Guide To Target CPA Bidding Google Ads
What Is Target CPA Bid Strategy
Target CPA (tCPA) is an automated bidding strategy in Google Ads.
In the past, advertisers on Google would manually set bids for keywords in their account. The bid represents the maximum amount that the advertiser is willing to pay for a click from that keyword.
While this option is still available to advertisers (manual bidding), most advertisers are using automated bid strategies where Google will set the bids automatically.
Using the Target CPA bid strategy, advertisers will tell Google how much they are willing to pay for a conversion. This is the target. Google will then automatically set bids for each auction, optimising to achieve that target cost per acquisition.
If you’re optimising for lead submissions as your conversion event and you set your target CPA to $35, Google will set your bids to get you as many leads as possible, while maintaining a $35 average CPL.
Sometimes Google will go over the target and sometimes Google will go below the target. But if your account has enough data then your average cost per lead should be fairly close to the tCPA over a 30 day period.
Target CPA can be set at campaign portfolio level, campaign level or ad group level.
Key Terms To Understand
Actual CPA
Your actual CPA is the average cost per acquisition you pay for any campaign, portfolio or ad group. This could be above, below or equal to your target CPA. You can find your actual CPA by looking at the cost/conversion column in your Google Ads dashboard.
Average tCPA
Your average tCPA is a weighted average of your target CPA over a given timeframe. If you’re looking over a 30 day period, the average tCPA will factor in any changes you’ve made to the tCPA over the 30 days, as well as any ad group tCPA overrides you have.
When tCPA is set at the campaign level, you can add a column to your campaign view for Average tCPA. If tCPA is set at portfolio level, you can also add this column in your portfolio bid strategies section.
Marginal CPA
The cost to acquire additional conversions. Calculated by taking increase in spend and dividing it by increase in conversions. I discuss this in more detail later.
How Does Google Work Out Your Bid
Google uses many signals to determine what to bid in any given auction when you’re using an automated bid strategy. This includes the search term, device and time of day.
Google’s algorithms will look at the probability of a conversion occurring each time you’re eligible to enter an auction.
If the probability of a conversion is higher, then Google can afford to bid higher. But if there is a lower probability of conversion then Google needs to bid more modestly.
Here is a simplified example of how this may work…
A cleaning company is running a Google Ads campaign and had a target CPA of $50 to generate leads on their website.
A user on Google searches for “cleaning companies near me.” Google recognizes that this is a high intent search and other user signals indicate to Google that there is a 25% chance of this user converting if they click on the ad.
So Google sets the bid at 25% of the $50 target CPA ($12.50).
The Danger Of Setting Your tCPA Too High
The higher you set your tCPA, the higher Google can bid for clicks. With higher bids, your search impression share increases because your ads will be eligible to compete in more auctions.
This means that for advertisers wanting a higher volume of conversions, it can be tempting to increase target CPA to drive more volume.
However, it’s important to be aware that you can reach a point of diminishing returns where you set your target CPA too high. It can quickly lead to wasted ad spend.
It’s important to understand the difference between average CPA and marginal CPA.
Average CPA vs Marginal CPA
When you’re using a tCPA bid strategy, Google is optimising for an average CPA.
If your target CPA is $37 then Google will try to get your conversions at an average cost of $37 each. But that doesn’t mean every conversion costs you $37.
If you spend $370 with a tCPA of $370, you should get around 10 conversions.
Assuming that a $37 conversion is in line with your business KPI’s, this sounds like a good result. But from those 10 conversions, not every conversion actually cost $37.
It’s possible that the first 5 conversions were generated at an average CPA of $23. The next 5 conversions may have come at an average CPA of $54.
Here’s an example of how it works…
| Conversion # | CPA | Spend So Far | Avg. CPA |
|---|---|---|---|
| 1 | $15 | $15 | $15 |
| 2 | $20 | $35 | $17.50 |
| 3 | $22 | $57 | $19 |
| 4 | $28 | $85 | $21.25 |
| 5 | $32 | $117 | $23.40 |
| 6 | $36 | $153 | $25.50 |
| 7 | $45 | $198 | $28.29 |
| 8 | $55 | $253 | $31.63 |
| 9 | $66 | $319 | $35.44 |
| 10 | $70 | $389 | $38.90 |
When you log into your Google Ads account, you see that your average CPA was close to the target at $38.90. But what you don’t see is that the last four conversions were well above your target CPA.
The marginal CPA on those final four conversions was $59. That’s nearly 60% above the target CPA.
If you can afford to pay $59 per conversion then it was worth paying extra to get those last 4 conversions. But if a $59 CPA isn’t profitable for your business then it would have been better NOT to spend the extra money to get those extra conversions.
To understand what your marginal CPA is, you can try adjusting your target CPA and analyzing the impact.
Here is an example.
Your current target CPA on a campaign is $50. With this target CPA, your campaign is able to spend $10,000 each month and generates 185 conversions. Your actual CPA is $54, just over the target.
But then you lower your target CPA to $44. Over the next month, your campaign spend drops by 25% to $7500. Your conversions also drop from 185 to 170.
To work out your marginal CPA, you need to take the difference in spend ($2500) and divide that by the difference in conversions (15).
In this case, your marginal CPA equals $166.66.
You can then use this to decide whether it’s worth raising your target CPA again to chase the extra volume.
If you’re generating leads for your business and you know your sales team has an average conversion rate of 10% then you need to consider whether you can maintain your target customer acquisition cost (CAC) with the marginal leads.
At $166.66 per lead and a 10% sales conversion rate your CAC would be $1660. If your business needs a $500 CAC, then it’s definitely not worth increasing your tCPA to chase the extra volume. It would be better to reallocate the ad spend somewhere else that allows you to get a better marginal CPA.
When To Change Your tCPA
Knowing when to raise or lower your target CPA can be difficult. You can try adjusting your tCPA through trial and error and then reviewing the marginal CPA as discussed above.
If you have target CPA set at campaign level and you have multiple campaigns running then it’s important to know which campaigns you should change tCPA on.
Some campaigns might benefit from an increase in tCPA if you are chasing extra volume. While some campaigns would likely benefit from a reduction to target CPA if you have a high marginal CPA.
Conversion rate is an important metric to look at when deciding whether to change tCPA. A low conversion rate typically indicates that Google is spending inefficiently.
As you raise your target CPA, you’ll generally see your conversion rate go down. This is because when your target CPA is increased, Google can bid on more auctions that have a lower probability of converting.
When you lower your target CPA, it’s forces Google to tighten bidding and go after fewer clicks that have a low probability of converting. Therefore, your conversion rate should increase.
On one account I manage, I siginificantly reduced tCPA across all campaigns over a 3 month period. Out of 66 campaigns, 52 had an increase in CVR. And those that didn’t see an increase in CVR had a relatively low spend.
Predicting Short Term CPA’s
When using a tCPA bid strategy, your actual CPA won’t consistently match the target CPA.
Some days and weeks, Google will exceed the target CPA and some days will be below the target.
If you’re running a portfolio bid strategy with multiple campaigns inside it, some campaigns will run above the target and some will be below target.
From the analysis I’ve done, it appears that Google optimizes your bids to achieve the target CPA over a 30 day window.
Knowing that Google is optimizing for a 30 day window, it’s possible to predict your actual CPA over the following week with fairly high accuracy.
To do this, I’ll look at the previous 23-24 days. The 6-7 days prior to that will soon fall outside of the 30 so I don’t include them.
Looking at the past 23-24 days, if your actual CPA is more than 10% above your average target CPA over that same period, then you can expect your CPA over the following week to be below the average tCPA or at least on par with it. Google will need to bid more conservatively over the following week to course-correct and get back in line with the average tCPA.
Conversely, if your actual CPA is below your average tCPA over the past 23-24 days then it’s likely you’ll have a higher CPA over the next week.
This is because Google knows that it can bid more aggressively attempting to capture more conversions and still remain close to the average tCPA over the 30 day window.
Summary
Understanding exactly how Target CPA works will help you get better results from Google Ads.
Google doesn’t give away all their secrets about how tCPA and other smart bid strategies work. But it’s possible to take what they do offer and then use your own data to fill in the gaps. This will give you a much more complete picture of how these bid strategies really work.
