Introduction

Imagine the following scenario. You’ve been using Google Ads platform to grow your business for a while (at least 4 months, but preferably more than a year). You know what customer acquisition cost (referred to as CAC in the remainder of the text) is right for your business, and you consistently hit those targets on your Google Ads account, so you are ready to see how much more you can spend in order to grow your business without impacting CAC. In this article, we explore ways of increasing the budget for campaigns whose delivery is limited by the daily budget. We work under the following assumptions:

  • There is some historical data to draw conclusions from,
  • Target CAC is clearly defined for the account,
  • Only transaction conversions are tracked.

Hypothetical scenario

To illustrate the points, let’s look at a hypothetical Google Ads account with the following campaign structure:

Campaign

Daily spend

Transactions

CAC

General Search Campaign

$400 (limited by budget)

10

$40

Brand Search Campaign

$60

10

$6

Overall

$460

20

$23

In this simplified example, we only have two campaigns in the account, both of them Search campaigns. One of them is a brand campaign which is aimed at customers near the “bottom” of the conversion funnel, who are ready to make a purchase. They got introduced to the brand via some other channel at some point in the past, and they made the decision to buy, which is why the CAC is “low”. In general, these campaigns are not limited by their budget since they bring conversions at low cost. The other campaign is aimed at new customers, not familiar with the brand. The daily spend is higher due to higher number of searches for general keywords (keywords that do not contain the brand name or product name), but the CAC is also higher since the customers are located at the “top” of the conversion funnel. 

This may be a simplified example, but can be applied to a number of accounts if the “Brand Search Campaign” is interpreted as a group of all retargeting campaigns (qualified leads, low CAC), and the “General Search Campaign” is the group of all acquisition campaigns (new customer, high CAC).

Basically, 4 options are possible in this scenario, with regard to the goal CAC, and in the rest of the post we explore our options for each of these situations:

  1. Target CAC: >$40.
  2. Target CAC: $30,
  3. Target CAC: $20,
  4. Target CAC: <$20.

Scenario #1, Target CAC > $40:

This is by far the best scenario, and at the same time the most unrealistic, so it will not be analyzed thoroughly. Here, the CAC for the acquisition campaign is lower than the target value, so the budget can easily be increased. 

Scenario #2, Target CAC of $30:

In the second case, there is still room to increase spend for the general campaign, but that growth is limited, since the CAC for the campaign ($40) is higher than the KPI figure ($30).

The first thing to see is how much can the spend be increased for the general campaign, so that the overall account has a CAC of $30?

The formula for the upper limit on spend is given as:

Formula for upper limit on spend

Explanation of the variables:

  • CAC(goal) – the CAC valued defined as a KPI ($30 in this case),
  • CAC (current) – current CAC level for the campaign ($40 in this case),
  • Number of daily transactions (other campaigns) – the number of conversions generated by other campaigns (10 in this case, from the Brand campaign).

Using the formula, we get that the daily spend for the general campaign can be set to $960/day. The following table shows the results after the budget change:

Campaign

Daily spend

Transactions

CAC

General Search Campaign

$960

24

$40

Brand Search Campaign

$60

10

$6

Overall

$1,020

34

$30

The most important thing to note is that we increased the daily spend of the general campaign in such a way that the overall account CAC level is equal to the target CAC of $30. 


In our calculation, we assumed that the cost/conversion for the campaign will stay the same. This assumption was made because the only change will be in the daily budget. The ad will stay the same, as will the keywords and the landing pages. If the daily search volume for these keywords is large enough, then the assumption is reasonable. To see this, a metric called “Impression share” is useful, as it tells us how often our ads are shown. Let’s say that, for example, the search impression share for our campaign is 20%. By definition, the impression share is the number of impressions received divided by the number of impressions the campaign was eligible to receive. Since many advertisers may compete for a given keyword, not all advertisers will get their ads displayed every time. The way Google chooses which ones to show is based on the auction results. Since the campaign is limited by the budget, slow increase in the budget of the campaign will increase the impression share, and it’s reasonable to assume that the cost/conversion will not suddenly increase. This is where historical data is important: how sure are we in the current cost/conversion of $40? How did that number change over the past month? A good thing to check would be to look at “auction insights” for that campaign, to see the amount of competition the campaign faces. If there is high competition, then it’s possible that cost-per-click will increase as higher bids will be necessary to win in the extra auctions, in order to increase the impression share. An increase in CPC will increase the cost/conversion, if conversion rate stays the same. 

