Set up correctly, Adwords can be a profitable way for restaurants to get more diners in the door. But Adwords can be a daunting platform for many restaurant marketers and managers to get started with.
One of the most common hurdles we come across is how to set CPC bids for restaurant accounts. This is often because many people don't know the bid formula for making sure your ads remain profitable.
Setting bids is easy once you know the formula.
This post will walk you through how to set bids based on the revenue and other data from your restaurant. This is the missing link that restaurant Adwords accounts often have.
In order to optimize your Adwords account you have to track the entire customer journey from someone seeing your ad, to leaving your restaurant a happy customer.
Think about it as your "diner funnel".Ad--> Lands on website --> Opens Reservation Widget --> Makes Reservation --> Arrives for dinner --> Pays the Check
When you know the amount of revenue you make per customer, (as well as your margin), you'll be able to set CPC bids effectively and stop the guesswork.
The 3 Must Haves To Set Max CPC Bids in Adwords
Setting bids in Adwords requires you have three elements before hand:
1. Tracking Conversions in Your Adwords Account
Setting up conversion tracking is essential. For a restaurant you can think about a conversion as an event that makes you money. Usually either a confirmed reservation or a delivery order. In this example we'll use reservations, so you should have conversion tracking set up for online reservations on your website. Or, if you use phone numbers in your ads, tracking for confirmed phone bookings.
2. Know your average revenue per reservation and margin
To work out how much you should be bidding in Adwords you need also to know how much revenue per reservation you generate and the margin, or profit, your diners bring in.
3. Have some existing click and conversion data in your Adwords account
In order to tie your revenue data back to your Adwords account you need to know the conversion rates of your campaigns. This means, at least at first, you'll need to run your campaigns without optimized bids to establish a baseline from which to work.
Step-by-Step Guide to Setting Bids in Adwords for a Restaurant
In this guide we'll use a steakhouse as an example. In this example the restaurant is running an Adwords campaign with three ad groups:
- Ad group 1: 'steakhouse' keywords targeted in the local area on the weekends
- Ad group 2: 'lunch' keywords that promote a local business lunch offer
- Ad group 3: 'valentines days' keywords which promote the restaurant for valentines day
1. Determine average revenue per reservation for different campaign types.
Using your POS data, or other accounting method, the first step is find how much revenue you bring in for the different offers or events you are advertising for.
In our example steakhouse the following is the revenue generated.
- The average revenue for dinner on a normal weekend: $70
- The average revenue for business lunch offer: $50
- The average revenue for Valentines Day Dinner: $150
2. Determine your margins and calculate profit per reservation
Your margin is the revenue minus all the variables and fixed cost associated with running a restaurant. Need help calculating margin?
Lets say our steakhouse operates at a 15% margin. For every $100 in revenue the restaurant takes $15 in profit.
Once you know your margin you can calculate your profit per reservation.
The formula here is (total revenue x margin) / reservations.
3. Download your existing Adwords conversion data
Next step is to find your Adwords data. Navigate to the Ad groups panel of Adwords and make sure the following columns are selected and download the data.
Avg. CPC, Conv. Rate and Cost/conv
4. Decide on a profit goal and combine data from previous steps to establish Max CPC
In order to calculate our Max CPC bids we need to know how much profit we are aiming to generate from our campaigns.
For this we use our "desired return on ad spend" or ROAS. ROAS is a simple advertising metric that shows the profit, (or loss) from ad spend. If for every $1 I spend on ads I get $1 back, then my ROAS in 100%. If I get $2 back for every $1 I spend, then my ROAS will be 200%.
Lets say in our case, the restaurant's strategy is to break-even from their Adwords campaigns and generate as many customers as possible initially, with the intention of turning them into regular customers in the future.
To calculate Max CPC bid for the Steakhouses ad group:
- Profit per reservation: $18
- Desired ROAS: 100%
- Conversion rate: 10%
The formula for setting bids based on profit is:
(Profit per conversion / desired ROAS ) × (conversion rate)
So, Max CPC = ($18 / 100%) × 10% = $1.80
In the case of our other ad groups the Max CPC bids are $1.05 for Lunch and $0.75 for Valentines Day. Given that Valentine's Day is usually time when CPCs are quite high, it's possible that this steakhouse won't be able to run profitable Adwords campaigns over Valentine's Day.
By setting this up in a quick Excel sheet you can experiment with different ROAS levels so see if you can run profitable Adwords campaigns given the general CPC keyword prices in your location.
To give you a head start you can download the above spreadsheet below:
With the above information you'll be able to set restaurant Adwords bids based on your restaurant data.