How to Manually Calculate Keyword Bids

Former Contributor / 27th September 2021 / Comment / PPC

Originally posted February 10, 2017. Updated September 23, 2021.

If we had to pick the most important metric for paid search, that’d be easy. ROAS, or Return On Ad Spend, is one of the best indicators for how your campaign is performing.

And while a bigger ROAS is better, the goal isn’t necessarily to max it out. Rather, it’s to target the right ROAS to maximize traffic volume, which will, by definition, also maximize revenue.

So what is the right ROAS? Well, that depends on a few things, and this isn’t that post. However, once you’ve determined your target ROAS, you’re ready to embark on a new challenge: making sure you’re bidding in the most efficient way possible.

In 2021, algorithmic technologies have come a long way, and automated bidding strategies are the recommended approach by publishers like Google and Bing. Multiple bidding strategies can help you decide how best to optimize your account, but these may not always be the best choice if you want full control of your bidding and the ability to scale.

In this article, we’ll look at the other option: calculating your keyword bidding manually. Throughout, we’ll show you how we optimize our clients’ accounts while keeping target ROAS a top priority.

Let’s go back to algebra…

We believe the key to unlocking the economic power of PPC advertising with any degree of scale is in the math.

The right keyword targets, great ad copy, effective landing pages – these are all critical for effective PPC advertising, but we believe they’re just the foundation. It’s the application of strong quantitative analysis and the powerful bidding strategies that are a byproduct of that work that enable us to drive exponential gains for our clients.

Now, back to the math! We know the basic formula for e-commerce:

Revenue = Traffic x Conversion Rate x Average Order Value

We also know that:

ROAS = Revenue / Cost or Revenue = ROAS x Cost

And that:

Cost = Traffic x Cost Per Click or Traffic = Cost / CPC

Here’s how to use this knowledge to calculate your target Cost Per Click.

If we recall our first formula and make some simple substitutions for Revenue and Traffic, it looks like this:

Revenue = Traffic x Conversion Rate x Average Order Value

Our formula then becomes:

ROAS = Cost Per Click x Conversion Rate x Average Order Value

Which we can simplify to:

ROAS = Cost Per Click x Conversion Rate x Average Order Value

And finally reach this formula…

ROAS = Cost Per Click x Conversion Rate x Average Order Value

So what do I do now?

We’ve created a simple CPC calculator that you can use to plug in your site’s Conversion Rate and AOV. From there, you can input your target ROAS and see how much you should bid to hit your target.

(An important note: Make sure you have a different strategy and ROAS goal for the paid traffic you are driving through search on your brand keywords vs your non-brand keywords.)

As you might expect, this is an oversimplification of how to determine the right CPC for a given keyword. Our team uses a whole suite of enterprise bid management programs combined with a detailed understanding of bid strategies like these to manage paid search campaigns that produce extraordinary results.

If you’re interested in manually optimizing your paid search for ROAS, Wheelhouse can help. To learn more about our process and the results we’ve driven for our clients, don’t hesitate to reach out. Give us a call, use our online form, or leave a comment below to get in touch. We’d love to hear from you.

By Former Contributor