A course of action in this case is to start slowly increasing the daily spend (amount and frequency depends on one’s risk tolerance), and to set the campaign optimisation for target CPA of $40, which is the current cost/conversion. The reason why CPA is a good optimisation strategy in this case is that it can leverage historical data to make predictions using statistical data and algorithms not available to end users, to bring conversions at the stated goal amount.

What if at one point we cannot increase the budget anymore without increasing the cost/conversion for the campaign? In other words, what if we cannot reach the $960/day spend with $40 CAC, even if the search volume is high enough? The answer is similar to the analysis given for the third scenario.

Scenario #3, Target CAC of $20:

Here, our goal CAC is a bit lower than the overall account CAC, so some improvements need to be made. A simple answer in this case would be to lower the budget on the general campaign as it drives the overall CAC upwards, and to look for growth opportunities with other campaigns. This is a viable option, but it’s possible that some adjustments can be made to the campaign which will improve results. The following is a list of possible actions one can make in this case:

  1. Ad groups: Look at individual ad groups. Maybe one ad group has a significantly higher cost/conversion than other ad groups. Rather than just pausing this ad group, it may make sense to create a new campaign for this ad group. Marketing is all about finding what works and increasing the budget for the stuff that works. So, we may want to separate the “bad performing” ad groups from the good ones, and pump more budget into the good ad groups. This may be better than just pausing the “bad” ad group because the keywords in that ad group may be very relevant to the company, and you don’t want to just lose those conversions. 
  2. Keywords: A similar thing can be implemented on keyword level. Looking at the performance of individual keywords, they can be grouped into “good” ones and “bad” ones, based on cost/conversion. If a keyword relevant to your company has high CAC, this is a good reason for creating a new campaign and focusing on finding the appropriate ads and landing pages for customers interested in that keyword. Same as before, this is better to do in a separate campaign, and to increase budget for the campaign that only has good performing keywords.
  3. Ad performance: You can also look at individual ads in all ad groups, and pause the ads that have cost/conversion much higher than the campaign average. Even though the keywords, landing pages and the target audience are the same, the ad text can still have a significant impact on the campaign performance. Keep in mind that at least one ad needs to be active in an ad group.
  4. Broad matching: If broad matching is used, it makes sense to look at the “search terms” report, to see actual search terms entered into Google that trigger the keywords in the campaign. Selecting broad match keywords may have unintended consequences. A simple example is given just for illustration. Imagine you are selling men’s shoes on your webshop, and you decide to look for new customers with a general search campaign that has the following broad match keyword: leather shoes. If someone searches for “women’s leather shoes”, the campaign will be triggered, but the audience is not relevant so the campaign may lose money. The example is intentionally simple to make the presentation clear, but similar things can happen in much more subtle ways. Low performing search terms can then be selected and entered as negative keywords to the campaign. A “negative keyword” is a sign to Google not to show ads if that search term is entered. We just saw how this is useful. A similar strategy is useful when phrase matching is used, but the impact should not be as high.
  5. Demographics report: It may be useful to look at the demographics report for the campaign to see differences in cost/conversion between different age groups, gender, and household income.

Scenario #4:

In this case, the overall account CAC is much higher than the goal value. The same strategies as ones mentioned in the third scenario can be employed, but it may make sense to stop the campaign altogether, and to try again with new creative and keyword selection.

Conclusion:

Hopefully, the strategies suggested gave you some ideas for further exploration. Google Ads has a number of different functionalities and metrics, it’s difficult to manage all of them. It’s important not to lose track of the most important thing: the unit economics of the products being sold (what is the acceptable cost for acquisition of new customers, and their lifetime value). This serves as a guiding light for all campaigns, and all other metrics are used as tools to correct the trajectory if the performance deviates from the goal.


0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *