04/26/2024 | Press release | Distributed by Public on 04/26/2024 07:00
Google Ads are designed to drive actions. These actions are also called conversions and include things like product purchases, event registrations, and email signups.
It's these actions you're ultimately vying for when you bid on the keywords that trigger your ad to display. By setting a target cost per action (CPA), you inform Google Ads of how much you're willing to pay each time your ad successfully drives a designated outcome.
What Is Target CPA in Google Ads?
Target CPA is a Google Ads feature that enables automated bidding. Advertisers use it to set a desired average cost they are willing to pay per conversion.
When you use Target CPA, Google Ads employs machine learning to forecast the performance of your ads. It predicts which clicks are likely to lead to conversions and adjusts bids accordingly to capture those particular clicks. In doing so, it helps maximize the number of conversions you receive for your specified budget. And hit your target CPA.
This approach is rooted in data. It considers your campaign's historical performance and factors like time, location, and device.
Why does this matter?
Target CPA helps prevent overspending. And spending without a good return. The feature helps your campaigns become more efficient. Prioritizing funds where they count and saving where they don't.
Consider a local coffee shop that sets a $5 target CPA for their new seasonal blend promotion. Google Ads might increase bids in the morning, when potential customers are on the hunt for their first cup. Especially in areas close to the shop's location. It might lower bids in the afternoon. Or in regions far from the shop.
Advantages of Google Ads Target CPA
Target CPA in Google Ads has a few major advantages:
1. Efficient Budget Allocation
You give Google your desired ad budget. It will get close to that spend and avoid going over all while using contextual signals like past conversions, location, and time of day, to decide the best individual bids for your target cost per action.
Recall our local coffee shop example. Two factors resulted in higher budget allocation: Morning hours and device proximity to the coffee shop. The inverse factors (later time of day, further distance from the local shop) resulted in lower budget allocation.
Basically, Target CPA helps ensure your spend is efficient.
2. Better Campaign Metrics
Successful target CPA bidding can impact some key campaign metrics:
Positive movement in these metrics should also reflect a better overall return on investment (ROI).
3. Improved Market Adaptability with Automated Optimization
Because Google uses advanced algorithms and real-time data to refine its bidding strategies, you also gain a measure of market adaptability.
Say there's a sudden increase in searches or purchases for a product like "retro hoodies." Google may recognize this trend and automatically boost relevant bids. All without you having to monitor a thing.
With Target CPA, your bids are being adjusted automatically based on market trends.
How to Set a Target CPA in Google Ads
First, a prerequisite. To kick off Target CPA bidding, you need to enable conversion tracking.
This supplies Google Ads with the data it will use to forecast and optimize your Target CPA bids. Before you can use Target CPA effectively, your ad needs at least 15 tracked conversions in the last 30 days.
Calculate Your Target CPA
Before you can set up a Target CPA campaign, you have to decide what your target CPA should be.
Wondering how to calculate a target CPA for Google Ads?
Let the performance of your existing ad campaign (with manual bids), inform where you start with your Target CPA settings in Google Ads.
Your current cost per action is easy to calculate. It's the total campaign spend divided by the number of customers who took the desired action.
Cost per action = Total campaign spend / Number of customers acquired
Your existing CPA provides a good jumping off point. Next, factor in the amount you can spend while still remaining profitable.
Consider:
Profit per sale = Sale price - Total cost to deliver product
Conversion rate = Number of people who purchased / Number of people who took initial desired action
With these two data points, you can calculate your maximum allowable CPA (max CPA). Simply multiply your profit per sale by your conversion rate.
Maximum allowable CPA = Profit per sale x Conversion rate
For instance, if each sale brings in $30 (profit per sale) and 5% of people who do the defined action in your ad go on to purchase (conversion rate), your max CPA is $1.50.
Maximum allowable CPA: $30 × 0.05 = $1.50
Notice: Using your max CPA to bid only ensures you break even.
To increase profitability, set a target CPA based on your desired profit margin. Choose a target profit margin percentage (e.g., 25%). Subtract that number from 1 and multiply it by your max CPA to determine your target CPA.
