May 28 2019
Nick Budincich

Portfolio Bidding: A Breakdown of the PPC Bid Optimization Technique


Let’s cut right to the chase: there are various PPC bidding optimization techniques and practices floating around, but portfolio bidding is probably the right one to use, provided you have a large program.

I sold it to you that quickly? Terrific.

But just in case, we’ll go on...

Portfolios are groups of assets, and in search engine marketing, these assets are the keywords and “publisher objects” that you can apply bids and bid strategies to. The power of a portfolio strategy is twofold.

One, it allows similar keywords to share goals and data, and be pointed in the same general direction. Two, it executes in a way that optimizes toward (and hopefully achieves) your goal in aggregate across the group. Results are more controllable because decisions are made based on shared information within the portfolio.

But what really is portfolio bidding? And how do you start using it? We’re about to find out.

What is Portfolio Bidding?

If you ask Google Support, you may read a definition for portfolio bid strategy that sounds like this: “An automated, goal-driven bid strategy that groups together multiple campaigns, ad groups, and keywords. Portfolio bid strategies automatically set bids to help you reach your performance goals.” Thanks Google!

Okay, so it’s this thing that automatically sets bids on groups of publisher objects, based on your goals…

But what is it really? How does it work? And why? Is this thing Google is talking about the same thing you’d expect for the core methodology for PPC bid optimization?

Let’s dig in a bit.

Modern Portfolio Theory was an economics concept originally introduced in 1952 and describes the technique for limiting risk and optimizing outcomes by sacrificing individual components to benefit the larger whole. It was first discussed in terms of stock market investment strategy (diversifying investments so some will win and some will lose, but the whole investment portfolio comes out on top). Presently, it helps to describe this SEM bidding optimization technique.

The solution involves bidding on a group (or portfolio) of keywords towards a target goal, while also maintaining an efficiency metric. With this methodology, the goals of the group outweigh any specific keyword-level goal: some keywords will perform worse to maintain the efficiency metric of the group, while other keywords will be bid up to drive the target goal. As a whole, the group is optimized based on the context of the entire portfolio.

The relationship between spend and return is non-linear, and that is true across keywords. Portfolio methodology models this relationship granularly at the keyword level, but adjusts for the findings collectively–across the portfolio.

So by way of example, let’s say you want your keyword group to maintain 220% ROAS while maximizing revenue. The portfolio bidding algorithms would use data from clicks and conversions to bid up the more valuable keywords that drive revenue while simultaneously bidding down other keywords to stay within the ROAS limit. The shared goals and data allows the bidding algorithms to execute towards a multi-faceted goal accurately by sharing the context of all the keywords in the group with each other.

How Do I Start Doing It?

To put it simply, one does not simply “do” portfolio bidding without utilizing an optimization tool.

As a very simple “two-keyword example”, an exercise can be run to look at the volume/efficiency curve and select the values (based on some data exports) where you’ll bid so that a target goal for efficiency is maintained while otherwise maximizing for the revenue metric… however, it’s simply too much to do manually for any real program.

Obviously, Google allows portfolio bid strategies to be applied to groups of keywords you define by using some of the goals available in Google Ads: Target CPA, Target ROAS, and Enhanced CPC, plus some others. How do you apply this to your programs? If you’re using Smart Bidding, you can effectively just follow the on-screen instructions.

But Google’s method is limited in the same way any other bidding method is limited with Google: it’s subject to the same requirements for volume and conversions; it doesn’t utilize any customer journey data outside of what Google tracks; and it’s built as a one-size-fits-all solution, to help small businesses, mid-sized spenders, and big programs all try to accomplish their individual business goals.

Any third-party PPC bid optimization tool (well, any modern one worth using) will utilize portfolio bidding in one way or another. Remember, it is a conceptual approach to solving a problem. However, there is certainly a great deal of variability between different solutions: between the best practices and most robust models, versus standard approaches.

To get started, you’ll want to ensure your conversion data is being tracked and is cleanly integrated into your optimization tool. Data integration is key to making smart decisions.

Next, you’ll determine which keywords should be grouped together in the same portfolios, or ideally utilize a tool that helps to automate this. Whether it’s a handful of keywords, ad groups, or campaigns, you select the best group of objects that share sufficiently similar attributes and goals to put under one portfolio.

Select which goals and strategy you want applied to each group and define the target metrics for each: goals for maximization, and goals for maintaining efficiency across the portfolio. However, be aware that setting goals too extreme up front can cause issues with volume or spend, and lead to disappointment.

Here’s what we see: even with the technology available to automate and optimize with something as complex as portfolio bidding, it still requires human decision-making and touchpoints to thoughtfully structure the program, define goals, and strategize.

Moving Forward

Portfolio bidding is a technique that is here to stay. Why? First, because it is conceptual - not some specific tool. Second, it is a concept that aims at what we digital marketers are after: ensuring the aggregate performance across a group of keywords is hitting the target.

However, we must not forget that this technique, like many facets of life, fits in with that old adage from Drake’s song Preach: “Doing is one thing. Doing it right is a whole different story.”

Many PPC automation tools will use a portfolio bidding mindset to optimize SEM performance, but more is involved for great outcomes and peak performance: machine learning involved at every step; infrastructure built for accuracy and speed; data ingestion of customer journey data and other relevant context; and so on.