Google Ads Smart Bidding: Explanation, Advantages & Application

What exactly is Google Ads Smart Bidding?

Smart Bidding is part of the automatic bidding strategies of Google Ads. As the name implies, these strategies work in an intelligent or using machine learning. Consequently, with Smart Bidding you don't have to manually optimize your Google ads, instead you can let it be done by an algorithm. This not only saves time, but also enables you to take into account other factors that cannot be captured with manual bidding strategies.

Smart bidding can help you improve your Search Engine Advertising (SEA) to improve significantly so that you

• increase your revenues,
• make more sales or
• achieve a higher return on investment (ROI).

However, Google Ads Smart Bidding doesn't do everything by itself. You still have to choose a sensible bidding strategy that fits your goals. You can find out more about this in this article.

Why Smart Bidding? - What differentiates manual, automatic and smart bidding strategies

When you run Google Ads, you will come across bidding strategies. Your ads are played according to an auction system: Whenever a user searches for a term (keyword) relevant to you, everyone who wants to display an ad bids on the placement. The best ad placement depends on the bid and quality factor. The quality factor evaluates the relevance and quality of an advertiser's ad for user's search. Whoever offers a high bid in combination with a very good quality factor secures the best ad placement. The other ads are placed below or not at all.

To be able to bid sensibly, you need to first find suitable keywords. The appropriate SEA-software greatly simplifies this task for you. For each keyword, you can manually set a bid. However, not every search query is equally relevant to you: sometimes the keyword does not fit 100%, sometimes the timing is unfavorable, etc. You miss opportunities because your bids are too low, or you spend too much money on high bids for less meaningful queries.

Alternatively, you could manually adjust your bidding strategy according to time of day, day of the week, and other criteria. However, this is very time consuming and only possible to a limited extent: With manual bidding, you only have access to a few factors that could be relevant for your ads. Google Ads helps with various automated bidding options.

The smart bidding strategies are also part of the automated strategies - but not all automated strategies are smart. So what distinguishes the Smart Bidding strategies? Google Ads Smart Bidding checks various factors for each new auction and optimizes bids in real time accordingly. In addition, you can pursue different goals with different strategies.

These factors are considered by Google's Smart Bidding

When you manually optimize your bidding strategies for Google Ads, you can find out using various tools some important information. For example, with Google Trends you can check to what extent interest in certain search terms varies seasonally. With a tool like SimilarWeb Pro you can conduct competitor analyses.

Before the Smart Bidding options, various SEA tools were the only way to automatically adjust bidding strategies. Now, Google Ads itself does this job, so current SEA tools no longer focus on bid management, but on comprehensive general SEA management. Mentionable examples include Adspert, Optimyzr, or Marin.

The Smart Bidding in Google Ads takes into account many factors that you cannot access manually and that you could not capture for each individual ad. These user signals are checked by the smart bidding before determining the bid for your auction:

• the location or desired location of the inquiring person

• the device, the browser, the operating system and the language of the user interface

• day of the week and time of day

• Google Ads Remarketing, if available

• various ad properties

• the actual search query (not just the exact matched keyword)

• whether the search is carried out directly on Google or on a partner website

• the placement in ads in the display network

• the behavior of the person on a website for display ads

• certain product attributes in shopping campaigns 

• certain attributes for hotels and travel plans

• information about competitive ability (in shopping and hotel campaigns)

Why is it good that bids are adjusted based on these criteria? Google itself provides excellent examples of how these factors affect bids. Three examples to better understand:

1. Device:If a user*in is looking for a car sale and uses the mobile phone, it is more likely that a car sale nearby is being searched. In this case, Google would lower your bid if your business is not nearby, or increase it if your chance of conversion is greater.

2. Language of the user interface: You offer language courses and a person with the language setting "Spanish" searches for the term "language courses". Your ads for "Spanish language courses" will be less relevant, so Google will lower the bid for this search.

3. Behavior on the website: If a person has already looked at several expensive products, it is evident that they are willing to spend a good deal. Google will accordingly increase the bid in order to increase the chances of a purchase.

You can see: With Smart Bidding in Google Ads you can get the most out of your budget, make your ads more relevant to search queries and improve your conversions. However, as mentioned at the beginning, you need the right bidding strategy. Let's get to that now.

