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Google Ads Target ROAS bidding strategy seems too good to be true.
You tell Google exactly how much revenue you’d like to make for every dollar you put into your campaigns. And Google delivers you that result.
That’s the theory. Unfortunately, reality doesn’t always play out that way.
You: Ok, Google, I want to earn $5 for every $1 I invest. Is that possible?
Google: Sure thing, pal, just set Target ROAS=500% and let me do the work.
You: That’s all? How can I help?
Google: Leave it to me. I will only care about the ‘Conv. value/cost’ column. If the number of conversions is only 1, but I reach your 500% tROAS (target ROAS), I don’t care. If your CPC/CPV is double or triple, but I reach your objective, I don’t care. Also, if you don’t increase your daily budget when I ask you to, it won’t work correctly.
You: But what if the budget goes from $100 to $1,000 per day?
Google: Increase your daily budget, please.
You: Are there any settings I can choose? Ad schedule or bidding adjustment?
Google: Obviously, I know what I’m doing, you don’t even need ad schedules anymore, and if you choose one, I won’t take the bidding adjustment into consideration
You: What about bidding adjustment on audiences or locations?
Google: You can try a -100% on mobile phones if you want, but I really don’t recommend it because I know my work.
You: So basically, you can deal with everything.
Google: Of course, friend. I have your best interest at heart.
This blog post will break down exactly what Target ROAS is, when you should use it and how you can avoid common mistakes that will break your clients’ PPC campaigns.
Let’s learn more on it!
Target ROAS is a Google Ads bid strategy that aims to hit the target return on ad spend that you specify.
Return On Ad Spend (ROAS) is the conversion value you receive in return for every dollar you spend on your ads.
ROAS for Google Ads is one of the most difficult metrics to measure, especially across an industry. It requires you to share the amount you’ve spent on Google Ads and earnings from the ads.
While you probably won’t find an average ROAS by the industry for Google Ads, you can look at some data from Google Ads, like ad spend and return on investment (ROI), to get a general benchmark for your clients.
Hint: That benchmark is 200% — a 2:1 ROAS, or an average return of $2 for every $1 spent.
If you’re curious to learn more about the data behind this ROAS benchmark for Google Ads, keep reading!
You’ll also learn how to calculate ROAS and what to watch for when calculating your PPC clients’ ROAS for Google Ads.
A profitable ROAS can vary from client to client and even campaign to campaign.
For some PPC campaigns, such as those whose goal is to raise awareness, build a following, or grow newsletter subscriptions, you should usually expect a low ROAS.
It’s a no-brainer that an email list or a newsletter subscription can take longer to convert.
We’ve met pay-per-click clients that aim for a 4:1 ratio overall. That’s $4 made for every $1 spent.
A 2:1 ROAS is the benchmark average for Google Ads.
ROAS is an indicator of profitability in your campaigns. In other words, ROAS is the metric you need to determine your campaigns’ success.
It’s vital for new campaigns since it allows you to see how much revenue a campaign generates against costs in real-time.
If your ROAS is low, start digging into your other metrics and dimensions to figure out why.
To set up Target ROAS, select the campaign you’d like to switch, open Settings, and find the “Bidding” section:
If your campaign has generated sales, Google will develop a recommended value, as shown in the screenshot above.
If you’re starting a new campaign, you’ll have to determine the ROAS you want Google to use as its target. The recommended value is best to use your baseline ROAS or a little below that.
Returns on ad spend is calculated as follows:
ROAS = (Revenue / Ad Spend) x 100
So if your campaigns spend $50 to generate $100 in revenue, the ROAS of this campaign is 200%:
$100 / $50 x 100 = 200%
If your bidding strategy relies on ROAS, it’s essential to know how it differs from returns on investment (ROI).
Although ROAS sounds a lot like ROI, there are some key differences.
When calculating ROI (return on investment), you take all costs into account, not just the ad spend.
If you know how Enhanced CPC works, that might sound familiar.
But unlike Enhanced CPC, with Target ROAS, Google controls the whole bid.
Essentially, with tROAS, your ad budget is at the mercy of Google.
On the other end of the algorithm, there is the expected revenue estimate associated with each click. Google builds an estimate of the anticipated revenue for each click by mining through all available data.
Note that you won’t see target ROAS if you look at a single sale or even a single day. But across sales and over multiple days or weeks, you should see the true ROAS reflected.
