Today’s Google Ads Help is an incredibly simple, yet often overlooked piece of the puzzle.
It’s very normal for people to focus on keyword research, match types, budgets, and ads. Those are all extremely important and have a big part in your success on AdWords.
However, even the best ad, the perfect keyword, and an ideal budget are wasted if your Google Ads bid management strategy isn’t optimized. Google bid management plays a crucial role in ensuring that your bids are competitive, cost-effective, and aligned with your advertising goals.
Many advertisers struggle with setting the right bids—too high, and they risk overspending with little return; too low, and they miss valuable impressions and clicks. That’s where automated bidding strategies, manual bid adjustments, and real-time bid optimizations come into play. By leveraging target CPA, target ROAS, enhanced CPC, and bid modifiers, you can fine-tune your campaign performance.
For example, if your campaign focuses on maximizing conversions, you might use Target CPA bidding to let Google’s machine learning optimize your bids dynamically. On the other hand, if you prioritize ad placement, manual CPC bidding with bid adjustments for high-performing audiences or devices can give you more control.
Effective AdWords bid management ensures that your budget is allocated to the highest-performing keywords.
Successful Google Ads bid management requires continuous monitoring, A/B testing, and adjusting your bids based on seasonality, competition, and conversion data. Without a solid bidding strategy, you could either waste your budget on clicks that don’t convert or lose out on potential customers due to weak bids.
THE UNFORTUNATE CAMPAIGN THAT NEVER GOT A CHANCE
Bidding Is Life-Or-Death For PPC Accounts
With proper Google bid management, advertisers can optimize their ad spend for maximum ROI.
I was talking with a potential customer the other day… Does this sound like you?
“I launched my campaign a few weeks ago. I’m getting some sales, but it’s so expensive! I’m not making any money. I’m spending 100 dollars to make 50 dollars.”
The potential client went on to turn off their ads completely.
I call situations like this the unfortunate overpaying account—a common challenge in Google Ads bid management.
Google Ads bid management strategies vary depending on campaign goals and competition. Adjusting your AdWords bid manually can help control costs but requires constant monitoring.
Even with a strong conversion rate and lifetime value, the economics of paying for a click that’s too expensive never work. Effective Google bid management is about ensuring your bids align with your goals, cost structure, and profit margins.
Let’s assume that you’re bidding on a perfect keyword and know you’ll make 500 dollars for every 100 clicks (5% conversion rate with a 100-dollar product).
What happens when you start overpaying?
- If you’re bidding too high, your cost per click (CPC) eats into your margins, turning a profitable campaign into a loss-making one.
- If you’re not adjusting bids based on performance, you might end up competing in auctions where the cost outweighs the potential return.
- Without automated bidding strategies like Target ROAS or Enhanced CPC, you might miss optimization opportunities that adjust bids in real-time.
- If you don’t factor in bid adjustments for devices, locations, and audience segments, you could be wasting budget on low-converting traffic.
Proper Google Ads bid management ensures you’re not just winning clicks but winning them at the right price. Instead of blindly increasing or decreasing bids, focus on optimizing based on conversion data, audience insights, and profitability metrics.
Smart bidding strategies and continuous bid monitoring can help prevent overpaying while maximizing returns.
It’s very possible that your account is in the “overpaying” stage.
On the other hand, maybe you’re seeing a 3x or 4x ROI on your campaigns—but you need a 6x ROI to be profitable. This is common in industries like drop-shipping or wholesale, where tight margins make every dollar count.
The good news? You can fix:
- Relevant, but expensive keywords – Some keywords drive great traffic but at a cost that cuts into your profit.
- Unprofitable, but well-targeted campaigns – Even if you’re reaching the right audience, inefficient bidding can erode profitability.
And the solution? Google Ads bid management.
With smart bidding strategies, manual bid adjustments, and data-driven optimizations, you can lower costs while maintaining traffic quality. Some key tactics include:
- Using Target ROAS to automatically adjust bids based on conversion value.
- Applying negative bid adjustments for underperforming placements, devices, or audiences.
- Lowering bids on expensive, high-volume keywords while identifying cheaper, high-intent alternatives.
- Testing manual CPC bidding in highly competitive auctions to avoid overpaying.
At its core, Google bid management is all about math and strategy—ensuring you’re bidding the right amount to maximize profitability without wasting ad spend.
Using bid adjustments, advertisers can increase bids for high-converting demographics and devices.
How Google Ads (or any PPC platform) Bid Management Works
Bid Management is actually incredibly simple.
To start, you only need to think about a few metrics:
- Goal ROI or CPA (cost per acquisition)
- Current ROI or CPA
That’s literally it. Let’s dig in.
Start by opening up excel and creating columns for your: Current ROI and Target ROI.
What we’re going to be finding is our “bid modifier”.
There are all sorts of bid modifiers in Google Ads. After this post, you’ll understand how to set bids on the hourly level, set geographic-based bid modifiers, and even device-based bid adjustments. The good news is: they all follow a simple math formula.
ROI vs. CPA
It’s worth taking a moment to define what we’re trying to achieve in Google Ads bid management.
ROI (Return on Investment)
Formula: (Revenue from Ads) / (Cost of Ads)
This gives you a whole-number multiple representing how much money you make for every dollar spent.
