Maximize profit with incremental CPA analysis
Use profitability curves
It’s still useful to target CPAs since they feed nicely into existing bidding strategies, and you cannot bid for profit directly. The next step is to figure out at what CPA profit is maximized; you can do this by plotting profit at different CPAs and looking for the maximum profit value of a trend line.
When to optimize for profit
The profit-maximization approach isn’t for everyone! It definitely has caveats:
– The main drawback is the very large data requirement – you need a lot of steady-state performance data at various ranks on high-volume queries to map CPC and CTR accurately.
– Including user lifetime values and the availability of products with different revenue values and margins makes this much more complicated.
– At the end of the day, a flat CPA target based solely on margins is profitable for a business. The amount of additional money you can make/save here may not be worth the effort involved.
– Remember that growing businesses may opt to take a slight hit to profit in order to drive more overall transactions or orders. Incremental CPA wouldn’t matter here.
That said, if you have a lot of data and are concerned only about the profitability of your business, this is the best road to take.
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