Does CPA bidding work for SaaS companies?

I was doing some PPC consulting for a SaaS company recently. And one of the questions they had was about CPA bidding in Google Ads.

They’d recently switched from CPC to CPA, but weren’t sure if that worked with their SAAS model.

They knew it was producing more conversions and a lower cost/conversion. But, because their product had 3 very different price points, they didn’t know if it was more profitable.

Here’s what I told them…

Two things you need to understand about CPA bidding

#1: CPA bidding tends to work well when you’re giving Google a lot of conversion data. When that’s not the case, Google’s algorithm tends to over-interpret the limited data it has. And, because of this, your actual CPA can be nowhere close to your target CPA.

#2: When conversions vary greatly in value, Google might chase the lowest value trialists.

Let me explain…

Let’s say your SaaS product has three versions: “sole user”, “company” and “agency.” And let’s say the versions have price points of $10/month, $30/month and $100/month, respectively.

And let’s imagine 80% of your signups take out a trial of the $10 version, 14% for the middle version and 6% for the high end option.

That means two things…

First, it means Google will find it much easier to profile likely $10 prospects than $30 or $100 prospects.

Second, if you have a higher signup rate for the $10 version, Google will bid more for $10 prospects than $30 or $100 prospects.

That’s because you’re telling Google to bid Target CPA x likely conversion rate.

And, if the target CPA is the same, but the conversion rate varies, then bids will correlate with conversion rates.

So what’s the solution?

You could try ROAS bidding where you feed Google different values for the different conversion levels.

In theory, that should solve the problem.

In theory.

But they’d tried it and, quite quickly, Google choked their traffic. They had to switch back to CPC bidding.

(This was before they’d tried CPA.)

So, what about my client’s question? Were they more profitable with CPA bidding? Or should they switch back to CPC?

The answer is – as it usually is – in the data. You need to tally up the value of the conversions under both bidding systems, subtract the costs, and then you’ll know which is more profitable.

All the best,

Steve Gibson