Bid Optimization: How to Calculate the Optimal Bid Values for Your Campaigns Using miROAS

Most people don't understand how challenging day-to-day digital media spend optimization is.

You could manage bid values for hundreds of campaigns and ad sets in a manual process centered around a spreadsheet. Large advertising platforms are feeding you ROAS as the main effectiveness metric, but you know it doesn't reflect incrementality. Your company might have a Marketing Mix Model (MMM) in use, but it's likely a legacy MMM giving high level guidance ("Increase Meta Prospecting spend +23%") that doesn't tell you which campaigns and ad sets should get more spend or how to change bid values.

In this blog, we'll discuss the optimal process for optimizing bid values, common mistakes made in the process, as well as tools that can support bid value optimization.

The Process: How to Optimize Bid Values for Your Campaigns and Ad Sets

The process for optimizing bid values has five steps.

Step 1: Define Your Objectives 

Before diving into bid calculations, you must clearly define what success looks like. Different business objectives require different optimization approaches and your bid strategy should align with these goals. Example objectives could be:

• Maximize generated revenue (or profit) with the same total spend
• Minimize Customer Acquisition Cost with the same total spend
• Maximize generated revenue (or profit) for a budget that is 10% higher
  

Step 2: Measure miROAS of Each Campaign and Ad Set

To identify the campaigns and ad sets which have the highest optimization potential, you need to measure miROAS for each.

Marginal Incremental Return on Ad Spend (miROAS) is the most critical metric for bid parameter optimization as it predicts the incremental revenue generated by the next dollar spent on the channel, campaign, or ad set. In other words, it answers the question: If an additional dollar is spent, how much additional revenue will it generate?

Step 3: Identify Campaigns and Ad Sets with the most Optimization Potential and Define Spend Changes

Once you have miROAS for each campaign and ad set, the next step is to determine the spend changes you want to execute for each. Here's the most important rule to follow:

⬆️ Increase spend where miROAS is high. These campaigns and ad sets have room to scale further.

⬇️ Decrease spend where miROAS is low. These campaigns and ad sets are saturated reducing spend will not have a major revenue impact.

The magnitude of spend changes you want to execute for each campaign and ad set depends on three things:

• Level or risk you're willing to take: 10-20% spend changes have less risk than 40-60% spend changes
• Tools you're using: miROAS is dynamic - it changes when you increase or decrease spend. If you have a tool that takes this into account, such as Sellforte Performance, it's less risky to execute large changes.
• Your optimization objective: As an example, if your objective is to keep the total budget the same, the sum of planned spend changes needs to equal to zero.

Step 4: Translate Spend Changes to Bid Values

Once you have defined the spend changes you want to to execute, it's time to translate those into bid value changes. The translation logic depends on the bidding strategy of the campaign/ad set. As an example, increasing spend on a Target ROAS -campaign requires you to lower the bid value for Target ROAS so that the algorithm is allowed to spend more.

There's two ways of calculating optimal bid values

• Manually estimate the how each bid value needs to change, so that the spend change you want is realized.
• Use automated tools, such as Sellforte Performance, to get optimal bid values automatically.

Step 5: Observe Changes, then Go Back to Step 1

Bidding parameter optimization for campaigns and ad sets is a process, not a one-off effort. After you have executed to changed, you need to monitor their impact. Key things to track include:

• Spend: Did the bid value changes lead to aspired spend changes?
• Incremental revenue: Are you getting the media-driven revenue increase you expected for each campaign and ad set?
• Incremental ROAS (iROAS): How is the effectiveness of each campaigns and ad sets changing?
• Performance vs. Overall optimization objective: Is your main goal for the optimization achieved?

What are the Typical Mistakes in Optimizing Bid Values?

Mistake 1: Using the Wrong KPI in Spend Re-allocation

The most common mistake is to use wrong KPIs when considering which campaigns and ad sets deserve more spend.

Here's what to remember:

✅ Use miROAS as you primary optimization KPI: It tells you the return for the next spent dollar for each campaign and ad set.

❌ Don't use iROAS, Last-Click ROAS or Ad platform ROAS when optimizing spend across campaigns ad platforms

• iROAS (Incremental ROAS) is good for measuring past performance but doesn't reveal the best campaign for the next invested dollar
• Last-Click ROAS is biased towards channels closer to conversion and doesn't provide marginal returns
• Ad Platform ROAS is typically inflated, not comparable across different types of campaigns, and doesn't provide marginal returns

Mistake 2: Measuring Success with Last-Click or Ad Platform Attribution

The second most common mistake is to use rule-based attribution in measuring the success of your optimization. Do you see high Ad Platform -reported ROAS for retargeting campaigns? You might be just capturing conversions that would occur even without media.

Here's what to remember:

✅ Use Incremental ROAS (iROAS) as your primary KPI for measuring the success of your optimization efforts: It is based on measuring the incremental revenue driven by your channels, campaigns and ad sets

❌ Don't use Last-Click ROAS or Ad platform ROAS when measuring success

• Last-Click ROAS is biased towards channels closer to conversion
• Ad Platform ROA  is typically inflated and not comparable across different campaign types

Mistake 3: Using a Laborious and Error-prone Manual Process

If you are managing tens or hundreds of campaigns and ad sets, repeating the bid value optimization process described in this blog in a manual process can be extremely time-consuming. Manual process also increases the likelihood of making costly mistakes.

Here's what most advanced marketing teams today do :

✅ Use a tool that provides optimal bid value recommendations automatically

What Tools Are eCommerce Brands and Retailers Using to Optimize Bid values?

Let's first cover requirements for a bidding optimization tool and demonstrate the most advanced tool in the market.

What Are the Requirements for a Bidding Optimization tool?

To be able to support digital marketing teams in bidding optimization, a tool has to fulfil three requirements:

1. The tool operates based on Marginal Incremental ROAS (miROAS)
2. The tool provides optimal bid value recommendation for each campaign and ad set
3. The tool measures success with Incremental ROAS (iROAS)

What is Currently the Most Advanced Tool for Optimizing Bid Values?

Sellforte Performance is currently the most advanced bid value optimization tool in the market. Below is a screenshot of the tool:

Sellforte Performance is a Marketing Mix Modeling -based bid value optimization that fulfils all three key requirements for a bid value optimization tool:

• Provides optimal Bid Value automatically for each campaign and ad set
• Operates based on miROAS
• Measures performance with iROAS

Summary & Conclusions

Successfully optimizing bid values for hundreds of campaigns and ad sets at scale is a challenging effort. To do it properly, use this guidance:

✅ Use miROAS as the main KPI for optimizing spend allocation across channels, campaigns, and ad sets.

✅ Measure the success of your optimization efforts with iROAS.

✅ Transition your manual bid value optimization tool into an automated process with Sellforte Performance.

If you’d like to see Performance in action or learn how it can fit into your daily workflow, book a demo today. 

Authors

Lauri Potka is the Chief Operating Officer at Sellforte, with over 15 years of experience in Marketing Mix Modeling, marketing measurement, and media spend optimization. Before joining Sellforte, he worked as a management consultant at the Boston Consulting Group, advising some of the world’s largest advertisers on data-driven marketing optimization. Follow Lauri in LinkedIn, where he is one of the leading voices in MMM and marketing measurement.

Managing hundreds of campaigns