While bidding strategies have evolved over time, there are several core bidding types available in Google AdWords. Now with Flexible Bidding Strategies it may be a bit confusing as to what type of bidding is available and how it works. Cost-per-click (CPC) bidding has never been so advanced – and so complicated.
This is the classic setting for having total control over bids with a focus on driving click traffic. AdWords will take the ad group default bid first, unless a different bid is manually specified at the keyword level.
Select "I'll manually set my bids for clicks".
In this setting, advertisers focus on driving click traffic but give AdWords control over individual CPC bids. Set a daily budget and AdWords automatically adjusts your bids with the goal of getting the most clicks for the budget. With automatic bidding, AdWords does all the work to get the most clicks.
There is also the option to set a CPC bid limit. Setting a limit can help control costs, but might also potentially limit clicks.
Select "AdWords will set my bids to help maximize clicks within my target budget".
This bidding option is for the conversion-focused advertiser. Conversion tracking must be enabled, so that based on conversion tracking data, AdWords will automatically increase or decrease CPC bids to drive most conversions.
Bids can be raised up to 30 percent for clicks that are more likely to lead to conversions. Bids are lowered for clicks less likely to convert.
With a focus on conversions at a specific cost-per-acquisition, use CPA bidding. This is also known as Conversion Optimizer.
Advertisers who want to target a specific cost per acquisition/conversion must have at least 15 conversions in 30 days to use this. The conversions history allows AdWords to predict future conversions.
Because Conversion Optimizer automatically applies its own bid adjustments, it isn't compatible with the new enhanced campaigns bid adjustments across days, times, locations, and devices (except for mobile opt-out at -100 percent.). Display bids also don't work. If you turn on Conversion Optimizer with existing bid adjustments, they will simply be ignored.
There are two advanced options for this bid type: Max CPA and Target CPA. The Target CPA is the average CPA you are willing to pay, and Max is the maximum per conversion. The Maximum CPA is scheduled to be discontinued in 2014.
Google recommends a CPA, based on history, which can be used or advertisers can set their own.