Tag Archives: cpa

Google CPA bidding goes wild

I have been using Google’s AdWords Cost Per Action (CPA) bidding for a number of years. I set the maximum I was prepared to pay for a conversion (e.g. a successful install of my software). AdWords then set the bid price to try and get me conversions at that price or less. It worked pretty well for a number years and it saved me a lot of time tweaking bid prices. But Google recently phased out Maximum CPA bidding and forced me to switch to Target CPA bidding. From this point I could only specify the average price I was prepared to pay per conversion. This is where it all started to go wrong.

AdWords started to bid crazy prices. Check out the screenshot below. You can see that in each case the average Cost Per Click (CPC) is more than the CPA price. For example, in the first row I have set £0.50 as the price I am prepared to pay for conversions from the ‘seating charts’ ad group. Typically about 10% of people who click on one of my Adwords ads will install the software and trigger a conversion (which is fairly standard). So a £0.50 CPA means that AdWords should be bidding somewhere around £0.05 per click. Google knows this, because they have vast amounts of data from my AdWords account (11 years worth). But the average price for the last 3 clicks was £1.17 per click. WTF Google – that’s my money!

Given that the base version of my software costs £19.95 (one time fee) there is no way I can make a profit at £1.17 per click. Not all the bids are this crazy. But there are enough crazy bids to put my whole AdWords campaign into a tailspin. So I have been forced to switch back to manual CPC bidding. If you have also been forced to switch from Maximum CPA to Target CPA bidding, then I suggest you keep a careful eye on your cost per click.

Setting an optimal bid price for Google CPA bids

A couple of years ago I wrote up the results of an experiment comparing Cost Per Action vs Cost Per Click bidding in Google Adwords. At the end of the experiment I decided that I did trust Google CPA bidding, but the results from CPA bidding weren’t compelling enough for me to switch. So I stayed with my mature CPC campaign. Subsequently I spoke at length with Adwords guru David Rothwell and Adwords master practitioner Alwin Hoogerdijk. They convinced me that:

I hadn’t really given Google CPA enough learning time – the more data Google has the better it should be able to do. The mighty Google brain might even be able to spot and exploit patterns I would find very difficult to emulate (e.g. based on season, country, day or week or time of day).
I should switch from paying per sale to paying per download, as this would give Google an order of magnitude more data to work with.
CPA bidding would require a lot less of my precious time to manage.

So I switched back to CPA. This time measuring a conversion as a successful download and install (my table planner shows a help page in a browser on first run, this contains the Google conversion tracking script).

So now, instead of having to choose thousands of bid prices (one for each keyword and match type in each campaign), I had to choose a single bid price – what I am prepared to pay Google for a download. If I pay too little for a download: Google won’t show my ads much, I won’t make many sales and my profit will be low. If I pay too much for a download: Google will show my ads a lot, but the amount I pay for each conversion will be high and my profit will be low. In between their should be a ‘sweet spot’ that gives me optimal profit. But how to find that sweet spot?

Looking at analytics data I have a good idea at what rate Adwords traffic converts to sales. I chose a CPA bid based on this and then I randomly varied the bid up or down every 7 days (some days of the week perform consistently better than others for my product). The graphs below show the results. Each data point is 7 days of data. The black lines are linear trend lines. I deliberately haven’t put values on the axes, but the x and y axes are all linear, starting at 0.

The trends are pretty clear. Increasing CPA bid price:

increases the number of times your ads are shown
makes little difference to the click through rates
decreases the click to download and download to sale ratios

So higher bids means more sales, but also a higher cost per sale. But, of course, the really important metric is profit. So I worked out the average daily profit from Adwords traffic, which is the net sales income (gross sales minus sales costs, including payment processor fees and support costs) minus Adwords costs. Again each point is 7 days of data. The black line is a 2nd order polynomial trend line.

The data is quite noisy. But some data is a lot better than none and there does appear to be sweet spot about where the red arrow is. The curve is fairly flat meaning that I don’t have to be too precise in my bid price to get a near to optimal return. But if I bid twice the optimal price my profit will drop by about 35%.

In an ideal world I would have run all these different bid prices concurrently, instead of one after the other. But that just isn’t possible with Adwords at present (you can use Google Adwords experiments to split test bid prices, but only 2 at a time). Also I could have gathered a lot more data, used longer time intervals (7 days probably isn’t long enough for Google CPA to get into its stride) and bid a lot higher and lower, to make the trends clearer. But I wasn’t prepared to spend the extra time and money required.

If you are using CPA bidding you should be able to carry out a similar analysis on your own Adwords account to find your own CPA bidding sweet spot. If you are still using CPC, perhaps you should consider switching to CPA and let Google do some of the heavy lifting for you. You can switch any campaign that has 15 or more conversions per month to CPA bidding in the ‘Settings’ tab.

You can always switch back to CPC later. If you aren’t using Google conversion tracking, well you really should be.

A word of warning. Not all downloads are equal. You might think that download to sale rates would vary a lot less than impression to click and click to download rates (I did). But download to sale ratios can vary a lot between different campaigns, even for the same product. For example, my analytics data shows that downloads from Adwords display (=contents/adsense) traffic only convert to sales at around a quarter of the rate of Adwords search traffic. So display campaign downloads are worth a lot less to me than search campaign downloads and I set my CPA bids accordingly.

