Google’s Change to Average Daily Budgets: Impact on Advertisers

Post by Gordon Ferris, VP/Director, Media Product & Commercialization & Andrew Cummins, Performance Media Account Manager

Google announced that as of October 4, 2017, there would be a change to the average daily budget caps within AdWords, which has caused frustration and backlash from some advertisers. In the announcement, Google states that the daily budgets can overspend by 2x the daily limit to “help you reach your advertising goals”. The announcement was a bit sudden, so in an effort to dispel concern or misinformation we’d like to provide you with a quick POV on the changes. 

What’s the change?

Previously, AdWords campaigns could spend up to 20% above their daily budget caps.  By allowing search campaigns to spend 2x of their daily budget caps, Google states they are helping advertisers capture relevant traffic on days when “over delivery” may occur: if your ads don’t show much on days with low traffic, Google will make up for that by showing your ads more when traffic is higher.  The logic behind the change makes sense: campaigns are better equipped to capture big changes in daily traffic.

Here’s an example of how the new threshold compares to the previous (1.2x your daily budget):

Day1 Day2 Day3 Day4 Total
Max Budget Potential* $30 $30 $1000 $1000
Daily Cap/Client’s Target Spend $100 $100 $100 $100 $400
Actual Spend (Before Change – 1.2x) $30 $30 $120 $120 $300
Actual Spend (After Change – 2.0x) $30 $30 $200 $140 $400

 

While 2x the daily budget cap sounds like it could allow for egregious budget spending, Google also provided a safety net: you will never have to pay more than 30.4x your daily budget per month.  This 30.4 number is defined as the average number of days in a month: 365 days in a year / 12 months = 30.417. So in the extremely unlikely case your campaign spent 2x your daily budget for the majority of a month, if that total exceeds 30.4x your average daily budget you won’t be accountable for those costs.

So what does it mean for advertisers?

Google has emphasized that advertisers won’t be charged more than the monthly charging limit: the average number of days in a month (30.4) multiplied by your average daily budget. While this change doesn’t necessarily mean advertisers are going to blow their monthly budget, it does mean advertisers could see higher fluctuations in daily spends on certain days.

So is this a good or a bad thing? Well, for some advertisers it may be a good thing. This change allows advertisers to spend more on days when there is high traffic, and hopefully this should lead to more conversions. For some advertisers, as long as they hit their monthly targets, spending the budget early in the month and having minimal or no budget later in the month, may not matter.

Advertisers with budget restraints, such as hotels or airlines, may have more of an issue with this change. Often, these advertisers rely on a more consistent spend throughout the month to maximize yield and ensure they can control capacity. Too much spend early in the month may lead to over-booking issues, with few appointments coming through towards the end of the month.  This can make marketers jobs more difficult explaining results to other stakeholders in the business.

Google’s announcement of the average daily budget changes will impact short-term campaigns, especially if frequent changes to daily campaign budgets are being made that will stop the monthly charging limit being applied.

Implications for 3rd party bidding tools

It will be interesting to see how this change will work with 3rd party bid management programs such as Google’s DoubleClick search, Kenshoo or Marin. For many Performics advertisers, we use these 3rd party tools to ensure we get the best performance possible for our clients’ search campaigns.

Some vendors do provide the ability to automate campaign budget changes, however arguably the most widely used 3rd party tool, Google’s DoubleClick Search, does not currently have this functionality. This can cause issues where bid strategies within DoubleClick search become constrained due to daily campaign budgets. One simple solution is to increase daily campaign budgets to ensure 100% impression share. However, this can lead to over-delivery issues, especially when working to a set monthly budget and trying to pace spend evenly throughout the month.

This then leads to a broader question of how account budgets within AdWords, could, or should be managed. One of the key themes Performics has seen in 2017 is that of automation and machine learning. Currently there is no ability within DoubleClick Search or AdWords to set an over-arching monthly account budget that will work with a bid strategy, to automatically adjust campaign budgets according to performance. This is a feature that we have eagerly been awaiting and will hopefully see released in the near future.

Implications for proprietary tools

At Performics, we have a plethora of proprietary tools in place to assist our teams with budget pacing and optimization challenges like this daily budget update.  While we are updating our daily/weekly/monthly checklists and adding an extra level of account QA for budget pacing, we also have tools that can act as an additional safety net for preventing and automating overspending.

Our first tool is DPAD – or Daily Pacing and Anomaly Detection.  DPAD monitors any of our paid media accounts (including but not limited to SEM) and alerts team members when there is an anomaly in traffic, spend, or conversions beyond an appropriate level of fluctuation.  DPAD can also trigger automated responses in our proprietary Bid Algorithm – Darwin.  Darwin monitors account performance over time to identify marketplace opportunities.  Darwin digs deeper to align campaign daily budgets and keyword level bids to reflect marketplace opportunity in order to maximize return on investment subject to three optimization strategies: maximize profit, maximize Revenue/Leads, or optimizing towards a budget.

Together, Darwin & DPAD are a power tool in the Performics arsenal to mitigate negative effects of this change:

General Darwin/DPAD Synergy

  • DPAD analyzes day of week trending and seasonality to come up with specific targets (spend & conversion volume) for each day of the month.  That target is fed into Darwin.
  • Darwin analyzes each keyword to project performance across all positions
  • The algorithm then selects the ideal position for each keyword that not only generates maximum return, but where the sum of all keywords will equate to the daily target for that day.

Enhanced Darwin/DPAD Synergy (In Development)

All of the above, but adding the following to the process:

  • DPAD runs every hour to compare metrics for up to the most recent hour for the present day across historical iterations of the same day/hour combinations in the past using significance testing
  • DPAD looks for anomalous behavior across metrics, but also specifically tracks whether spend behavior is steady or anomalous
  • If there is anomalous behavior with spend, DPAD will trigger Darwin with the new forecasted spend for that day and Darwin will make another round of bid adjustments

What is Performics doing about the change?

The impact of this change will largely depend on the advertiser and how they wish to spend their budget throughout the month. As part of our daily campaign management at Performics, we keep a close eye on account spend and performance. With news of this update, we will continue to monitor our accounts update clients on any changes we see.

To learn more about Google’s change to average daily budgets, contact Performics today.

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