Target ROAS (Return on Ad Spend) is a bidding strategy available in Google Ads that allows advertisers to optimize their campaigns based on a specific target revenue they want to generate in relation to their ad spend.
With Target ROAS, you set a desired ROAS value (e.g., 400%) that represents the revenue you want to achieve for every dollar spent on advertising. Google Ads then adjusts your bids automatically to maximize conversions and meet your target ROAS.
You should consider using Target ROAS when your primary goal is to maximize your return on ad spend and you have historical conversion data with a sufficient number of conversions and revenue values. This bidding strategy is suitable for businesses that have a clear understanding of the value they receive from each conversion and want to optimize their campaigns accordingly.
It’s important to note that Target ROAS may not be the best choice for businesses that prioritize other metrics like maximizing click-through rates or increasing overall traffic. Additionally, it may not be effective if your conversion data is limited or if your products or services have highly variable profit margins.
Here’s a more detailed explanation:
Return on Ad Spend (ROAS) is a metric that measures the revenue generated for every dollar spent on advertising. For example, if you spend $100 on ads and generate $400 in revenue, your ROAS would be 400%.
Setting a target
With Target ROAS, you set a desired ROAS value that aligns with your business goals. This value represents the revenue you aim to achieve for each dollar spent on advertising. For instance, if your target ROAS is 500%, you want to generate $5 in revenue for every $1 spent on ads.
Google Ads uses machine learning algorithms to automatically adjust your bids based on your target ROAS. The system takes into account factors such as historical conversion data, user behavior, and contextual signals to determine the optimal bid for each ad auction. Therefore it’s very important to make sure your conversion setup is accurately set in the account already and you’ve been tracking primary/quality actions in your account accurately, before moving forward with value-based bidding strategies.
Maximizing conversion value
The primary objective of Target ROAS is to maximize the number of conversions while striving to achieve your desired ROAS. Google Ads adjusts bids higher for ad auctions where it predicts a higher likelihood of conversions that meet your target ROAS and lowers bids for less promising auctions. Please note that if you are in the Service-Based business and not E-commerce, this bidding strategy may limit ads serving, and you may get lower volume of conversions and higher cost over time.
Considerations for using Target ROAS
This bidding strategy is most effective when you have sufficient historical conversion data to inform the system’s bidding decisions. It requires a minimum of 15-30 conversions in the past 30 days, although more data typically yields better results. Moreover, it’s important to have accurate conversion tracking in place to measure revenue accurately.
Target ROAS is a suitable strategy for businesses that prioritize maximizing their return on ad spend. It works well for businesses with a clear understanding of their conversion values and profit margins. However, if your goal is to drive traffic or increase brand awareness without focusing on specific revenue targets, other bidding strategies like maximizing clicks or impression share may be more appropriate.
In summary, Target ROAS in Google Ads is a bidding strategy that helps advertisers optimize their campaigns to achieve a desired return on ad spend. By setting a target ROAS and leveraging automated bidding, you can maximize conversions while aiming to meet your revenue goals.
Target ROAS (Return on Ad Spend) is a suitable bidding strategy in Google Ads for the following scenarios:
- E-commerce businesses: If you run an online store and have a clear understanding of the value generated from each sale, Target ROAS can be highly effective. It allows you to focus on maximizing your return on ad spend by optimizing your bids to generate more revenue.
- Product-specific campaigns: If you have different products or product categories with varying profit margins, Target ROAS can help you allocate your advertising budget more efficiently. You can set different target ROAS values for each product or category, ensuring that your bids prioritize higher-profit items.
- High-margin products or services: If your business offers products or services with higher profit margins, optimizing for ROAS can be advantageous. By focusing on generating a higher return on ad spend, you can maximize your profitability and allocate your resources effectively.
- Data-rich campaigns: Target ROAS requires sufficient historical conversion data to make accurate bidding decisions. If you have campaigns with a significant number of conversions and revenue data, you can leverage this information to enhance your bidding strategy and achieve your desired return on ad spend. Please note that, the best practice for service-based business and Non-Ecommerce accounts is to have fully CRM integration prior using any value-based bidding, otherwise, you’ll end up feeding Google with non-accurate information which may mess up with the history built and not let machine learning strategy to perform as it should be.
- Advanced tracking capabilities: For Target ROAS to work effectively, you need to have enhanced conversion implemented. Ensure that you have set up conversion tracking properly and are tracking revenue values accurately to enable the bidding algorithm to make informed decisions.
Please note that, If your primary focus is on driving traffic or increasing brand awareness rather than specific revenue targets, alternative bidding strategies like maximizing clicks or impression share might be more appropriate vs. Conversion-focused or Value-Based bidding strategies.
Here are a few final thoughts on Target ROAS in Google Ads:
Experiment and monitor
Implementing Target ROAS requires experimentation and monitoring. Start with conservative target ROAS values and gradually adjust them based on performance. Regularly review your campaign data and make necessary adjustments to improve results.
Allow for learning period
When you switch to Target ROAS, there may be an initial learning period for the bidding algorithm to understand your campaign and optimize accordingly. Be patient and give the system enough time to adapt and learn from the data.
Consider other metrics
While Target ROAS focuses on maximizing return on ad spend, it’s important to consider other key metrics such as click-through rates, conversion rates, and overall campaign performance. Don’t solely rely on ROAS as the sole indicator of success.
Test different bidding strategies
Target ROAS is just one of the bidding strategies available in Google Ads. Depending on your business goals and campaign objectives, you may need to consider testing other strategies like manual bidding (In order to built the history first or manually adjust the bids yourself with certain goals) or you may consider other Smart Bidding Strategies to let Google utilize performance according to the history which is built in your account, such as maximize conversions, or target CPA (Cost per Acquisition) to find the most effective approach for your specific needs.
Regularly evaluate performance
Continuously monitor and evaluate the performance of your campaigns using Target ROAS. Analyze the ROAS achieved, overall revenue, and the impact on your business goals. Adjust your strategy as needed to optimize results.
Remember, while Target ROAS can be a powerful tool for maximizing your return on ad spend, it’s essential to align it with your business objectives, consider your specific industry and market conditions, and continuously refine your approach based on data-driven insights.
If you need help deciding which Pay-Per-Click (PPC) approach will work best for your business, we’re delighted to offer a free consultation and audit of your Google Ads account. In addition to our contact page, you may visit Leila Najafzadeh’s linkedIn profile to speak with our specialist Google Ads strategist about auditing and strategizing your ad account.