Real-Time Margin Calculation and Value Based Bidding in Google Ads: How It Works and How to Do It

In digital marketing today, it is no longer enough just to generate high turnover. What is essential is that every crown put into advertising genuinely increases your profit. And that is exactly why companies increasingly use so-called value based bidding (VBB) in Google Ads. It is a new way of managing advertising campaigns focused on profit, not just revenue. Read how VBB works exactly and why real-time margin calculation is important for it.

Summary for Those Who Don’t Have Time to Read the Whole Article

• Value based bidding optimises campaigns according to the real margin of products instead of turnover. Because it can prioritise more profitable products, you get more money for the same advertising budget.
• Implementation requires server-side tracking (most often via Google Tag Manager). You need to connect your e-shop with Google Ads so that the system knows how much you actually earn on each product.
• Real-time margin calculation is essential for passing up-to-date information to the advertising systems. Google Ads must know immediately how much you have just earned.
• Companies that use VBB can achieve up to 20% year-on-year revenue growth, because they target the right products and customers.
• For a successful implementation you need a sufficient amount of conversion data (at least 45 conversions in 30 days) and someone skilled for the technical solution.

What Is Value Based Bidding?

Value Based Bidding (sometimes called SOTERIA bidding) is a way of setting up ads in Google Ads so that they bring real profit, and not just lots of sales. Instead of tracking total revenue, you track how much money actually stays in your pocket after costs are deducted. The system automatically prioritises:

• Products with a higher margin (even if fewer of them are sold),
• customers who are likely to spend more,
• campaigns that bring long-term value (customers who gladly come back to you).

How Does It All Work in Practice?

Today it works like this: when someone buys in your e-shop, Google’s system is simply told: “Great, this customer spent 1,000 crowns.” But it isn’t told whether you made 50 crowns or 500 crowns on it.

With the new approach, however, you tell Google: “This purchase brought me 300 crowns of profit.” And that changes everything.

The advertising system then automatically adjusts your bids per click to maximise total profit. It can, for example:

• Bid more in the auction for visitors who buy products on which you earn more.
• Limit spending on goods that you do sell but don’t earn much on.
• Better recognise customers who are likely to come back to you and buy again.

You might also be interested in: Google Data Studio (Looker Studio) – visualization tool

It Is Not Just About the Settings in Google Ads

It is important to understand that it is not just about switching on the smart bidding feature for Target ROAS (return on ad spend) in Google Ads. It is about a complete transformation of the approach to marketing, which turns from a cost centre into a profit centre.

For this you need to:

• Connect internal margin data with the advertising platforms,
• ensure that profitability information flows in real time,
• evaluate campaigns by POAS (Profit On Ad Spend), not by ROAS.

Once you master this, your advertising campaigns will finally start tracking what you really care about, that is, how much money you are left with.

The Technological Solution: Real-Time Margin Calculation

To implement value based bidding you must be able to calculate margin in real time and pass this information to the advertising systems. We will advise you how.

Server-Side Tag Manager as the Foundation

Value based bidding is now easier to set up thanks to a more modern measurement tool from Google called Server-Side Tag Manager (SGTM). In essence it is a bridge connecting your e-shop with the Google Ads advertising system through the Cloud Functions and Firestore modules.

The process looks like this:

1. A customer makes a purchase or another conversion on your website.
2. The purchase data (including product IDs) is sent to SGTM.
3. A Cloud Function retrieves the cost price data of the products from Firestore.
4. Based on the selling price and costs, the system calculates how much you actually earned on the sale.
5. This information is sent to Google Ads as the conversion value.

This measurement often runs in parallel. The value from revenue still goes into so-called secondary conversions, and profit goes into the primary conversions.

If you don’t feel confident in the area of server-side tracking and data analytics, you can always contact us and we will help you with the whole process.

What Do You Need for Real-Time Margin Calculation?

To implement this solution you need:

• Cost price data for products – you must have accurate information on the costs of individual products.
• A NoSQL database (Firestore or a similar solution) for storing this data.
• Server-side tracking using Google Tag Manager or a similar tool.
• Cloud Functions or a similar system for real-time margin calculation.
• Coefficients accounting for the overheads of the warehouse, logistics and other parts of the company.

Setting up all the technical connections is actually the easier part. A much bigger change comes for the marketing and product teams. They should expect their processes around creating campaigns and thinking about the product mix to change very significantly.

Why? Because suddenly you will see your business in a completely different light. For years you have promoted and considered your bestsellers the goods that sell a lot. Suddenly you discover that some of these bestsellers bring you minimal profit and other, less conspicuous products are real treasure troves.

TIP: Market segmentation: What is RFM analysis and how to segment customers

Implementing Value Based Bidding Step by Step

Implementing value based bidding is not a one-off task but a gradual process.

1. Analysis of the Current State

First, assess whether your company is even ready for value based bidding. Ask yourself a few basic questions:

• Do you have a sufficient volume of conversions (min. 45 in 30 days)?
• Do you know exactly how much each product costs you? Without these numbers you can’t calculate profit.
• Do you have someone technically skilled available? This is not a project for beginners.
• Is your marketing team ready for a change of metrics?

2. Set Up Conversion Tracking in Google Ads

Next you need to explain to Google what it should actually track:

• Create a new conversion for tracking margin/profit.
• Set up the way the conversion value is measured (dynamic value). You must set the system up so that it can work with variable values, because profit differs for each product.
• Make sure this conversion is included in bid optimisation. You need to tell Google to manage your campaigns according to this new data.

