The risks of automated bidding during Black Friday and how to prepare for them
Strategies for remaining profitable during sales periods
The promise of automated bid targets like tROAS, tCPA and Cost caps
The use of automated bidding is fairly table stakes in DTC marketing at this point.
I rarely see or hear folks using manual bid strategies.
And for good reason..
Bid strategies like target return-on-ad-spend (tROAS) and target cost-per-acquisition (tCPA) on Google and cost controls on Meta are helpful guard rails to drive profitable acquisition at scale.
However..
These automated systems can do some weird things during sale periods (like spend way more than you planned) when demand changes and conversion rates pick up.
And if you blindly take the advice from ad reps on how to set these systems up, then you may be on the hook for missed profitability targets due to runaway spend.
My Google rep told me last week to look at my conversion rate metrics from the year prior during Black Friday weekend and use that as a guide for setting increased bid targets.
For example, if our conversion rate is projected to increase by ~20% on Black Friday, then Google recommends increasing our tCPA by 20% (or decreasing our tROAS by 20%) to align bids with the higher demand and competition.
This approach is “designed to capitalize on traffic spikes and help us capture valuable holiday shoppers”.This approach makes sense on paper.
We should simply lift our bid targets at the same rate as the conversion rate is expected to lift.
The problem with this is that it doesn’t take into consideration our profitability!
What if the that ~20% lift in bid targets pushes our costs-per-acquisition (CPA’s) into unprofitable territory?
For me (and I think most non-VC backed DTC brands), our goal for Black Friday weekend should be to maximize sales volume with respect to profitability.
Or, in simpler words, maximize contribution margin dollars - not just top line sales.
In this post, I will dig into the risks of using conversion rate as the only guide to setting bid targets ahead of Black Friday and provide some counter checks that you can implement to help you balance profit and volume during volatile sale moments.
The risks of only using conversion rate as a guide to automated bid targets
Here are some real-world risks that are worth considering:
1. Over-bidding beyond breakeven profitability
The engines know that there is going to be an increase in demand over the holidays and it will spend against that alongside the bid targets you set.
The expected increase in volume within CPA constraints is a feature (not a bug) of automated bidding when the bid target is set at or below the breakeven CPA.
It poses an over-bidding risk, however, if the bid target is set above breakeven CPA profitability.
This is more likely to happen with brands who operate under an LTV:CAC acquisition model - vs operating to first purchase profitability.
For example, some brands who leverage LTV:CAC may see lower LTV’s from their holiday cohorts.
During the holidays, folks may be shopping for more one-time gifts instead of making purchases for themselves where they are more likely to be a repeat buyer.
Brand X may be profitable during January - October at a CPA of $50 because their LTV is $150 (3x LTV:CAC ratio) and they can set bid targets up to that $50 mark.
But, the same brand X could be unprofitable if the holiday cohort (November-December) LTV drops to $100 (2x LTV:CAC ratio).
In this scenario, nothing changed in the target CPA, but the fluctuating LTV’s between periods has put the brand at risk for lower margins during a high volume period.
To mitigate this risk - We check the November LTV’s from last year to make sure that we are okay spending to our normal B/E CPA levels. 2. Leaving increased bid targets and budgets on too long after demand wanes
As mentioned, the engines expect to see strong conversion rates during Black Friday weekend as demand spikes and when they do they will start to spend at much higher levels than historical averages.
This is fine assuming you have your proper bid targets dialed in ahead of time and understand LTV’s as mentioned in risk #1.
However..
There is a timing risk of overspending the week after Cyber Monday when the engines think that the strong demand and conversion rates will continue.
If you don’t react quickly enough to declining conversion rates post-sale (IE: the Tuesday after Cyber Monday), then you may be left over-spending on unprofitable CPA’s when the demand normalizes.
To mitigate this risk - I cut budgets aggressively Tuesday morning after Cyber Monday and begin dialing back tCPA/Cost cap targets. 3. Out of control spend from “open” budgets
The common advice from our ad reps is to allow budgets to remain “open”, meaning uncapped and allow your tCPA/tROAS/Cost control targets to guide spend.
The thinking here is to let the engines spend and rely on the bid target to control profitability.
I’ve generally see the “open budget” approach work well in evergreen periods.
However..
During a high demand period like Black Friday campaigns will hit historic days in spend that you may not be ready for.
The risk is here is simply overspending beyond the point that your brand can support.
To mitigate this risk - I like to leave budgets open, but set some caps ahead of time based on expected order volumes. This will help me have a reference point during the weekend when things get crazy to go back to and make sure I am not opening things up beyond a point that's reasonable.A more thoughtful approach to bid targets during sales periods
Here’s a few thoughts to avoid these pitfalls and make the most of automated bidding during Black Friday and Cyber Monday:
1. Start with controlled increases
Instead of fully leaning into Google’s suggested ~20% tCPA increase based on conversion rate expectations all at once (from our earlier example), test incremental adjustments:
Raise tCPA by ~5-10% in stages, monitoring profitability and ROAS carefully.
Adjust tROAS similarly, keeping a close eye on how it affects average order values.
Do this all under the B/E CPA needed to maintain profitability
2. Understand how holiday cohorts behave differently than evergreen cohorts
Segment past cohorts from holiday campaigns to better understand if you should expect any LTV changes between holiday and evergreen periods
Adjust your bid targets based on expected LTV for Black Friday, instead of conversion rate. For example, if expected LTV drops by ~10% , but conversion rate is expected to increase ~20%, then you may want to discount your bid targets to remain profitable.
TLDR: Conversion rate is a start to guiding bid targets but check to make sure the LTV’s support the increases.
3. Set budget cap limits
Even with automated strategies, applying maximum budget limits can prevent runaway costs.
I typically take a looser approach during the BFCM weekend here (you don’t want to limit volume if its profitable and demand is high), but then cut aggressively on Tuesday after Cyber Monday to avoid any runaway spend trains.
Implement a kill switch CPA ahead of time just in case you need to manually override any of the in-platform settings. IE: At what point is your brand’s profitability really in trouble?
4. Pre-Test Campaign Adjustments
If you have time, A/B test bid changes a few weeks before Black Friday to evaluate their impact. Fine-tune based on those learnings rather than diving into untested strategies during the main event.
For my accounts, Google seems to scale into targets more moderately where Meta enters a volatile learning phase anytime a slight change is made. I’ve baked this into how I am timing my increases across platforms.
In summary
Plan methodical bid increases into the Black Friday weekend to get ahead of demand, keep those increases within economics that works for your brand and supports profitability, cut budgets the Tuesday after Cyber Monday to avoid runaway spend, and understand what kill switches you may need to implement if things go really haywire.
And good luck!
This is one of the best times of year to be a DTC marketer and I hope you have fun with it.
Best,
Trent