The topic for this blog post came directly from one of our readers! Thanks to Dan McMillan who wrote in wanting to know more about CPA Bidding and best practices for implementing it in his account. Well we at PPC Hero write for you, our readers, so read on to learn more about CPA bidding and how to make it work for you.

Intro To CPA Bidding

The focus on conversions (Conversion Optimizer) bidding option uses historical conversion data to find the optimal CPC bid for your ad based upon the cost-per-acquisition (CPA) parameters you set for your campaign.  You can set CPA targeting from the bidding options box under the setting tab.

AdWords Optimize for Conversions Bidding

There are two options for CPA bidding: Maximum CPA and Target CPA.

Maximum CPA Bidding – This option allows you to set a maximum amount you’re willing to pay for a conversion. It’s similar to maximum cost-per-click bidding in that you set your maximum CPA bid, your average will likely be lower than the bid you set.

Target CPA Bidding – With target CPA bidding, you set the average amount you’d like to pay for a conversion. This option is helpful if you have a specific CPA goal you’d like to achieve.

For each of the above bidding methods, AdWords will calculate a recommended CPA bid for your campaign. You can either choose this bid or start with a custom CPA bid. Below is the recommended max CPA bid for my campaign.

AdWords Maximum CPA Bidding

This maximum CPA bid is much higher than my goal CPA, but remember this is just the maximum amount you are willing to spend, not the average CPA. To help alleviate some fears from the maximum amount, AdWords shows that this bid is equivalent to a CPC bid of $2.00 and will target a CPA bid of $24.24, much closer to my goal.

Now let’s see what happens when I select target CPA bid. To do this, click on Advanced options.

AdWords Target CPA Bidding

Here, the recommended target bid is $26.06. Notice how similar this is to the max CPA bid target average of $24.24. Even though the max bid will be set $34.55, both recommendations are based on a max CPC bid of $2.00 with average CPAs in the mid $20 range.

So which method should you choose? The short answer is, whatever you are most comfortable with. Most of my clients focus on achieving a particular CPA, so I use the target bidding option. If you’re client isn’t as strict on CPA, then maximum bidding might work best for you and allow you to push CPA up a bit to acquire additional leads. This distinction may be more significant for Display network CPA bidding than for Search, as a higher max CPA may allow you to show on additional sites. Whichever method you choose, the average CPA will be similar with proper management.

How Recommended CPA Bids Are Calculated

Maximum CPA. The recommended maximum CPA is based on your current CPC bids and conversion rates over time. AdWords calculates a maximum CPA bid for each keyword in the campaign by dividing the current maximum CPC by the conversion rate. Once max CPA keyword bids are determined, the bids are averaged and weighted by the number of conversion for each keyword. This becomes your campaign’s recommended maximum CPA bid.

Target CPA. The target CPA recommended bid is calculated much more simply than the maximum bid. It’s the average CPA for your campaign over the last 30 days. If your campaign hasn’t been tracking conversions for 30 days, then the recommended target bid is the average for the days it was running.

Qualifying For CPA Bidding

In order to use the conversion optimizer for bidding on the Search network, there are three requirements your campaign must meet:

  1. Conversion tracking must be enabled.
  2. The campaign must have received 15 conversions in the last 30 days.
  3. The campaign must have received conversions at a similar rate for at least a few days.

If you are not eligible for CPA bidding you will see the following message below the focus on conversion bidding option:

AdWords CPA Bidding Unavailable

If your campaign is already using CPA bidding and it drops below 15 conversions in the last 30 days, CPA bidding will remain enabled unless you turn it off. However, if you choose to stop using CPA bidding, you won’t be able to enable it until you’ve reached the requirement.

CPA Bidding Best Practices

If you do qualify for CPA bidding, here are the best practices you should follow to enhance your campaign’s performance.

  • Determine if CPA Bidding is right for you. You should always make sure that your bidding strategy is in line with your advertising goals. CPA bidding works best for advertisers who focus on a specific costumer action, such as leads or purchases. If you use CPA bidding for an ecommerce client, you should ensure that your campaigns are segmented such that each purchase has a similar average value.
  • Start with recommended bid. Since AdWords is basing their recommendation off of your campaigns historical data, I find that it’s a good starting point for CPA bidding. I also tend to find than performance improves when I do what Google says. Observe performance of the campaign with this recommended bidding and then you can begin making adjustments based on performance.
  • Adjust CPA bids for each ad group. If you have a particular ad group that brings in many conversions, try increasing your CPA. This may lead an increase in the average CPA for the ad group but you may be able to increase conversions enough to improve ROI. If you have an ad group that is bringing in few leads this may also be a sign that you should try increasing your CPA bid to see if the increase in conversions is greater than your increase in CPA. Don’t be afraid to decrease CPA bids as well and see if you can make your conversions even cheaper.
  • Don’t make any major changes to the campaign. If you want to get an accurate reading of how CPA bidding affects performance, avoid making any major changes to the campaign. You should however continue making smaller changes to optimize performance, such as pausing keywords and writing new ads.
  • Compare before and after CPA and Conversion Rates. Once you’ve let the conversion optimized bidding run, compare its performance to the performance of your previous bidding system. This is the only way to know if CPA bidding truly works for you.

I’ve had success using CPA bidding in my higher traffic, higher spend accounts because they are able to accrue a lot of conversion data. The average CPA is always pretty close to the target I set, and as of right now I don’t see any reason to switch back to cost-per-click bidding. I’m currently running both max CPA and target CPA bids and plan on writing a follow-up case study about the effects of CPA bidding next month.

If CPA bidding has had an effect on your PPC accounts, good or bad, please post below and as always ask us any questions you may have about making CPA bidding work for you!