Instacart Ads Beyond the Basics: The Folly of Average CPC and Max Bid Comparisons
In our Beyond the Basics series we dive a little deeper into some of the recurring themes that have surfaced in our conversations with brands and advertisers. Each article in the series examines a particular discussion point our brand partners have found interesting.
In this article, we take a deep dive into the Average CPC metric in Ads Manager, what information you can derive from the data, and talk about why it’s a mistake to use this metric as a proxy for how competitive your bids are.
Let’s start with the basics. Ads Manager can tell you, on average, the cost per click (CPC) you’re paying for the ads in each ad group. You can drill down to specific products and keywords, as well. This tells you, on average, the rate at which you’re spending your budget. It also provides transparency into what you’re paying.
Because of our 2nd-price auction model, advertisers place bids for each ad group that reflect the maximum amount they are willing to pay per click when a consumer clicks on any Featured Product ad. But this is not necessarily what they’ll pay. Instacart Ads charges advertisers the minimum amount needed to beat their next best competitor. Often they end up paying less than their maximum bid, but never more.
Your average CPC shows you this. It may reach your maximum bid if that’s what’s needed to beat your next competitor, but it won’t go above it. Easy enough. Where you can run into trouble is when you start comparing your average CPC to your maximum bid and drawing conclusions about performance compared to your competitors.
It’s natural to think looking at the two numbers and their relative difference can mean something about how your bids are performing in the auction. Because we make analogies to familiar situations as a shortcut to understanding. We do this all the time.
So if we’re willing to pay $4 for something but it only costs us $2, it feels like we’ve gotten a deal. We might think it’s like haggling over the price of a car. That if the dealer lets it go for less than we wanted to spend, we won. Or buying a home. If we offer under the asking price, and the seller accepts, then ours was the best offer.
Whether consciously or not, we’re making assumptions in both of those analogies from a set of facts around price, cost, and results. We assume buying a car for under its sticker price after negotiating with the sales person means we got a deal — but that assumes the sticker price was a fair reflection of its value, that the car’s appearance matches its condition.
Similarly, when buying a house for under the asking price, we assume the seller accepted our offer because it was the highest of the offers they received. Or there were no other bids. But we can’t know that. Maybe the highest offer came from a developer who was going to knock the house down. Maybe there were higher offers but they came with conditions or the closing date was too soon.
Similarly you can’t look at your average CPC, compare it to the maximum bid you’ve set, and draw conclusions about what the difference means.
What can I tell about my ad’s performance when Average CPC is significantly lower than my max bid?
The short answer is not much. The difference between the two simply tells you that you were bidding more than you needed to beat your next best competitor. Since Instacart Ads uses a 2nd-price auction to only charge you a fair rate, you were only charged the minimum amount you needed to beat the next best competitor.
But this doesn’t tell you much about your ad performance.
The temptation is to think you got a better deal for your ad placement than what you bid when your average CPC is significantly lower than your max bid. Which sounds good. After all if you were willing to pay $2 for something but ended up paying $1.50, you saved 50 cents right?
The problem with that thinking is assuming all ad placements are equal and any difference between your average CPC and your max bid represents savings. But they’re not. Remember you’re competing for the best placements on Instacart Marketplace because they provide the best returns. So while it’s useful to know your average CPC you’ll want to consider more metrics like the number of impressions and clicks, your ROAS, and your bid strength to know how your ads are performing.
Think about running a race where at the end you’re told your time and the time of the next closest competitor that you beat. Your average CPC is your time. And the difference between it and your max bid just represents how much you beat your next closest competitor by. So if you were two minutes faster than the closest competitor behind you did you run a strong race? Not necessarily. Do you need to run faster next time to get the results you’re targeting? Maybe.
With your average CPC and your default maximum bid you can only tell that you beat someone and by how much.
So what should I be looking at to understand how I stack up to the competition?
The engineers who built Ads Manager designed it to be a self-service tool which provides brands with the tools and knowledge they need to effectively manage their ad campaign performance.
To understand how your ad campaigns are performing, there are several pieces of analysis available to you on Ads Manager, including bid strengths and bid recommendations.
Review the Bid Strength of your default maximum CPC bid on all your ad groups. Ads Manager analyzes several factors to determine the strength of your default maximum CPC bid. If your bid can compete the majority of the time across all eligible placements, Ads Manager labels the bid strength as ‘Strong’.
This automated analysis provides clear indication which you can rely on. Irrespective of the average CPC the ad group is getting, the bid strength shown by Ads Manager indicates whether you’re bidding competitively enough to beat out the others in your eligible auctions.
Review the Bid Strength of your keyword bids. You want strong keyword bids in order to compete in the auctions for paid search placements so that as consumers search for products on the Instacart Marketplace, your products get the premium placement. This is crucial for the search terms you’ve identified as important to your brand.
Apply suggested maximum bids. Ads Manager’s analysis does not stop at determining the bid strengths of your default maximum CPC and keywords. Where relevant, it calculates a suggested bid for each ad group’s default maximum CPC and the individual keywords and displays it —
That concludes this look at average CPC and max bids. Remember — it’s great to get secure ad placements at a great price and save money when outbidding your competitors, but you can’t draw conclusions about your performance and competitiveness from this data. Instead, look to the analytics and insights reports Instacart Ads delivers to you.
Advertise with us to get in front of consumers when they’re searching for products like yours on the Instacart Marketplace. For more information and to get started, visit ads.instacart.com.