For those who prioritize conversions in their paid search strategy, ensuring that your advertising efforts are as profitable as possible is a key goal. Google offers a range of Smart Bidding strategies that can help you increase conversions at a cost that suits you. If you want to take your strategy to the next level and focus on achieving a positive return on investment, Target ROAS (tROAS) bidding could be the way to go. While this automated bidding strategy may not work for every advertiser, it can have a significant impact for many. In this article, we will explore:
- What is Target ROAS?
- Who should consider using it
- How to set your tROAS
I will also provide tips along the way to help you make the most of your budget. Let’s get started.
Understanding Target ROAS
Target ROAS, short for “target return on ad spend,” is part of Google’s Smart Bidding strategies. These automated bid strategies utilize “auction-time bidding,” meaning that Google optimizes for conversion or conversion value in each auction you participate in.
What is ROAS?
Return on ad spend measures the revenue generated by your business for every dollar spent on advertising. It’s essentially the ROI, with the investment being your ad spend on Google Ads. ROAS can be calculated at the account, campaign, ad group, and ad levels in Google Ads. When it comes to bidding strategies, these are set at the portfolio, campaign, or ad group level.
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Progressing to Target ROAS
To fully grasp tROAS, you need to understand its counterparts on the bidding strategy evolutionary ladder.
Max Conversions
Maximize Conversions, or “Max Conversions,” is an automated bid strategy aimed at getting you as many conversions as possible within your daily budget. While this setting has its pros and cons, with the main drawback being that it doesn’t consider conversion quality, it can drive conversions aggressively. It serves as a simplified version of the next two strategies.
Target CPA
Target CPA, which stands for Target Cost Per Action, is the next step in the conversion-focused automated bidding hierarchy. This option within Max Conversions allows you to specify a desired target cost per action, and Google adjusts bids to meet that target average cost per conversion.
Max Conversion Value
This strategy mirrors the Max Conversions approach but focuses on maximizing conversion value rather than volume. To utilize this strategy (and tROAS), you must assign values to the desired actions you want to drive.
For actions like lead form submissions without assigned values, neither of these bidding strategies would be suitable.
Target ROAS
Target ROAS is located within the Max Conversion Value option:
Google Ads predicts future conversions and values using the assigned conversion values from your tracking. It then sets maximum cost-per-click bids to optimize your conversion value while aiming for an average return on ad spend matching your specified target.
How does tCPA differ from tROAS?
While these two strategies function similarly, the main distinction between Target CPA and Target ROAS is that Target CPA adjusts bids to meet a set cost per conversion goal, whereas Target ROAS adjusts bids to maximize the value of those conversions.
When to Implement Target ROAS Bidding
To effectively utilize tROAS, you must assign values to conversion actions. The assigned values should reflect the revenue generated from users converting on your ads, as the name “return on ad spend” suggests.
- