In order to calculate your max CPC bid, you’ll have to first determine the following:
- Conversion rate - if we don't know our conversion rate so we're gonna have to assume and make a calculated guess.
- Breakeven return on ad spends (ROAS) - how much money you need to earn back in order to break even which can be calculated from the profit margin
- Average order value - The average of how much are you making in total value from those orders.
For this example, let’s assume that our conversion rate is 2%, for the 50% profit margin, we can get the ROAS of 200% and for the average order value, let’s set it to $100.
Using the values above, we’ll use this formula to calculate the Max CPC Bid:
Average order value/ROAS* Conversion rate = $100/200%*2%
Computation
$100/200% = 0.5
0.5 * 2 = $1(Max CPC Bid)