3. Connect the System with Product Margin Data

For the system to be able to calculate profit, it needs to know how much your products actually cost you:

• Create a clear database in which you record the purchase price of each product (ideally in Firestore).
• Make sure this database is updated regularly (for example when supplier prices change).
• Connect this database to the margin calculation mechanism.
• In the early phases the margin calculation doesn’t have to be very sophisticated; the key element of the whole margin bidding strategy is to give the advertising systems information about which transactions (conversions) are really valuable to you and which are not. And that often simply cannot be determined from turnover.
• Very high-quality results can be achieved if you handle the free shipping phenomenon and subtract the purchase prices of products, whether in absolute terms or as a ratio. That is, if a customer gets free shipping and so paid you nothing for it, you should still subtract its value from the transaction; this applies to all transactions, but with free-shipping ones the impact on margin is greatest. Likewise you subtract the purchase prices of products. If a customer makes such a transaction and also uses a coupon, you can be sure that such a transaction will get into the system not with a high turnover but rather with a small margin. And so you clearly say yes, this customer is interesting, but doesn’t have such value for me.

4. Implementing Server-Side Tracking

Ordinary user tracking has its limits, so you need a stronger solution:

• Deploy Server-Side Google Tag Manager.
• Set up the necessary tags for tracking conversions.
• Implement Cloud Functions for real-time margin calculation.

5. A Gradual Transition to Value Based Bidding

The most important thing is not to switch everything at once:

1. Start with Target CPA – Launch campaigns with a target CPA strategy and collect data.
2. Collect data – In parallel, start sending margin information to Google Ads (as a secondary conversion).
3. Switch to Target ROAS – After about 4 weeks (or after accumulating at least 45 conversions) switch to Target ROAS.
4. Optimise Target ROAS – Gradually adjust the target ROAS value based on the results.

It is important to give the Google Ads algorithms enough time to learn. Don’t adjust the settings too often, so that the system can adapt to the new way of optimisation.

Advantages of Value Based Bidding for Your Business

Implementing value based bidding can bring you a number of significant advantages.

Higher Profit and More Efficient Budget Allocation

With clients who have switched to margin bidding, we see up to 20% revenue growth year on year. The reason is a much more efficient allocation of the budget: money is invested in the products and customers that bring real value.

Imagine you have two products:

• Product A: Selling price CZK 1,000, costs CZK 800, margin CZK 200.
• Product B: Selling price CZK 1,000, costs CZK 500, margin CZK 500.

When optimising for turnover, both products would get the same priority. When optimising for margin, the system would automatically prefer Product B, which brings 2.5× higher profit.

Optimising the Product Portfolio

Value based bidding will also help you better understand which products actually earn you money. After introducing this system, many companies find that their supposed workhorses are in fact losing money, and conversely that other, less promoted items bring the highest margins.

Such a finding can completely change your view of what to actually sell and promote.

Gradually you can work your way up to more complex optimisations, such as changing the range of products you sell, or prioritisation and so-called labelling for advertising systems (feeds).

Better Targeting of Valuable Customers

Another advantage is that you will be able to target customers with a higher Customer Lifetime Value better. Google gradually learns how valuable customers behave, optimises campaigns accordingly and starts bringing you more such people.

You might also be interested in: 7 trends in data analytics for 2025

Disadvantages of Value Based Bidding

Despite all its advantages, value based bidding also has its limits.

The Need for a Sufficient Volume of Data

For an effective implementation you need a sufficient amount of conversion data. It is generally recommended to have at least 45 conversions in 30 days at the level where you set the bidding strategy. This can be a problem for smaller e-shops or companies with fewer conversions.

The Technical Complexity of Implementation

The whole process of real-time margin calculation is not something you can manage with just a YouTube tutorial. It requires someone who understands programming and data. If you are a smaller company without your own IT specialist, you will probably need to hire an external one.

Archetix is ready to help. Get in touch with us.

Initial Changes in Campaign Performance

After switching to value based bidding there is often a temporary drop in campaign performance until the algorithms learn to optimise for the new metrics. There may also be an increase in the average cost per click, because the system is willing to pay more for clients with a higher potential value. Prepare your company team for this.

New Ways of Measuring Success

Value based bidding requires a change in how you think about success metrics. Instead of traditional metrics such as CTR, CPC or ROAS, you need to focus on POAS and the overall profitability of campaigns.

A Case from Practice: From Redesign to a Data Revolution

The company Ochutnej ořech went through a significant transformation thanks to implementing value based bidding. After the e-shop redesign they saw a 38% increase in conversion rate, but the real revolution came only with the implementation of margin bidding.

By connecting data from the e-shop system with the Google Cloud infrastructure, they were able to calculate the margin for each product in real time and pass this information to the advertising systems. The result was year-on-year revenue growth of 21% and above all a significant increase in the overall profitability of campaigns.

You can find the whole case study here.

The key success factor was the connection of the marketing and IT teams, who together developed a robust solution for real-time margin calculation. This case clearly shows that value based bidding is not just a marketing strategy, but a comprehensive approach that requires cooperation across the whole organisation. Don’t stay behind and start implementing value based bidding today.

Frequently Asked Questions