Social media platforms and search engines give marketers an equal chance by enforcing an ad bidding structure. Generally, every market will get some exposure, but it’ll depend on the amount they pay. Getting quick results can be costly. So, if you’ve got a tight budget and choose to pay at the bottom range, you won’t receive many impressions. Likewise, selecting the middle range will give you a medium number of impressions, and paying the maximum will give you the highest number of impressions.
This can be a tough subject for marketers since different bidding strategies work best for different businesses. There’s no one-size-fits-all. But to make it easier for you to understand bidding, I’ll provide you with an example of a strategy.
The maths behind ad bidding
Let’s begin with these equations:
Total clicks X average CPC (Cost-per-Click) = total costs
Total clicks X CR (Conversion Rate) = total conversions
100 clicks X $1 = $100 cost
100 clicks X 1% = 1 conversion
To work out your CPA (Cost-per-Acquisition), you divide the top equation with the bottom equation. Or to simplify it further, remove the number of clicks from your equations since they’ll rule each other out anyway. This means that your CPA will be your average CPC divided by CR.
Is this a bit a confusing? I’ve got an example for you. Let’s pretend you’ve got a max CPC of $10. You want to find out what CPC you need to bid to attain your CPA. To find this out, multiply your CPA of $10 with your historical CR. Now you’ve got your CPC.
Here’s another example. You’ve got a CPA of $10 and your CR is 1%. The equation for this is $10 X 1% = $0.10 CPC.
By looking at your historical bid data to work out these numbers, you can be smarter with your spending. This strategy isn’t right for every business, but it’s a smart way of bidding when you’re still new to online advertising or you have a tight budget.
I hope this quick guide has aided your understanding of ad bidding which can be applied when advertising on social media or Google. If you’ve got any questions just drop us a comment.