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Bid Adjustments: How Do They Work? The Math Behind Combined Bid Adjustments

July 23, 2018
How do bid adjustments work?

Google’s Enhanced Campaigns are here, and with them came new bid adjustments. While they may seem straightforward at first, bid adjustments can get a bit tricky when they are applied together. For example let’s say you have three bid adjustments set at -60%, +20%, +30%. Google combines those to reach an overall adjustment of -38%. What’s the math behind how Google comes up with that final adjustment? Is it a miracle?

Google does provide a calculator that allows you to select your adjustments from a drop-down menu to see how they are applied together, as shown below (click the image to enlarge):

Find AdWords Bid Adjustment Calculator

But being a PPC nerd, I wanted to understand the math myself. Let’s break it down.

One Bid Adjustment

When one bid adjustment is set, that’s the amount the bid will be adjusted when the condition applies. For example, let’s say you know your ads don’t do as well on the weekends, but you do still want to get some clicks. You can decide to apply an ad scheduling adjustment of -60% on Saturdays and Sundays, and on those days your bids will be reduced by 60% – for example a $1 bid would become a $0.40 bid. Seems simple, right? It gets a little bit trickier once we add in a second and third adjustment.

Bid Adjustment Calculator

Two Bid Adjustments

When more than one bid adjustment affects a keyword, they are applied together and you effectively end up with a “final” bid adjustment from the combination that gets applied to your bid. Continuing with our previous example, let’s say mobile advertising has been doing well for us, so we want to be more aggressive with it. We’ll set the mobile bid adjustment to +20%.

On weekdays, where we only have one bid adjustment, your bids on mobile will simply be 20% higher on mobile devices versus their normal amount. On weekends however, we also have the scheduling bid adjustment to take into account. If someone searches on a Saturday from their iPhone, your bid adjustment will be -52%.

How did we get to that value? To do the math to find my total adjustment, I find it easiest to convert the percentages to decimals, make them all positive numbers, and find out how they would affect a $1 bid.

  1. Our -60% scheduling adjustment really means that the bid will be at 40% of its value, so it becomes 0.4
  2. Our +20% mobile adjustment really means that the bid will be at 120% of its value, so it becomes 1.2
  3. Let’s multiply that out with a one dollar starting bid. $1 x .4 x 1.2 = $0.48
  4. That’s $0.52 less than our original bid of $1, so if we flip that back to percentages, we have an overall adjustment of -52%.
Google AdWords Bid Adjustments

Three Bid Adjustments

Let’s get wild and put in a third bid adjustment. Adding on to our example, let’s say our ads perform better in the city where we’re based, so we’ll set a location bid adjustment of +30% for searches in the city of Boston.

The +30% would become a 1.3 in our formula, so let’s plug that into our equation to see what happens when all our adjustments apply:

$1 x .4 x 1.2 x 1.3 = $0.62

That’s $0.38 less than our original $1 bid, so as a percentage, that would end up as -38% if someone in our city searched for us on a Saturday from their iPhone.

AdWords Bid Adjustment Math

Special Case: -100%

Let’s say you want to completely turn off your keyword bid for a certain device, location, or time – there’s a special case for this. If you use a bid adjustment of -100% on any of the three possible adjustments, your adjustments won’t be averaged together when this case is met and your keyword will turn off. It's like throwing in a multiplier of 0.

-100% bid adjustment

Still confused about how the bid adjustments in Enhanced Campaigns work? Leave your questions in the comments and I’ll do my best to answer them.