Rob Dennis | 24 October 2024

A person is using a laptop displaying graphs and charts. The laptop is placed on a wooden table next to a smartphone. Another individual is seated across the table. The setting appears to be a work or business meeting environment.

Those who work in e-commerce will already be familiar with traditional revenue-based bidding, where you optimise towards generating as much product revenue as possible from your ad spend at a return (ROAS) that is desirable for you.

However, revenue-based bidding can be used beyond typical e-commerce uses and can be a more growth-focused tactic than cost-per-acquisition (target CPA) bidding. Using revenue-based bidding in conjunction with first-party data and a thorough analysis of your customer behaviour can be a valuable tool for all types of businesses including lead gen.

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Two men in an office look at computer screens. One is pointing and smiling, while the other sits next to him, wearing glasses and a green sweater. A plant is seen in the background.

Two individuals are seated at a wooden conference table, engaged in conversation. One is wearing a striped shirt, while the other wears a green shirt and glasses. A yellow notebook is on the table.

Why use revenue-based bidding instead of maximum cost-per-acquisition?

CPA-focused bid strategies rely on acquiring customers for less than your maximum customer acquisition cost (CAC), however, this bid strategy is quite limited, as it neglects any post-acquisition value that the customer subsequently brings to the company.

Furthermore, it treats all customers homogenously and will treat a high-value, long-term customer the same as an irrelevant enquiry; purely because they both completed an action. It also restricts campaign scaling when trying to drive more volume, as the pool in which you can acquire customers for your maximum CAC will be limited.

Revenue-based bidding, however, is easier to scale with a greater focus on value rather than cost. It also opens up the ability to target those who are more likely to become higher-value customers for your business.

Starting Point

As a basic starting point, find your average customer lifetime value from which you’ll be able to assign a typical value to your final conversion and the margin that you’re willing to spend toRead our guide on calculating customer lifetime value acquire this customer.

Read our guide on calculating customer lifetime value

Value	Percentage that complete	Funnel
£1,000	100%	Completed Transaction
£200	20%	Max Acquisition Cost
£100	50%	Quotation Given
£50	25%	Initial Enquiry
£20	10%	Product View

Assuming your average sale is worth £1,000 and the maximum you’re willing to pay to acquire that customer is £200, you can then work backwards to calculate the value of each interim step.

If you know 50% of those who receive a quote go on to complete a transaction, you can assign a £100 value to that event. If 25% of those who initially enquire go on to convert, that can be assigned a value of £50 and so on.

By assigning values to these events you can inform the algorithm what interactions with your site are important, which will then help with campaign optimisation and reducing ad wastage. These events can also be “offline” if you track the GCLID through offline conversion uploads.

Once the algorithm has learned what’s important to you and is effectively optimising towards these goals, you can then implement a target ROAS strategy to ensure that you continue to acquire customers below your maximum CAC.

In the longer term, you can adjust the events you optimise towards by adding or removing those involved in the purchase funnel, such as email newsletter sign-ups, blog visits etc.

You can then look to implement conversion value rules by drilling down to the audiences, locations or devices where AOV may differ from the average. Examples include:

Those in London are 2x more valuable due to transaction or lifetime value than the average
Newsletter sign-ups are 15% more valuable than the average
Those that visit via tablet are 75% less valuable

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However, it should be noted that these rules should only be implemented when Google can’t observe them through the bid strategy, so focus on offline or post-purchase behaviour. If Google can view the value, e.g. transaction value through Google Shopping, it’ll already take it into account as part of the bid strategy.

It is also important you provide the algorithm enough time to learn and overcome any conversion delays. Furthermore, it is important to continue to track the offline data to understand what impact these changes have on your business rather than solely focusing on in-platform metrics such as ROAS, CTR, CPA and CVR.

Summary

Revenue-based bidding allows businesses to optimise their ad spend by focusing on the value customers bring over time, rather than just acquisition costs. By assigning values to different steps in the purchase funnel, companies can target higher-value customers and scale campaigns more effectively. Whether you’re an e-commerce business or a lead generation company, revenue-based bidding can be a powerful growth strategy.

If you’re unsure whether this approach could benefit your business, WebBox offers PPC audits to evaluate your current strategy and identify areas for improvement, helping you maximise both short- and long-term returns on your ad spend.