You can use Target ROAS bidding for:
To use Google Ads Target ROAS bidding strategy effectively, you must have enough conversion data.
It gets better.
Google’s minimum requirement for this strategy is 15 conversions in the last 30 days for the Search and Display Network campaigns. And 20 conversions in the previous 45 days for Google Shopping campaigns, for app campaigns at least 10 conversions every day or 300 conversions in 30 days.
It’s clear that to use Target ROAS, you need to have plenty of sales for your clients. That’s why I recommend starting with a more basic bid strategy like Manual or Enhanced CPC for learning purposes.
That way, you build up the necessary conversion volume while also getting an idea of what target ROAS you can actually achieve for your search ad clients.
Instead of relying on luck or gut, let’s take a look at the factors below that can actually move the needle when using the tROAS bidding strategy.
My advice is to set a realistic Target ROAS for your clients’ campaigns.
Again, if you’re too aggressive with your ROAS target, Google will respond by not delivering intended results. The search engine brand will drastically reduce your traffic to cut your costs.
Imagine you’re managing campaign had a historic ROAS of 720% using Enhanced CPC.
Then, you decide to switch to a Target ROAS bidding strategy. More so, you set an aggressive value of 900%.
What do you think will happen?
We’ve been there and done that. Your traffic and sales will take a massive hit until you switch to a better value.
To avoid the above scenario, we recommend the following instead.
Set your ROAS target at or slightly below the number you were hitting with your campaign before.
For example:
If you have a campaign that has generated 1,258% in ROAS when using Manual or Enhanced CPC strategy, an ideal target would be 1,200%. Trying to punch above your current weight is counter-intuitive, really.
Remember, your ideal numbers should not drift way above the industry standard, which is around 200% ($2 in revenue for every $1 spent)
When you make the switch to automated bidding, the learning phase will kick in. This phase lasts for up to 7 days. Google’s algorithms require that much to adapt to your clients’ campaigns.
This is a nerve-wracking period.
Imagine giving up control over your CPC bids, and all of a sudden, you start seeing big swings in traffic, sales volume, and revenue. During this learning phase, your clients will get nervous about suddenly seeing very costly CPCs in their accounts.
But results should stabilize after a few days as the algorithms get familiar with your ads.
What if your historic ROAS isn’t the value you’d like to achieve for your clients?
Keep reading. And I’ll answer your question in the next section.
Target ROAS is such an effective bidding strategy for ecommerce PPC clients because it leverages the actual conversion value of a sale.
If you have a bunch of e-Commerce clients, think about this strategy.
That also has other implications.
If you have products with wide-ranging price points, not all of them will get equal visibility.
Assume Google Ads can make 2 sales at the same CPA of $10, but one of them will result in $30 in revenue, while the other results in $300.
If you look at this from Google’s perspective:
Google will favor the latter.
Remember, the search engine is a bit more sophisticated than described.
If you want to control what brands or product categories you’re selling, group your keywords or products with similar ROAS performance in one campaign.
Don’t forget to split branded and unbranded search queries. They will result in a very different ROAS.
Remember the earlier example?
Imagine, you’ve switched your campaigns to Target ROAS and are now pursuing an objective of 250%.
But in this example, you need to hit 400% to meet your objectives. As said earlier, there is an inevitable punishment for being too aggressive.
What should you do instead?
Wait for the initial learning phase to pass, and then change your targets by 10-20% increments.
After letting the campaigns run for a couple of days and then readjust.
At the same time, continue to work on other potential optimization areas, such as ads, structure, keywords, etc.
Target ROAS can be an excellent bidding strategy, especially for your e-commerce clients.
It can automate what’s going well and do it a little more efficiently. However, it won’t magically fix other problems with your campaigns.
When making the switch, it’s essential to set realistic returns and spend goals. Otherwise, you risk missing out on valuable traffic and clicks.
Having more conversion data before you switch to the tROAS bidding strategy is the secret sauce you need to drive desired results for your clients.
Segmenting campaigns based on ROAS performances is often overlooked.
Avoid committing the same mistake.
As with all of the Smart Bidding options, your campaigns will go through a learning phase if you make a big switch. That can result in changes in your performance. But your clients’ ad campaigns should come out stronger afterward.
If you’re running PPC ads, experiment with banner ads versus landing pages. Strategic ad placement can lift your ROAS as well.
Ads appearing directly in newsfeeds usually get more visibility and convert at a better rate than other ads.