What types of Smart Bidding are there in Google Ads?

In Google Ads, you can set up five different Smart Bidding strategies:

1. Auto-optimized CPC (also eCPC)

2. Maximize conversions

3. Maximize conversion value

4. Target CPA

5. Target ROAS

We will take a look at these in detail.

1. The auto-optimized CPC

"CPC" stands for "Cost per Click". So it's about the cost you pay for a click. This bidding strategy is also called "eCPC" because in English we speak of "enhanced" (improved) CPC.

As with all smart strategies, Google Ads automatically adjusts the bid per auction. To calculate the probability that a bid will be successful,Google Ads uses historical data - these don't have to be your own. Therefore, you can use this strategy even if you don't have any data on clicks or conversions yet. The algorithm takes care of this. However, with eCPC, you still manually set a base bid that serves as the basis. Depending on the likelihood of success in terms of a conversion, this base bid can be corrected up or down for individual user inquiries.

2. Maximize conversions

The goal is already in the name: this Smart Bidding is about achieving as many conversions as possible within the given budget. What exactly these conversions are, you decide. It can be as well as newsletter registrations as sales.

The price is secondary in this strategy. It's quantity over quality and Google Ads will try to fully deplete your daily budget to convert as much as possible - even if this might not be financially wise. Google Ads sets the price itself and it can sometimes be quite high.

3. Maximize conversion value

What is missing in the second strategy is the focus on the quality of conversions, this variant of Smart Bidding in Google Ads provides: Google Ads aims to maximize the value of all your conversions overall.

To do this, you must first specify what value each conversion has. If you are selling a product for $5, then the value (and therefore the maximum bid) should obviously be much lower than with a product for $950. So you define the rules of the game in advance and Google Ads Smart Bidding gets the maximum possible sales for you - at least in theory - while adhering to the budget.

4. Target CPA

"CPA" stands for "Cost per Action". For example, if you spend a budget of $100 on your ads and they lead to 20 predefined actions (e.g. sales), then your CPA is $5.

In the Target CPA strategy in Smart Bidding, you specify the price - the CPA - that you are willing to pay on average for an action. The actual price per action can sometimes be higher or lower, however, Google Ads will try to achieve your target price on average.

When a user enquiry comes in, Google Ads first checks how likely it is that you will achieve a conversion (user action) for a certain amount of money, thus determining the optimal bid. This bidding strategy is similar to Smart Bidding "Maximize Conversions" - with the special feature of having better financial control with the Target CPA.

5. Target ROAS

"ROAS" is the abbreviation for "Return on Ad Spend" and therefore describes to what extent you regain your ad budget with a campaign in sales or similar. In this smart bidding strategy in Google Ads, you specify a target ROAS that should be achieved (like the target CPA in point 4) on average.

Like "Maximize Conversions" and "Maximize Conversion Value" behave to each other, so do the strategies "Target CPA" and "Target ROAS". It's about profitability. Simply put: You set how much you want to earn per invested dollar. As with the "Maximize Conversion Value" strategy, the values for different user actions or conversions must also be accurately defined in this case.

Your advantages with Google Ads Smart Bidding

Google itself names four clear advantages that you have when you build ads with Smart Bidding:

1. Machine learning beats human performance. Google Ads continuously evaluates which actions work and continuously optimizes your ad strategy - faster, more efficient, more reliable and with more criteria than a human could.

2. Google Ads Smart Bidding takes into account many user signals. We have already introduced you to the many different signals. Google accesses lots of data, evaluates all of them at the same time, and optimizes the bids based on this lightning-fast.

3. You can flexibly control the performance of your campaigns. If you have defined clear goals, your Google Ads can be precisely adjusted with Smart Bidding. The different bidding strategies support different goals, which we will go into more in-depth later.

4. Performance reports help you optimize your Ads. The detailed insights help you quickly identify and fix problems to improve your ad strategy in the long run and continuously. Tests and simulators also allow you to try out strategies for different goals.

