How Does CPA Bidding Really Work?

Have you ever been lying in bed awake at night, unable to sleep because your mind is uncontrollably active, pondering the mysteries of the universe? Why are we here, are we alone, what is the meaning of life? Or, perhaps it’s not the mysteries of the universe that occupy your mind. Perhaps it’s something that should be a simple concept to understand, but for some reason is not. Have you, like me ever lied awake at night wondering – How does CPA bidding really work?

If you could ask a Google engineer, I’m sure they could tell you exactly how the different conversion enhanced bidding tools work as far as the execution of the programming. However, seeing as how this is Google’s intellectual property and a highly guarded technical secret, I don’t think they ever would. Certainly all the secrets of CPA bidding are not readily apparent from the Google help documentation available. CPA bidding is one of the only areas in which I agree with the official Google sales pitch – In that, it’s pretty awesome. However, outside of the sales pitch, Google is very coy about the reality of the tool and how it actually works.

Here are some official Google help documents about CPA bidding:

See what I mean? Lot’s of examples of why you should use it, lot’s of resources as to how to set it up, and even some great optimization tips. But, how does it really work – What’s the secret ingredient in the sauce? Since Google won’t tell us, we have to try and use what we know to figure out how does CPA bidding really work?

From the Cost-per-acquisition (CPA) bidding article:

“Cost-per-acquisition (CPA) bidding is a bidding method that lets you tell AdWords the amount you’re willing to pay for a conversion. It’s part of the AdWords Conversion Optimizer feature, which predicts which clicks are likely to lead to a conversion and automatically sets your bid to try to get you as many conversions as possible, at the cost-per-acquisition bid you specified.”

Here is the key: “…predicts which clicks are likely to lead to a conversion…”

When we are using CPA or conversion enhanced bidding what we are really telling Google inc. is: “If you want my advertising dollars, I need conversions. I’m not the type of advertiser who can be distracted by some shiny clicks, and I don’t believe that quality score is all there is to Google AdWords!” However, clicks are necessary to get those conversions (not to mention how Google gets paid), so in effect – You are never really optimizing for conversions – You are optimizing for clicks which the Google machine deems more likely to lead to a conversion.

So, how does the Google machine make those predictions, and why won’t Google just come out and say it? In a word – PRIVACY. Google collects and uses user data to make those predictions. Lobbying groups like “fair” search, and their backers (ahem Microsoft) are all to willing to promote the Google is evil mantra. And, if Google just comes out and says “Of course we use your personal information for advertising purposes!”, US and international courts are going to have a field day with that. Especially in this always signed in, always on, multi-device world we are continually moving into, with fewer and fewer options to “opt-out”, Google has more information now than ever to predict user behavior pre and post click. However, that amount of data collection makes people understandably nervous.

Of course, as marketers we don’t have direct access to that information. We have to trust that the Google machine knows what to do with that information, to help us as advertisers make more money, so we will spend more on AdWords, and Google will make more money in return. Regardless of whether you trust Google with your personal user data or not, as marketers – Do you trust that the Google machine really knows what you want in return for your advertising dollars?

By setting up conversion tracking, and using conversion enhanced bidding, you are setting the conditions for the information database the Google machine uses to make bidding decisions based on which user indications pre-click result, at a higher rate, in the conversion events you covet post-click. Once a user clicks on the ad, you or Google don’t have any control over the user behavior. So the algorithm is trying to put all those pieces together to make the “best” bidding and serving decisions possible. The more information you can provide the program, the more likely it is to know exactly what you want, and get you more of that.

In short – The Google machine is taking what it knows about each user, and comparing that to what you tell them about your site/business (through conversion data), and tries to put the two together. If the Google machine knows doing X will make Google inc. more money because you will spend more in advertising, then it’s in everyone’s best interest for Google to make that happen. The problem with Google directly, simply, clearly answering the question of – How does CPA bidding really work – Is that CPA bidding works by using user information that many users are not comfortable with Google knowing about them. Often times, the simple, honest answer is the one thing no one wants to hear. 🙂