Working with Manual Bid Adjustment Formulas
Hey Roy, I was manually setting some bids using your AOV * CR * Target COS formula to generate a bid for some pay-per-click display advertising campaigns. I think I must have used too short of a window when looking back at the AOV and conversion rate because it kicked out a bid of $1.52 and within a weekend the campaign had blown a ton of dollars and generated a 148.27% COS. I re-ran the formula using an updated trailing 30 day data set and now the formula kicks out a $.07 bid.
Here is my thinking, one of the things that someone probably should look at when running the formula is the stability of AOV and CR. There are probably some good rules of thumb if there is a bunch of variance in those numbers. So, what's your advice?
A longer window is the best protection against that kind of swing. Don't be afraid to use 60, or even 90 days, when data is either scarce, or volatile. That's like making your kayak longer, before you head into the waves.
The frequency of your updates should be less than a quarter of your window length. If your using 30 days, don't let it go more than a week. With a longer window, changes will be more gradual, and you can react a bit more leisurely.
So, based on what it sounds like is going on, use the size of change as an indicator of whether the volatility is too high, and use a longer window to smooth things out.
Have questions? Drop me a line via the Contact form--I love to talk shop.
Up and to the right!