A short example for a better understanding of user signals: If there is a high probability of a conversion when users click on your ad from mobile devices between 4pm and 8pm, you can optimize your campaigns manually or via Smart Bidding for this. The user signals "device" and "time of day" are also available for manual ads. However, if you want to specifically target iPhone users with the user language English, this is only possible with Smart Bidding - and only machine learning can recognize this trend at all.

In short: Google Ads Smart Bidding has the potential to contribute very cost- and time-efficiently to the development of your ad strategy. However, with all these advantages, there are of course pitfalls to bear in mind.

These restrictions apply when using Google Ads

In order to use Google's Smart Bidding profitably, you must in any case provide sufficient data to the algorithm: Only auto-optimized CPC works more or less reliably even without previous conversions. The other bidding strategies need a certain learning time - ideally at least 7-14 days.

During this time, also corresponding data must be collected. As a rule of thumb: For the Target CPA strategy, the algorithm should be able to access at least 30 conversions within the last 30 days, for the Target ROAS 60 conversions is a good guide.

One disadvantage is: If there is a lack of data or theconversion tracking is not working, the results of your campaigns will not be reliable. Only when Google Ads can reliably determine the probabilities for conversions, do you benefit from machine learning.

However, not all industries and business models can quickly and easily measure the desired company goal in the form of Google Ads conversions. Especially for the B2B sector it is particularly important to optimize for qualified leads, otherwise you may generate leads using Google Ads Smart Bidding that turns out to be a loss-making business later. You can learn more about this in the section "How can you optimize the performance of Smart Bidding in Google Ads?"

Also important for the strategies with target CPA and target ROAS is a each appropriate price. If this is set too low, the ads may not be played out at all. If it is too high, unnecessarily much money is spent on little promising conversions. With auto-optimized CPC, it is important to note that Google Ads can adjust the bids unrestrictedly, even if the conversion is no longer worthwhile at a high price. Therefore, you must regularly monitor the performance of your ads.

Which strategies with Google Ads Smart Bidding are sensible when?

This question cannot be answered in general terms. However, there are some orientation points for the right strategy:

Best Practices for Using Google Ads Smart Bidding

Every strategy only works if you have defined your goals clearly first. Is your focus on gaining leads or is it clearly about increasing sales? The business goals need to be established before the campaign goals can be built around them.

Important!

For all Smart Bidding strategies, you must activate the feature conversion tracking because this is largely where the important data that Google Ads collects for the optimization of the bids are based.

Also consider the following tips:

• The "Maximize Conversions" strategy: Make sure you only include really meaningful conversions. If you have several campaigns with different conversion types in a group, also set a daily budget for each individual campaign. Otherwise, Google Ads may sometimes use the entire budget in a less meaningful way to achieve conversions at high prices.

• Strategy "Maximize conversion value": With this strategy, it makes sense to include all possible conversions so that you can later evaluate where your return on investment is highest. However, you should very carefully define the values for the different conversions and possibly adjust them over and over again.

• Strategy "Target CPA": Determine your previous average CPA and increase it by about 10-20% for the start of a target CPA campaign. Also make sure that your daily budget is at least three times the target CPA. This ensures that enough signals are received and the learning phase is quickly passed through. Afterwards, Google Ads Smart Bidding can use what it has learned to achieve your desired CPA. 

• Strategy "Target ROAS": Start with a target ROAS that is about 20% above what you achieved for the last 30 days. Then gradually work your way down over time to reach the cheapest yet most effective bids. Like in the "Maximize Conversion Value" strategy, the daily budget should also be at least three times the average cost per conversion (the CPA) in the "Target ROAS" strategy.

• Data amount: If you lack conversion data to use Target CPA or Target ROAS, combine several campaigns into a portfolio so that there is a larger amount of data available.

• Learning phase: During the at least 7-14 day learning phase, you should not make any bid adjustments. Google Ads Smart Bidding uses the collected data as a basis to optimize your bids. If the algorithm is disturbed during this process, the learning phase could restart in the worst case.

• Bid price: For Target CPA and Target ROAS, Google Ads Smart Bidding will suggest a price to be set, provided conversion data is already available. You don't have to match this price. In fact, it often makes sense not to - strategic thinking is required and at the start of a campaign the price can often be well above the suggested one.