It’s tempting to go after trending or more general keywords with large search volumes.
If you bid on those, chances are you’ll be spending a lot of money only to get lost in a sea of search results. Choose keywords to bid on to get your ads seen. Start by looking for specific search terms relevant to your brand.
Imagine your PPC client owns a chain of pizza shops with locations across Houston, Texas. Bid on keywords specific to the area of your client’s pizza shops. Your keywords might be “pizza shops in Harris, Fort Bend, and Montgomery.
Take advantage of free tools, such as PPCexpo Keyword Planner, to research stats and drill down on keywords that make sense for you to bid on.
The first and most obvious step is to use your ROAS to eliminate campaigns that aren’t generating enough revenue.
It’s better to put time and effort (and money) into the productive ones
Refining your keywords and target audience can also save you money by funneling your clients’ cash to keywords you’re more likely to rank on and the audience most likely to convert.
You may want to consider adding negative keywords to your ads. A negative keyword is a term you want to exclude.
Your ad won’t appear when users search for those terms. Finally, if you’re running PPC campaigns, put caps on your budget. Lots of clickthrough rates are a good thing only if you have the ad budget to support them.
A low ROAS doesn’t always indicate a failed campaign. Instead, it could mean an issue outside of your ad strategy.
If ROAS is low but conversion rates are high, it could be your PPC client’s product is priced too low. If clickthrough rates are high but conversions are low, your client may have priced products too high.
If users are abandoning their shopping carts, your client’s UX could be the problem. Or, it could be the calls to action (CTAs) on the landing pages aren’t clear. Maybe the users aren’t sure where to go to buy your client’s product.
There are so many reasons for a low ROAS.
ROAS is the means of raising the alarm, telling you and your team to look deeper into the problem. Picture an engine light on your car dashboard warning you about forthcoming problems.
PPC Signal is a highly affordable and easy-to-use SaaS tool that automates the time-consuming steps of optimizing the ROAS of a search ad campaign.
This cutting-edge tool achieves the above by collecting and analyzing data, identifying potential opportunities, testing those insights for accuracy, etc.
This provides you with much more time to focus on actually enacting changes rather than continuously finding and testing possible ways to improve their efforts.
Assuming you’ve accumulated 30-days’ worth of data before switching to Google Ads Target ROAS bidding strategy. PPC Signal will sift through your data for actionable insights to drive your clients’ ROAS sky high.
Remember, tROAS bidding strategy focuses on two significant attributes: conversion value and costs.
How can PPC Signal improve your tROAS bidding strategy?
PPC Signal will sift through your data and provide instant actionable insights to boost your bidding strategy to drive high-value conversions. And maintain the desired campaign ROAS.
Wait, there’s more!
By default, Google doesn’t allow you to set any limits on your CPCs.
But there is a way to do this and for that. Use a portfolio bid strategy. This is a bidding strategy that you want to apply to multiple campaigns.
Don’t get twisted. It works very similarly to using shared budgets across campaigns.
To formulate a profitable portfolio strategy, you need to sift through the ocean of data for insights.
This is where the AI-driven PPC Signal comes in.
This magnificent tool will go through your data and provide you with easily identifiable risks (red color) and opportunity (blue color) signals as insights.
All that is required of you is to act on the data-driven insights.
The diagram above shows PPC Signal in action.
With PPC Signal, there is no reason to be apprehensive. You don’t relinquish any control over your strategies. Instead, this automation tool offers a way for you to utilize AI to make profitable decisions.
In this respect, PPC Signal empowers you to become data-informed but still human-driven.
When you receive a list of alerts from PPC Signal, it is entirely your free will to select the signals to pursue first. You can even filter this list by the campaign, type, time, complexity, and other parameters.
Guessing is not good when it comes to marketing, especially when the answers are available to you. It’s similar to baking a lousy cake. There’s a recipe with all the measurements and measuring cups next to you, but instead, you just toss ingredients into a bowl.
PPC Signal removes the possibility of guessing or relying on luck to optimize your clients’ Google Ads accounts.
Google Ads Target ROAS bidding management is more complex than simply letting AI do all the work for you. ROAS is driven by two variables, namely conversion value, and costs.
Returns on ad spend is calculated as follows:
ROAS = (Revenue / Ad Spend) x 100
How can you optimize your tROAS bidding strategy for optimal results?
PPC Signal is an AI-driven PPC account management tool that will help you optimize your tROAS bidding strategy for profitable results.
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