One of the most widely recognised benefits of PPC for ecommerce is that you’re able to get direct return on investment almost instantly. However, as PPC becomes increasingly competitive, rising costs can outweigh even the most lucrative profit margins.
For this reason, in order to gain an advantage over the competition, ecommerce advertisers should consider putting customer lifetime value at the centre of their PPC strategy.
In this blog, I’ll run through why and how you should use a lifetime-value based approach for PPC for ecommerce, so that you can get ahead of the curve and gain valuable market share for future growth.
Using Smart Bidding to achieve your ecommerce goals
PPC by its nature is a competitive endeavour, so in order to achieve success you need to focus on being as competitive in the high intent auctions as possible. One of the most important aspects of this is how much you’re willing to bid. If you’re not familiar with the competitive and cost-saving advantages of using Machine Learning to adjust your bids, check out Byron’s blog on Google Ads automated bidding.
However, one thing that needs to be reiterated is the importance of having Smart Bidding at the centre of your ecommerce PPC strategy in order to gain a competitive advantage.
When auditing accounts, we often find that many ecommerce advertisers have not yet adapted their strategies to make use of Smart Bidding. The main advantage of Smart Bidding is that you’re able to use Machine Learning to adjust your bids based on the intent of the user in real-time, meaning that you will be more competitive for higher intent users, and not spend as much on lower intent users. This presents an excellent opportunity for forward-thinking advertisers to get ahead of their competitors by adopting a Smart Bidding based approach, which in line with Moore’s law, is exponentially improving.
When it comes to deciding on a Smart Bidding strategy there are two things to consider. Firstly, do your conversions have direct value (i.e revenue)? And secondly, are you looking for volume or efficiency (i.e profitability)? The following shows which strategy to use in each scenario:
Non Direct Value + Volume = Maximise Conversions
Non Direct Value + Efficiency = Target CPA (Cost Per Acquisition)
Direct Value + Volume = Maximise Conversion Value
Direct Value + Efficiency = Target ROAS (Return On Ad Spend)
The key thing to consider is that with ‘Maximise’ strategies, the algorithm looks to get as much volume as possible for your monthly budget. With ‘Target’ strategies, the algorithm looks to get as much volume as possible within your target.
When it comes to ecommerce, advertisers would usually use a direct value based bidding strategy and look to get as much ROAS from their campaigns as possible. However, by setting ROAS targets, the algorithm will begin to cap your bids and potentially not enter into auctions where the probability of achieving your ROAS target from direct revenue across the month is too low.
Beating the competition by shifting focus to customer lifetime value
Knowing what you’re willing to pay to acquire a new customer vs what you’re willing to pay to acquire an individual sale makes you instantly more competitive in the auction, and here’s why: with a ROAS based bidding strategy, you’re only thinking about the direct value from that customer and will not enter into the auctions where that return isn’t profitable. With a lifetime value-based bidding strategy, you’re willing to pay a lot more for that customer knowing that it will be profitable to your business over time.
It’s likely that your ecommerce business will have an average customer lifetime value that is higher than the average order value. By taking this loss leader approach to the initial auction, you will be many steps ahead of your competition for new customer acquisition, whilst they are still bidding for direct value and often not even using machine learning to do so.
If you set up your campaigns to optimise towards lifetime value, not only can you acquire a higher volume of new customers, but you can also identify who the most valuable customers are to your business and weigh your bidding in their favour.
So this presents the ecommerce advertisers of the future with three questions:
- How do you identify new customers in the auction and bid based on lifetime value for them?
- How do you find customers with higher lifetime value and target them?
- How do you increase lifetime value so it becomes a competitive advantage in new customer acquisition?
Identifying new customers in the auction and bidding based on lifetime value
With machine learning now taking care of the day-to-day bidding optimisations in Google ads, ecommerce advertisers can focus their efforts on how they can feed the algorithms with first party data, so that they work towards their business goals optimally. This is where Google’s Customer Match audiences come in. With Customer Match audiences, you’re able to upload your CRM data and Google will match it to users’ accounts. This means that you are able to go beyond just cookie data to identify customers that you’ve acquired from all sources and may have had for many years.
Now that you have this audience, you can exclude it from your campaigns to ensure you are only targeting new customers. This gives you the ability to use your lifetime value data to calculate a profitable CPA target and bid towards this in new customer acquisition auctions with a target CPA bidding strategy.
For returning customers, you can use a RLSA (remarketing list for search ads) campaign to target them when they search for your products and use a target ROAS bidding strategy to ensure that you are not bidding too highly for customers you’ve already acquired. With this approach, you can also adapt your ad copy to encourage brand loyalty with incentives.
Finding customers with higher lifetime value and targeting them
By having detailed customer lifetime value data, you’re able to be more granular than just taking an overall average. You will be able to see where the highest lifetime value customers start their journey with you and weigh your campaign budget allocation towards this.
You can also take your highest lifetime value customers (this is likely to be the top 20% as the Pareto principle usually applies) and upload a separate Customer Match audience. This can then be used to create a Similar Audience to find new customers with similar data signals. This is also possible with Facebook Lookalike Audiences and is a great approach to building a valuable audience for awareness stage campaigns.
You can even use this Similar Audience on Google Ads for a RLSA campaign and relax your CPA target for it to drive volume or add it as an audience in observation with a bid adjustment, ensuring that these new customers are more profitable to your business in the future.
Increasing lifetime value so it becomes a competitive advantage in new customer acquisition
With your competitiveness in the auction now being reliant on your customer lifetime value, brand loyalty (which is often ignored), will now have a big influence on your brands ability to acquire new customers from PPC.
Whilst email marketing is still one of the primary drivers for ecommerce brands to maximise customer lifetime value, using paid media campaigns to target pre-existing customers shouldn’t be overlooked. You can target them fairly inexpensively, you know what they like and they’re likely to be receptive to your messaging. As well as this, using loyalty schemes to offer discounts off their next purchase or incentives can be a great way of generating additional revenue from your customers.
How to structure your ecommerce PPC account to focus on customer lifetime value
(This section is for the PPC wizards out there).
Unfortunately at the time of writing this, the technology does not yet exist to focus your ecommerce PPC strategy towards lifetime value in a simplified way. However, this is likely to be on the horizon in the near future. What this would allow you to do is optimise towards ROAS for returning customers and CPA for new customers in the same campaign. This makes Smart Shopping campaigns a viable option for this approach.
Until then, you can adopt this strategy to use lifetime value as a competitive advantage in the acquisition of new customers in search auctions.
1. Firstly, you will need to have new customer acquisition campaigns with your Customer Match and remarketing audiences excluded, using your lifetime value to determine a profitable CPA.
2. Secondly, you can use RLSA campaigns for a Similar Audience of your highest lifetime value customers with a more relaxed target CPA, knowing that these customers are more profitable to your business long term.
3. Thirdly, you will need to have RLSA campaigns for returning customers using target ROAS to ensure you are not over paying for them. You can keep your targeting really broad for these campaigns, knowing that the users you target are highly relevant to your business. By using this approach, you will see very high quality scores for broad keywords.
Because you are optimising your new customer acquisition campaigns towards acquiring customers rather than individual sales, you will need to make sure not to over count conversions in this campaign.
You will need two identical conversion goals in your Google Ads account. One of these will have the count set to ‘One’, and the other will be set to ‘Every’. You can then use campaign level conversion actions to ensure that the CPA campaigns are using the ‘One’ count conversion, and ROAS campaigns are using the ‘Every’ count conversion.