What are "Dynamic Bid Ceilings"?

We've discussed the purpose and usefulness of bid ceilings on Episode 33 of That Amazon Ads Podcast:

Episode Summary:

• Definition of Bid Ceilings: A max limit imposed on keyword bids to avoid overspending and to manage bid increases more effectively.

  

  This is how AdLabs solves the “death by 1,000 cuts” problem, where thousands of Low Visibility keywords get 1 or 2 clicks but no sales.
  
  No individual keyword is a “High Spend” keywords (i.e., Spend greater than Target Cost Per Acquisition), but in aggregate they average CPCs above the Target CPC which leads to higher ACOS at the account or campaign level.

• Purpose of Bid Ceilings: Bid ceilings serve as a safeguard or a guardrail to prevent advertisers from bidding too high on keywords, especially those with low visibility or low ACoS (Advertising Cost of Sale), that might not justify such high bids.

• Calculating Bid Ceilings: The calculation for bid ceilings involves using the ad group's performance data to determine a Target Cost-Per-Click (tCPC), which then informs the ceiling. This is typically based on the Ad Group's total sales divided by total clicks (learn more about Revenue-Per-Click (RPC) bidding).

• A Hierarchical Approach to Insufficient Data: If an Ad Group lacks sufficient click or sales data to calculate a bid ceiling, we suggest moving up a level to campaign data or even further to a group of campaigns or the entire account to find more comprehensive data to make the calculations

• Common Mistakes and Pitfalls:

  • Not implementing any bid ceilings, leading to potential overspending.

  • Setting arbitrary or excessively high bid ceilings without a data-driven rationale.

  • Failing to adjust bid ceilings based on changing account performance or market conditions.

How Does AdLabs Calculate "Dynamic Bid Ceilings"?

AdLabs imposes Dynamic Bid Ceilings when increasing bids on either Low ACOS or Low Visibility targets.

Low Visibility Keywords

When increasing bids on Low Visibility keywords, we derive the bid ceiling from the Ad Group, Campaign, Optimization Group, or Profile.

• Ad Group Bid Ceiling

  • If the Ad Group has enough data, bid ceiling is derived from its Target Cost-Per-Click (tCPC)

    • The Ad Group must have at least as many clicks as the Campaign's Avg. Clicks-to-Conversion (aCTC) and must have at least 1 order

      • If these conditions are not met, we derive the bid ceiling from the Campaign

• Campaign Bid Ceiling

  • If the Ad Group did not have enough data, the Campaign tCPC is used

    • The Campaign must have at least as many clicks as the Optimization Group aCTC and must have at least 1 order

      • If these conditions are not met, we derive the bid ceiling from the Optimization Group

• Optimization Group Bid Ceiling

  • If the Campaign did not have enough data, the Optimization Group tCPC is used

    • The Campaign must have at least as many clicks as the Profile aCTC and must have at least 1 order

      • If these conditions are not met, we derive the bid ceiling from the Profile

• Profile Bid Ceiling

  • If the Optimization Group did not have enough data, the Profile tCPC is used

    • This is the target CPC for all campaigns combined

Low ACOS Keywords

• "Keyword Bid Ceiling"

  • We will increase bids on Low ACOS keywords up until the point of that keyword's max affordable CPC, as determined by the Target ACOS and the keyword's RPC as well as placement performance for that campaign.

    • Allowing the bid to go any higher would imply overshooting the Target ACOS for that keyword

    • If the keyword bid ceiling seems low, it's recommended to raise your Target ACOS for that keyword's campaign (you may need to move this keyword to a separate campaign if you are trying to set a unique Target ACOS for a high-volume ranking keyword)

NOTE: The final bid ceiling is Target CPC multiplied by the Campaign Placement Mod (i.e., the variable we calculate & use to reduce base bids to account for campaign placement performance).

Recommendations:

• 1x Target CPC (Conservative)

  • The safest option

  • Bids will not go above what is “technically affordable”

• 2x Target CPC (Balanced)

  • Best for most scenarios

  • Bids can go up to 2x above what is “technically affordable” in case this keyword converts 2x better than the average performance for that Ad Group or Campaign.

• 3x Target CPC (Aggressive)

  • Least restrictive option

  • Bids can increase up to 3x above what is “technically affordable” in case this keyword converts 3x better than the average performance for that Ad Group or Campaign.