After selecting the optimal target action for each ad set, you must also define a corresponding Bid Cap. For the action on the bottom of the funnel this is simple: use the real value that you are willing to pay per action. For actions in other parts of the funnel, you must estimate the conversion rates and calculate suitable Bid Cap levels based on them.
The image below illustrates the conversion funnel in percentages and the corresponding target cost per action (CPA) for each step. Assume that the ultimate goal is a purchase (Checkout) and we are willing to pay a maximum of 20€ per purchase in order to meet our ROI targets.
A correct bid for a Product Page visit, if it was selected as a target action, is approximately 2.7€. The value has been estimated using the conversion rates between the funnel steps: on average 60% of all visitors visit on a product page, and 8% make a purchase. Thus, the conversion rate from the Product Page to purchase is 8/60 = 13.3% (see the image 2). As we are willing to pay maximum of 20€ per purchase, we can pay maximum of 0.133 * 20€ = 2.67€ per Product Page visit.
In order to optimize bids over time after some testing:
- Increase bids to increase delivery. Recommended if an Ad Set is not delivering enough impressions, or if results are good but your whole budget has not been spent.
- Decrease bids if delivery is good but the actual cost per action is higher than what you are willing to pay.
- Optimize the creatives and audiences to improve Relevance Score and boost performance.
Bidding Best Practices
Don't just try for the cheapest clicks or impressions
When you bid a lower amount, you will reach people that are more easily reached, but don’t necessarily provide the LTV you expect. You might have problems to scale your campaign properly.
Bid your true value
Set the Bid Cap as the maximum amount you’re willing to pay per objective.
Increase your bid if you are able to pay more per objective
You will most likely be charged less than your Bid Cap. If you are willing to spend more, increase your Bid Cap to maximize delivery.
Set accurate end times for your ad sets (when using lifetime budgets)
You might get slower delivery if the system thinks it has to spread your spend out over a long period of time.
Set different bids for high LTV users
Create different LTV audience segments. Bid higher for people that bring more value in the long run. Bid less for people with lower LTV.
Read also: Bid Strategies