Beware of campaigns that are not played out or not often: The likely reason in this case is usually a budget that is too low, a target CPA that is set too low, or a target ROAS that is set too high. This can lead to Google Ads not getting competitive bids for you. The consequence: Your campaign does not get meaningful data and the learning phase is not completed. Therefore, keep in mind the above mentioned Best Practices: Choose Target CPA and Target ROAS based on current averages and set an appropriately high budget. Alternatively, in these cases, of course, a temporary switch to eCPC or the use of a portfolio strategy is also possible.

Best Practices for Portfolios

• Own budgets at campaign level make sense in the Target CPA strategy only from 30 conversions in 30 days, for the Target ROAS strategy, there should be at least 45-60. If these are not met, combine the campaigns in a portfolio and then set a total budget for the portfolio.

• Brand campaigns should not be combined with generic campaigns in a portfolio.

• Move new campaigns out to a separate portfolio (strategy: Maximize Clicks) at first or run them with their own budget to collect data.

• The daily budget should - ideally - be about three times as high as the target CPA or average CPA of the portfolio or campaigns.

How to set up Google Ads Smart Bidding

Using Smart Bidding is not difficult. First, you need to create a Google Ads account. Then, you create your Ads campaign - either as a single campaign or as part of a portfolio bidding strategy.

For a new individual campaign, you also specify your daily budget. Under "Bids", you can then choose your bidding strategy. For a portfolio bidding strategy, choose the option "Create from shared library" on the "Bidding Strategies" page and then select the campaigns you want to include.

How can you optimize the performance of Smart Bidding in Google Ads?

Optimizing Google Ads is definitely part of a good ad strategy. In principle, the Smart Bidding Ads optimize the bids themselves, after all the algorithm learns over time and thus improves the bids. Nevertheless, it is important that you regularly compare the performance with your goals. Check, for example, if the prices for conversions with the "Maximize Conversions" strategy are too high, whether enough impressions and clicks are reached, or whether your ROAS is positive.

Note: Don't optimize too early and not too frequently. After each bid adjustment - this includes changing the daily budget - the algorithm needs time to learn again. So generally optimize not earlier than after 7-14 days and make the adjustments in small steps (of about 10% changes). This gives the algorithm plenty of learning time.

Use Micro-Conversions

If your budget is very small or your campaign does not generate enough signals (in the form of conversions), it makes sense to first focus on micro-conversions. The macro-conversion is the result you want to achieve with the campaign - for example, a sale - while micro-conversions are the individual steps along this path: people, for example, visit a specific area of the website or put products in their shopping cart without buying them.

Here's an example: An e-commerce store has no sales, so no signals are available for the campaign and Google Ads Smart Bidding cannot learn. The conversions are now defined as micro-conversions: it tracks when users put products in their shopping carts.

If far only 15 people bought within 30 days, yet 32 put a product in the shopping cart, in this way enough conversions can be tracked. The learning phase proceeds faster and then the campaign is switched back to the original campaign goal.

Generate qualified leads in the B2B sector

With Google Ads Smart Bidding leads can be collected in the B2B sector, but it sometimes lacks the quality of these leads. The recommendation for optimization is: Link your Google Ads account with your CRM system (e.g.Hubspot CRM orSalesforce CRM). With the help of your CRM, you can then define in Google Ads qualified leads, with which you have already collected information, as promising conversions. In this way, your campaign can be optimally controlled and you not only get a certain number of leads, but also qualified ones.

Tip: Don't start optimizing your ad campaigns only when problems arise. Even with good numbers, it's worth setting up another campaign and checking to see if you can't achieve even better results.

Conclusion: Google Ads Smart Bidding works with the right strategy

Activate Google Ads Smart Bidding and start making a consistent profit from now on - unfortunately, it's not that easy. Although the algorithm takes a lot of work off your hands in placing and optimizing your ads, you only see good results with a well-thought-out strategy. Therefore, you always have to first define which goals (leads, sales, high profits, etc.) you are pursuing and then build your ad strategy on this.

Since the algorithm in most cases needs data to use Google's Smart Bidding profitably, the ad strategies need to be worked out step by step. Last but not least, the continuous optimization is also a part of a good strategy. If you take these points into account, outstanding results are possible with Google Ads Smart Bidding.