StatCave Episode 3: Daily Budgets

In AdWords, the daily budgets are set up for a couple of reasons. One, it gives Google an idea of how big you think a campaign is going to be. If you set it to $10 a day, that tells Google something. If you set it to $10,000 a day, that tells them something else. The other thing is obviously just a risk management thing. By having those set up, Google avoids having quite as many calls from frantically terrified people who've just spent more money than they've ever spent in AdWords in a month, in just a few hours.


There are primarily four different ways that people are using daily budgets, that I'm familiar with. The first is in conjunction with an automated bidding strategy. If you have an automated bidding strategy like target ROAS, or maximize conversions; Google's going to use your daily budget to identify how much it should be spending over time in order to capture as much of whatever the outcome is that you're measuring toward. If it's maximize clicks, they're going to try and get as many clicks as they can for that budget, within each day.

Then, the other thing that people will use it frequently for is managing to specific weekly or monthly targets. If you have a budget of $100,000 in a given month, then people will use the daily budgets to try and keep it on the rails toward that end.


Another thing people are doing, and this will be a little bit more interesting to get into, is they use budgets to shift investment around on the calendar based on anticipated differences in account performance.

Then the last thing is just managing risk, sort of in-line with the original intent of the feature, from Google's perspective. Many accounts, including the ones we manage, will use the budgets primarily just as a worst case scenario. If something goes off the rails, it'll hit this ceiling and go no farther. That sort of limits the liability of the account.


With automated bidding, there are a number of options available depending on your campaign and how much data is available. Some of these are obviously very highly automated, where you hand over the keys to Google for the campaign. Others like enhanced CPC, for example, still lets Google fiddle with the operation of the bids; but for the most part, leaves you in control of all the other variables. The thing is within these, only a few actually drive results that you want.


If you know what your return on ad spend target is, or if you're using the inverse of that as we do, cost of sale, which is your cost divided by revenue; that percent of your revenue that you want to spend on ads is a very useful metric, so similar to ROAS. If you know that you can only spend 10% on the ads, and still make a reasonable amount of money; then if you are running one of these other types of bidding strategies -other than target ROAS or manual CPC, assuming your managing it actively- you're not producing that kind of result. 

If we look through these, things like target search page location is not a metric that matters. It doesn't actually describe the value you're extracting from the traffic, and so it's a bit of a red herring. 

Target CPA. CPA is a stupid metric. Retailers should not use it unless they have a very flat catalog in terms of price, because otherwise you're treating a $2 product the same as a $2000 product; and that's ludicrous. 

ROAS is pretty much, in at least theory, identical to what StatBid tries to do using our tools; but your mileage may vary. I've seen it perform very well. I've seen it perform catastrophically badly; but at least philosophically it's in the right space. You're trying to generate as much revenue as possible at a specific return on ad spend; fantastic.


Target outranking share. Another red herring. It doesn't have anything to do with anything that actually matters. It might correlate with things that matter, but it is not actually itself a thing that matters.

Maximize clicks. Once again, how many clicks does it take for me to buy a burrito? That's a ridiculous question, because you need money to buy a burrito; and money does not come from clicks, it comes from conversions.

Which brings us to maximize conversions. Now this one sounds good on the surface, and this may work well in some use cases; but mostly, it does the same thing that the CPA target does. It ignores variability in your average order value. Therefore, it can't necessarily produce a consistent return on ad spend. Now, you may have an example where it has done so; but in general, that's not its job. Its job is to convert as many instances of transactions as it can for the given budget. If that means it's focusing mostly on $10 items, and ignoring your $150 items; so be it. That might be the best way to maximize conversions. 


Then, you have enhanced CPC, which is kind of like manual CPC, but where Google uses a little bit of its magic data from behind the curtain to increase some of your bids as much as 30%, I believe. The issue there is that it doesn't then discount bids, where it thinks there is a lower likelihood of conversion; so you end up with this hidden bias in your bids, on average, going to those auctions.


Then, obviously manual CPC; and that's how we manage everything. That's how most of our competitors manage things. You're using some sort of other logic, and you're just implementing it directly. Sometimes that's done by hand. Sometimes that's done via the API or scripts, but it's the low bells and whistles option among all of these.


Let's assume for now that you're looking at using one of these automated solutions that are more heavily automated, like target ROAS for example. If you're using these, then those budgets start to mean something different. They're no longer a liability control; they're basically like telling Google how big is the gas tank in the car that it's driving. It'll give an idea of how fast, how much fuel can it burn per hour if it's going to get a budget of that much per day. However, these are mostly bad ideas for retailers.

Now, they're built for the one-size-fits-all that is AdWords, not specifically commerce retailers like me and probably you. They're just a dead end, because they don't produce the actual outcome you want. You want as many conversions as possible, while preserving your margins; and that's not what those things do.