Target CPA: $1.50 × 0.75 = $1.13
This approach helps set an initial target CPA that aligns with your profitability goals and your conversion efficiency.
Even if you can use a lot of your own internal data to calculate your initial target CPA, it still pays to check market and competitor information.
There's a lot of historical data to gain by using tools complementary to Google Ads. For instance, you can use Advertising Research from Semrush to get a snapshot of your competitor space.
Enter a competitor's web address into the search bar and click "Search."
In the "Positions" tab, you get a consolidated view of the competitor's keyword volume, traffic, and costs.
Click the "1M," "6M," "1Y," "2Y," and "All time" options in the upper right of the "Paid Search Trends" box to adjust for the time period you prefer.
Do the same for other competitors.
Not sure which competitors to look at? See recommendations from Semrush by visiting the "Competitors" tab.
This is a data-driven way to discover competitors you may not have considered.
Use the "Paid Search Positions" table (in the "Positions" tab) for more granular insights. The table shows competitors' actual keywords, landing pages ("URL" column), and other valuable keyword performance data.
Use the data points from these reports to compare the traffic cost of relevant keywords to estimated traffic volume achieved. You'll get an idea of their market value. Then, you can check how aggressively others are bidding on those very keywords to understand how much you need to spend to compete.
Further reading: What Is a Competitive Analysis & How to Do It (With Template)
Finally, Set Your Target CPA in Google Ads
Setting your initial Target CPA in Google Ads is straightforward. Here's what to do:
Solutions to Common Target CPA Bidding Challenges
Prepare to face some common pitfalls. These challenges can be recurring.
The good news is the more of these situations you fix, the better you get at handling them in the future.
Variable Performance Data
Google Ads relies on consistent data to make smart decisions. Campaign information that varies widely from day to day can make it harder for the tool to optimize its bids.
One example is when your ads result in a surge of conversions due to a seasonal sale. Without understanding it was a sale driving the increased conversions, Target CPA may optimize bids based on non-relevant factors. Like what time of day most people were purchasing. Or from what locale.
To manage this, try:
Low Conversion Volume
Low conversion volumes can limit Target CPA's ability to optimize bids. Because the algorithm would have less information to learn from and adjust bids effectively.
The solution?
Start by expanding keyword targeting to capture a broader audience.
A/B testing can work here, too, so polish your ad copy. It should resonate with your audience's search intent. Test different versions to identify the most effective.
Don't forget about your landing pages! They should be clear, quick to load, and easy to navigate. A seamless landing page experience often translates into higher conversions. And of course, the relevance of your landing page contributes to your Quality Score.
Finally, if automated bidding isn't viable due to low conversions, switch to manual bid adjustments. This approach requires more attention. But it can yield results while you gather enough data to try automation again.
Google Ads Target CPA Best Practices
Set Realistic Target CPA Goals
Use Reliable Conversion Tracking
Target CPA will only work properly if your conversion tracking does. Without accurate conversion tracking, you're flying blind and potentially wasting ad spend.
Be sure to:
Regularly Review and Fine-Tune Strategies
Regular reviews sharpen your target CPA strategy.
Set a schedule-weekly or monthly-to check on how well your Target CPA campaign is performing. Use Ads History from Semrush to spot competitor trends. And Advertising Research for insight on competitor keywords.
Adjust bids using fresh data. Boost high-performing keywords to maximize visibility. Or pause underperforming ads to optimize your spend. Use insights from A/B tests to optimize conversions.
Iteration is key.
Make reviewing part of a feedback loop, using analytics to refine constantly. With reliable tools, you can keep your campaigns sharp and evolving.
Integrate Target CPA with Your Overall Campaign Strategy
While technically you can call this a best practice, its scope deserves a standalone mention.
Target CPA bidding isn't a solo act. Ads using this feature are just a part of the digital marketing ensemble.
To help make every bid count:
Next Steps with Target CPA
Steer your Google Ads with a well-strategized Target CPA plan. The pathway to your brand's success is in the intersection of data and strategy.
Ready to enhance your Google Ads strategy? Start with Advertising Research and Ads History from Semrush to sharpen your Target CPA campaigns to maximize conversions and minimize waste
Try it for yourself with a free trial.