Why are bids reduced when below target ACOS?

Consideration #1: Conversions fluctuate, resulting in a shift in the optimal keyword bid.

For example, a keyword bid was initially $0.50 and converted very well with a very low ACOS (Etc. 2 clicks with 2 orders).

SI projected the optimal bid to be $2.00 based on their historical conversion, progressively raising the keyword bid from $0.50 to $2.00.

If conversion drops as the keyword bid inches towards the $2.00 bid, the optimal bid may shift below the current keyword bid.

Many factors can cause conversions to fluctuate, such as changes in competitors' pricing, click frauds, different bid placements, seasonality changes, rating drops, or low stock levels in certain states. 

Unless we reduce the bid, the keyword ACOS will eventually exceed the target ACOS if conversion remains the same.

Consideration #2: Assuming the current ACOS is due to the current keyword bid.

Assume the scenario where a keyword bid is $0.50 with a 5% ACOS.

Imagine your team member or other third-party tools changes the bid to $10, causing ACOS to shoot up to 100% ACOS for the day.

The next day, the aggregated ACOS across a period (Etc. 30 days) becomes 7%.

If we incorrectly assume the $10 keyword bid is responsible for 7% ACOS, we may raise the bids even further, a common mistake when optimizing manually.

Use the average CPC as the contributing factor for the aggregated ACOS, not the current keyword bid.

Due to these factors, SI may reduce the keyword bids even when the current ACOS is below the target ACOS.

This scenario can happen due to fluctuating conversions when the average CPC is lower than the current keyword bid.

You can verify this by going to Automation -> Change Logs and expanding the row to see the difference between the average CPC and the current bid.

Why are bids increased when above target ACOS?

The above considerations apply when SI increases keyword bids above target ACOS.

Due to fluctuating conversions with different keyword bids, the average CPC can be higher than the current keyword bid.

Example: A keyword bid is $0.50, but CPC is $2.00.

This scenario can happen if the keyword bid is adjusted downwards from a much higher value (Etc. $2.50 to $0.50) based on the calculated optimum bid.

SI will adapt if the keyword conversion rate improves by re-evaluating the optimum bid at a higher value. SI will then inch the keyword bid towards the higher optimal bid, even if the overall aggregated ACOS might still be higher than the target ACOS.

The bottom line is this: If the conversion rate for the keyword remains the same for the next 30 days (Etc. the lookback period), the eventual ACOS for that keyword based on the optimal bid will be the same as the target ACOS.