers at the range of $2 or $5 initially and then gradually hike the price until the budget gets maxed out.

2. Target CPA Bidding Algorithm:

This algorithm is just like the previous one; the only difference will be that this process will consider Cost Per Conversion as the primary factor. How does it work? Lets us learn that with the help of an example:

  1. Suppose user ‘Ted’ is searching for my product. And the tCPA algorithm predicted the conversion rate and set the cost for this conversion to be $X. 
  2. Now ‘Poly’ is also performing a search for my product. The tCPA algorithm now uses the previously predicted conversion rate and then considers other factors, to finally get the new cost of the conversion $Y. So $Y =  $X + Other factors, If ted and poly have searched for a nearly similar keyword. 
  3. Now when “Kate” performs a search, the algorithm tries to find out the similarities between Ted, Poly, and Kate, so that it can come up with a better-automated Bid. 

The best thing about this algorithm is that it is smarter and it keeps learning about the customers, thus making it easier to target without losing a lot of money over uninterested prospects. 

This is how your CPC will vary every time; smartly enough, that all of it will average out around your target. But the budget of your campaign, to be able to use this campaign, must be at least 10 times your target.

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Concluding:

There are many more smart algorithms in Google that perform adaptive learning to make an automated bidding process as convenient as possible. All these efforts are just to maximize your goals.

So if bidding worries you with questions like, am I spending on the uninterested audience, or are my bids good enough, then leave the decision making to Google with Automated Bidding System and wait for the satisfactory results. And a better way to test its efficiency than giving it a try yourself? Just remember to keep a track on all the conversions for better future references. 

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