It is worth remembering that Google's rewarded by you spending as much as possible, all the time. While they definitely have access to incredible engineers, and incredibly clever algorithms, and tons and tons of data; that is a conflict of interest to some degree. Just be aware of that when you're evaluating whether you might want to use one of those built-in automated bidding solutions; because it's basically like having an employee whose best performance is as bad as it can possibly get, but not quite enough to get fired.

The next use case is managing to set weekly or monthly budgets. This sounds like perfectly natural, but realistically it happens very rarely within retail accounts. I've seen it way more in direct-to-consumer brands, where some portion of the budget may be allocated to general branding activity, where you're supporting the awareness of the brand. For retailers, generally they're always happy to take the next order, as long as it's coming in at their intended COS or ROAS target. If you're making money, why would you ever turn off the spigot? 


For some people, they see that and go, well, there's a lot more traffic during the week than there is on weekends; and so I should jump in every Friday and Monday and jiggle those budgets around or build a script to do it for me. I would say that that is potentially a misdirection of attention.


If there's not a meaningful difference in the VPC between Saturday and Tuesday, then there shouldn't be a rational reason to bid differently on Saturday or Tuesday. If your return on ad spend is the same on Saturday and Tuesday, you'd want neither of them to run out of budget. To say that dollars on a Tuesday are worth more than dollars on a Saturday is kind of ridiculous. If there is a meaningful difference between value per click between say a Saturday and a Tuesday, you can take that into account; but the budget is not the right tool for that job. That's what the ad schedule bid adjustments are exactly for.


If you see a difference in the quality of traffic coming from a specific time slice, say day of week, you can already account for that using another tool that is specifically built for that. If Saturdays don't convert as well, and you want to reserve as much of your budget as you can for the rest of the month, where you do have days that convert more strongly; then why don't you just bid less on Saturdays, using an ad schedule bid adjustment for example. Then naturally, because you're bidding less, you're going to end up spending less; and that'll end up reserving a natural amount of budget for the other days. The budgets end up not being an issue, because you're always adjusting your bids to reflect the different quality of traffic that you might be getting across those varied segments.


You can definitely use daily budgets as a risk management tool, as I've mentioned. In fact, that's exactly what StatBid does. We have a system in place that watches the daily spend. If it sees that the campaign is spending a good portion of the daily budget, it'll actually just increase the budget. We can do that, because we have bidding systems in place that we trust to be producing the return on ad spend that we've been tasked by the client to hit. 


That is a great thing to have in place, in case there's this huge sudden increase in traffic available. Even though we do let our system increase those budgets automatically, it also sends an email to the account manager saying, "Hey, make sure this thing isn't burning the house down." Then we can go in and just make sure that the behavior is as expected. It's a good tool for just keeping your liability tolerable, as long as you're keeping it out of the way of the opportunity to capture more traffic and more orders.


There's one last thing that I wanted to mention, since we're talking about daily budgets, that I think is directly related. That is delivery options. Within a campaign, most campaign types anyway, you can set either accelerated or standard delivery method. Standard delivery method will spread your budget out over the course of a day, making sure that you have coverage across the entire clock face. Accelerated will participate in every auction that it is eligible to participate in, regardless of how quickly it's accumulating cost relative to your daily budget; and so you might run out.


However, if you're taking the advice that I've given you in this video, and the blog articles, and things that I've written; and you're managing your account to a specific return on ad spend, then you have no reason to want to set it up so that you're not capturing every single potential shopper that you can. So the standard delivery method sounds kind of silly. In fact, it's a little bit like that ad schedule adjustment thing we talked about between the Tuesday and Saturday, but within a single day.


You're assuming, by using standard delivery method, that say a dollar you receive in an order in the evening is somehow worth more than a dollar you receive from an order in the morning. The reason that I say that is because by spreading it out, you're saying I'm going to ignore these orders from the morning, and I'm going to favor these orders in the evening by shunting some of the budget farther along in the day. That's once again ridiculous. A dollar is a dollar is a dollar. I'm not a fan of that strategy, because I think it's sort of bizarre. 


I mean, it seems qualitatively kind of subjectively good, because you're covering the entire day and you always have ads running; but there's no difference. You still have ads running for some of the time, and not running for the rest of the time with accelerated; it's just segregated into here are the times that it is running, and then it runs out. Whereas standard, it's just sputtering the entire day.


Now, with accelerated the other advantage is that you can tell more quickly if a campaign needs a larger budget. If you're running it on standard, it'll still eventually show you the budget limited alert in AdWords; but if you're running accelerated, it'll definitely show you that alert, and it'll do it more quickly. So I find accelerated to be the better tool, but like most other things we've discussed, that's if you're confident that you're managing to a specific return on ad spend. If you're not confident that you are getting the return you want, then obviously do whatever it takes to reduce your spend and reduce your exposure. Fix your return on ad spend, and then go back and open up the flood gates.