Weighted Revenue: How to Calculate It and How to Avoid Costly Mistakes
In my last post, I introduced readers of the Blackbird blog to the concept of weighted revenue, one of our favorite initiatives to train Google Ads to more efficiently find the best users for our clients’ business goals.
TL;DR: weighted revenue helps marketers tell Google which conversion types – e.g. page visit, form fill, demo request, etc. – are most valuable. It’s extremely useful for B2B companies and becomes even more effective when you integrate back-end CRM data. Google liaison Ginny Marvin recently posted a video encouraging the use of value-based bidding, which is Google’s take on weighted revenue.
Now that you’re sold (right?) on the idea of weighted revenue, let’s talk about the nuts and bolts of calculating it – and close with mistakes I’ve seen marketers make that you should know in advance to avoid.
How we calculate weighted revenue
Each business will have different goals, historical data, and even levels of subjectivity. But the starting principle of weighted revenue is the same: the most important factor is the relative sizing of the weighted revenues.
To start, identify a conversion event that you can easily extrapolate to a more valuable event and that carries enough data volume to effectively train Google (Google recommends data density to be at least 28 conversions in the last 15 days to start; once weighted revenue is implemented, allow for 14 days for learning, then another month after that for a pre/post evaluation).
A good B2B example of a starting and extrapolated conversion event: start with demos and use that to assign values to SQLs.
Once you’ve identified your event, assign an ideal CPA that reflects how valuable each conversion is to your brand (or client). Let’s say the goal is to pay $1,500 per demo. That means your demos are worth $1,500 in weighted revenue.
Next, establish your conversion rate for demos->SQLs. If 50% of the people booking a demo show up (which makes them SQLs), then SQLs are worth ($1,500 / .5) = $3,000). Remember that these steps add up in value – if an SQL is truly worth $3,000 to a business, and SQLs can only happen as a step after a $1,500 demo request, then the SQL step alone is also worth $1,500 (for the target total of $3,000). Whatever the ultimate numbers are, make sure they reflect accurate value for the business with the whole journey in mind.
You can also take your main KPI (demos) and assign values further up the funnel. For instance, if 1 out of every 10 visits to your Pricing page results in a demo, you can consider telling Google that a Pricing page visit is worth $150.
If this sounds like a bit of a leap of faith (assuming one goal will reliably lead to a deeper-funnel goal), remember that you’ll need a lot of historical data to give you confidence in your strategy. If you’re questioning whether your data history is rich enough to rely on, apply some economics theory: think of these revenue weights like the “utility functions” in economics, where the relative magnitude of the conversion values is the most important part.
In other words, Conversion A’s value at $1 and Conversion B’s value at $5 at 10% ROAS is the same as having Conversion A valued at $10 and Conversion B valued at $50 at 100% ROAS.
Going back to the demo->SQL example, let’s say that as the numbers from your campaigns come in, you realize that $3,000 is actually too much to pay for an SQL and that the ROAS doesn’t support the CPA target. You can experiment with the value difference between the '1st' and '2nd' conversions here, depending on goals. If you are not driving enough 2nd conversions, you can raise the value to incentivize that further. If you're seeing too high of a CPA, try lowering the value relative to the first conversion or raising the ROAS target (which effectively becomes the target CPA).
So, to sum up:
Choose your conversion event
Assign your primary conversion values
Choose your secondary conversion event
Find the relative magnitude between the events
Assign/extrapolate your other conversion event values
Assess the results as they come in (using CRM data to assess the true ROAS in your pipeline) and tweak tROAS as needed
If you’re looking for a less manual way to set this up, you can run it as a Google Ads experiment, which is a built-in A/B test setup that can split traffic evenly between the original campaign bidding approach and the weighted revenue approach. (This is a very cool Google feature we’ll be talking more about on the blog.)
Mistakes to avoid when employing weighted revenue
Because this is an advanced concept, it’s easy to make some mistakes. I’ll caution against two common ones:
Going full target ROAS without employing conversion values sooner.
As I mentioned above, the strength of your relative value calculations relies on historical data – especially concerning the first conversion event. The more data you have that tells you exactly what that conversion event is worth, the more confident you can be in using it as the base of your weighted revenue calculations.
Even if you’re still on target CPA and not ready to employ weighted revenue, start to load in conversion values where you can, in order to build that historical data for target ROAS to leverage later.
2. Not testing different value weights
Remember: the conversion values aren’t set-and-forget, especially not when you’re early in the process.
When you’re starting out, make sure you’re experimenting by increasing or decreasing the relative differences in conversion values. Remember the key benefit of weighted revenue: paying less for more valuable conversions. The key to this is finding the balance between getting enough upper-funnel conversions into Google to enable optimization and racking up high-quality conversions.
Since porting in down-funnel conversions and increasing their weights can lower first-conversion volume but incentivizes secondary-conversion volume and efficiency, messing with the weights in either direction will help find the balance.
Lots to chew on, I know. So I’ll end with a reminder of what you can expect when using weighted revenue: you will pay less for the actions (e.g. leads, SQLs, pipeline, revenue) you care about most. You won’t fill the top of your funnel faster, and you almost certainly won’t lower your overall CPL. But you can be confident your budget will be applied where it will have the most business impact.
If you need advice on how to set this up in your Google campaigns, say the word – the folks at Blackbird are always happy to chat.