Get in touch with our team
Feature image for 19.03.2021


7 min read

Test for diminishing returns in PPC campaigns with Search Ads 360

This article was updated on: 07.02.2022

The most basic premise of running PPC campaigns is that you spend money on ads to target appropriate audiences, who then go on to make a purchase so that you make more money than you spent on the ads. In most cases this is simply a case of balancing CPCs and conversion rates to ensure your campaigns have a profitable ROAS. However, there will come a time in most PPC professionals’ careers when they are asked the question ‘can we do more?’. When performance is good, businesses will often want to spend more money on ads in the belief that they can make even more money. Yet, in terms of search campaigns, if you already target an exhaustive list of keywords, spending more money can simply mean spending more on each click without improving results. 

Determining the point at which chasing a higher impression share becomes unprofitable for your business or client can be very tricky, especially with the limitations of Google Ads in terms of bid strategies. This is where a lesser-known feature of Search Ads 360, called Budget Bid Strategies, can be incredibly useful.

The benefit of this feature is that you can group campaigns with a common target together and set them to maximise their return against that target from a fixed budget. For example, you might have a range of non-branded keywords which aim to drive user purchases. If purchase volume does not vary greatly throughout the year, you will want to know what the optimum amount to spend each month is to deliver the highest profitable return. Using Budget Bid Strategies, you can set a fixed weekly budget for these keywords with the target of maximum revenue. By creeping this budget up every week and collating your results, you will be able to determine the point at which clicks become too costly and the returns begin to diminish.

Planning your test

Before you do anything else, you’ll need to plan out how you’re going to run your test. The main considerations here are:

  1. Which keywords you’re going to run the test on
  2. What your starting budget will be
  3. The test’s minimum profitable return

Determining which keywords you run the test on will depend massively on the business. Ideally, the keywords need to have a more or less consistent search volume, have the same landing page, and be non-branded in order to minimise the number of outside factors which could affect the results of the test. As such, this kind of test is not necessarily appropriate for all businesses.

Finding a starting budget involves a little guesswork, but as the aim of the test is to incrementally increase spend until returns diminish, as long as the starting budget isn’t too high then it’s not a big issue. Export past spend and revenue data for the keywords you’re going to target segmented by week for at least the last 3 months, preferably more, and plot these against each other on a scatter graph with spend on the x axis. In theory, you should see a level of spend above which results appear to start dropping off. Pick this level of spend, then round it down a touch to find your starting budget.

Finally, identify what the minimum acceptable return will be in a single week of the test in terms of ROAS/CPA. This is probably your minimum profitable ROAS if the aim of your test is to find out your maximum volume while keeping campaigns profitable, but again this will depend on the specifics of the business.

Creating a Budget Bid Strategy

Using Search Ads 360, you can create a Budget Bid Strategy by navigating to the ‘Budget Management’ section of the UI. Here, you will see two tabs – Budget Groups and Budget Plans. To set up a Budget Bid Strategy, you will first need to create a Budget Group for the campaigns on which you want to run your diminishing returns test.

In the Budget Group tab, simply click New > Budget Group, and then name your group and add the appropriate campaigns:

Having set your Budget Group, you now need to create a Budget Plan for this group, which will take the form of a Budget Bid Strategy. Navigate to the Budget Plan tab and create a new plan. You’ll be taken to the following screen:

In step 1, you’ll need to set your time range to recur weekly, then select your test starting date. It’ll be easiest to make this a Monday, but ultimately it’s up to you. Further down, select the Budget Group you just created and then the appropriate conversion goal based on your test’s aim. You may have to set up a new conversion goal for this, but as long as you’ve already got some form of Ads or Floodlight tracking set up within SA360, this will just be a case of selecting the right goal from a list.

At step 2, enter your target weekly spend which you determined earlier, and, depending on how much data you currently have in your account, SA360 may show you some projections for revenue and ROAS. Most importantly, you need to tick the box for Budget Bid Strategy at the bottom of the page to ensure that your strategy pushes to spend your full budget each week.

In the next few steps, there are some optional settings which you may wish to consider, such as opting into auction time bidding and customising your weekly budget pacing to particular days, which would be particularly relevant for B2B businesses. You can also optionally add in a goal for reporting purposes, which will make it a little easier to see the weekly results on the Budget Group tab. Other than these, you can ignore the other settings and proceed to the review step, then schedule your plan to run.

Collecting results and interpreting data

Once your Budget Bid Strategy has started running, you’ll need to check in on the results weekly to ensure that the full budget is being spent and to see if the level of return is still profitable. If results are above expectations, increase the weekly budget by around 5%. If results are more marginal, you may want to wait for a few weeks to check consistency before increasing the budget again. To increase the budget, you will need to ensure that you update the recurring Budget Bid Strategy before it is set to start by heading to the Budget Plans tab, selecting the plan which says ‘Recurring’ in the Plan Status column, then clicking edit and navigating to the target spend section of step 2. Once you’ve updated it, click through the rest of the steps without changing anything and save the plan. This will ensure that all future plans are scheduled to spend the new amount until you next update the budget.

Eventually, your test will come to the point where your weekly budget is high enough that returns will be on the edge of what is profitable for your business. At this stage, leave at least 2 weeks between updating the target budget, and don’t be afraid to push the budget a little higher even when results get worse – ultimately this will only make your data more robust. 

Once you’re certain that you’ve exceeded the point of diminishing returns for 2 or 3 consecutive weeks, drop your recurring budget back down to the last point at which results were an acceptable level, and export all the campaign data for the duration of your test period segmented by week. As before the test, plot spend against returns for each week on a scatter graph and apply a line of best fit. In theory, you should get something which should look like the below:

In this example, above a certain level of spend revenue didn’t just flatten off, but actively declined due to sudden and significant increases to CPC. A lot of data was gathered between £1,200 and £1,450 to ensure that the results were reliable, ultimately determining that the point of diminishing returns is around £1,450 and the optimum spend for maximum volume between £1,300 and £1,400.

Results could, of course, be wildly different depending on the business, and it is unlikely that in all cases revenue would actually decline above a certain threshold. Yet the test remains valuable for any business looking to establish an optimal spend range for a group of keywords where volume is the goal. If your business could benefit from this kind of test, don’t hesitate to get in touch with us so we can help you achieve your digital marketing goals.