I showed a draft version of this post to Alwin Hoogerdijk of Collectorz.com collection database software, who first persuaded me to switch back to CPA and knows a lot more about CPA than I do. He had the following to add:

When using CPA bidding you should give Google more room to experiment. On search, this means using more broad match terms, or at least modified broad match. And less negative keywords (I removed a lot of my negatives lately). The idea is that Google will automatically find out what works and what doesn’t (again, this may take a lot of time).

On the Content Network it means being less trigger-happy with the site exclusions. Without CPA bidding, I would be more likely to exclude generic sites like Facebook, about.com, etc… But with CPA bidding, I tend to allow the optimizer to display on those sites and the find the right pages within those sites to show my ads on.

In my experience, the optimal CPA bid can vary (wildly) between products, campaigns, etc. . Content Network CPA’s in general tend to be much lower, for the same products. Strangely enough, content network visitor sign up (or downloads) are worth less than search traffic sign ups. Which wasn’t what I was expecting. Of course, content network traffic is less targeted in general so one would expect a lower sign up rate. But even if those visitors sign up, they convert less well to actual sales too. Tricky.

A test of Cost Per Action (CPA) vs Cost Per Click (CPC) in Google Adwords

The traditional approach to Google Adwords is to set a bid price for each keyword. This is known as Cost Per Click (CPC). Google then then uses the bid prices in conjunction with a secret formula (the quality score) to decide how high to rank your ad in the Adwords results. If you bid more, your ad will appear higher and typically get more clicks, but your cost per click will increase. So setting an optimal bid price is important. Bid too little and you won’t rank high enough to get a decent number of clickthroughs. Bid too much and you will potentially end paying more to Google than you recoup in sales.

An alternative approach is to tell Google Adwords how much you are prepared to pay for a particular action, e.g. a sign-up, download or sale. This is known as Cost Per Action (CPA) or Conversion Optimizer. Google will then automatically calculate your bid prices and attempt not to exceed the CPA you set (although this isn’t guaranteed).

CPA sounds great. I can stay in bed a bit longer while the mighty Google brain does the bid tweaking for me. Unfortunately I wasn’t able to use CPA. I count sales as conversions (not downloads) and I have my adwords account split into a number of campaigns by geographic region and by type (e.g. search vs content). Having my campaigns structured like this, rather than one monolithic campaign, makes for more flexibility (e.g. different ads, phrases and bid prices for different geographical areas) and more useful reports (e.g. separate reports for search and content). But it also meant none of my Adwords campaigns made the minimum threshold for conversions per month.

When Google dropped the minimum threshold for CPA to 30 conversions per campaign per month, one of my Perfect Table Plan search campaigns became eligible. So I did an experiment. I ran a campaign for 4 weeks using CPC, then 9 weeks using CPA, then another 4 weeks using CPC. I set the CPA bid to roughly the average cost per conversion I got for CPC. I was curious to see if Google would find sweet spots that I had been missing or whether they would bid as high as they could to take as much money off me as possible. Summary: CPC outperformed CPA on all key metrics, including: 4.4% higher conversions, 9.4% lower cost per conversions and 8.0% higher profit.

The detailed results are as follows:

metric	CPC (vs CPA)
impressions/day	+13.9%
clicks/day	+1.3%
conversions/day	+4.4%
CTR	-11.1%
conv rate	+3.1%
income/day	+4.4%
cost/day	-5.5%
CPC	-6.6%
profit/day	+8.0%
PKI	-5.2%
ROI	+10.4%
cost per conversion	-9.4%

In graphical form (click to enlarge):

Notes:

The values given are taken by computing (CPC metric – CPA metric)/(CPA metric). E.g. ROI of +10.4% means that CPC had a 10.4% higher ROI than CPA.
Only a single (geographically based) search campaign was measured. The total number of conversions during the time period of the test was in 3 figures.
I only measured sale conversions. This gives me less data than measuring downloads, but I think it is unsafe to assume the number of downloads correlates closely to the number of sales.
The PerfectTablePlan sale price is £19.95/$29.95. To calculate profit I only counted 75% of the price of a sale (the other 25% was assumed to cover the cost of support, ecommerce fees and other overheads associated with the sale).
Each of the time periods was a multiple of 7 days to avoid any issues with different results on different days of the week.
I ran CPC for an equal amount of time either side of the CPA test to try to balance out any seasonal factors.
Google conversion tracking uses Cookies and is therefore not 100% accurate.
PKI is Profit Per Thousand Impressions.
ROI is Return On Investment.

It wouldn’t be wise to draw any sweeping conclusions from one test with a limited amount of data. However I believe the results show:

A CPA campaign running for 9 weeks wasn’t able to outperform a mature CPC campaign. The CPC campaign had been running for over 4 years, but one would have thought CPA would have been able to use that pre-existing data. CPA might have performed better if given longer. It would probably also have done better against a less mature CPC campaign.
Google didn’t rob me blind using CPA bidding. The CPA cost per day was only 5.5% higher.
The results weren’t hugely different. On the basis of the above results one might still conclude that CPA is superior to CPC as it requires less time to manage.