For example:
- If you generate $100 from $10 spent, that’s a 10x ROI—fantastic!
- If you spend $100 to make $50, your 0.5x ROI means you’re losing money.
Your goal? Maximize this number while ensuring long-term profitability.
CPA (Cost Per Acquisition)
Formula: (Total Ad Spend) / (Total Conversions)
This metric is crucial for lead generation campaigns. It tells you how much it costs to acquire one customer or lead.
For example:
- Spending $100 to generate 10 leads results in a $10 CPA.
- A lower CPA means more efficiency—you’re acquiring leads for less money.
Your goal? Lower CPA while maintaining quality leads and conversions.
The Math Behind the Perfect Bid
In the video below, you’ll see the simple equations to calculate your new bids based off of your historic performance.
Establishing a New Bid: A Step-by-Step Guide
To set a new bid effectively, you’ll need a few key metrics:
- Current Bid
- Current ROI (Return on Investment) or Current CPA (Cost Per Acquisition)
- Target ROI or Target CPA
Step 1: Determine the Bid Modifier
Adjusting for ROI
If your goal is to improve your ROI, for example, from a 2 ROI to a 4 ROI, you’ll first calculate your bid modifier. To do this, compare your current ROI to your target ROI. The difference will give you a percentage that represents how much you should adjust your bid.
For instance, if you want to go from a 2 ROI to a 4 ROI, you would decrease your bid by 50%.
Adjusting for CPA
If you’re working to lower your CPA instead, the process is similar but focuses on your cost. You’ll compare your target CPA to your current CPA to determine the necessary bid adjustment.
For example, if your target CPA is $20 and your current CPA is $40, you would also decrease your bid by 50%.
Step 2: Calculate Your New Bid
With your bid modifier calculated, apply it to your current bid. If your current bid is $2 per click and your modifier indicates a 50% decrease, your new bid should be $1 per click.
Step 3: Implement and Monitor
After applying your new bid, keep an eye on the results. You should see a reduction in costs, leading to a better ROI or a lower CPA, depending on your goal.
Conclusion: Understanding Cost per Lead vs. ROI
Remember, while ROI aims to be as high as possible, Cost Per Lead should be as low as possible. This means your bid adjustments will vary depending on the metric you’re optimizing for, but the process remains systematic and data-driven.
We live, breathe & Dream Paid Traffic
Go Forth With Your New Bids!
You can now modify your bids based on your goals.
Check out more blog posts:
Mastering Psychographic Segmentation: Examples and Techniques for Success
11 thoughts on “Day 25 of AdWords Help: The Math Behind the Perfect Bid”
I learned a lot here, Michael. Thanks for sharing this, especially the video. As someone new to AdWords, I had heard of this topic, but didn’t know the details. Breaking it down like this with the numbers makes it simple to digest.
Thanks @disqus_cYP13UD0zc:disqus
I was doing PPC for maybe a year until I really sat down and “got” the math behind bidding. I think some people in the industry never do! 😉
Hey – sorry for probably a super dumb question but why would you use minus one thing in the formula necessary to calculate the bid modifier. Thanks a lot for that.
No problem at all Katarzyna
What you’re really calculating is a percent change modifier. You’re answering the question, “by what number do I need to multiply by in order to get to my target?”
In other words: my target is what percent change away?
Check out this post:
Check out “method 2” here: https://www.mathsisfun.com/numbers/percentage-change.html which is similar
Found a typo here: “You’ll now have your costs, resulting in double ROI.”
Halve* 🙂
Great topic and a must-do for most accounts.
Q1: “Let’s say you want to go from a 2 ROI to a 4 ROI.” — Stupid questions. Does the values indicate 2x and 4x values? e.g. I want to increase my current ROI by 4 times what it currently is.
Q2: How do you guys approach a brand new client when they haven’t tracked their ROI using ValueTrack parameters and using a CRM? Do you first get that in place and let it run for a while before you apply the aforesaid tactic?
Q3: How often do you perform this tactic on an account? I’m sure weekly/monthly since you need to analyse trends and impact of each adjusted bid.
2x ROI means the revenue is 2x what the ad cost is. i.e. spend 50 make 100 is 2x ROI.
Always be tracking! Can’t optimize what you can’t track.
How often? As much as it necessitates 😀
Thanks a lot, makes clear sense.
Q: How do you approach bid adjustment on a longer sales cycle (using the aforesaid calculations)? Let’s say you only close a deal every 4 months.
Q: Also; let’s say you drive a sale during the first month and you calculate the ROI of the ad spend. Another couple of months pass and you make recurring sales from the initial lead. Do you then attribute the sale value to the initial ad/keyword that drove the lead?
Indeed there are nuances. And yes, it should be based off the LTV. The reason why is the more you can spend to acquire a customer and still make profit allows you to spend more than your competition – who may have a lower LTV.
Alternatively you can write:
new bid = old bid / (Actual CPA / Target CPA)
Thanks @disqus_HIXZl0ZAQD:disqus
You can also write: CPC = CPA * Conversion Rate
and (Conversion Rate x Profit per Conversion) / Target ROI % = Maximum Bid
and (Conversion Rate x Profit per Conversion) / (1/Target ACOS) = Maximum Bid for all those amazon sellers.
I dig it – I just added it to my bid calculator!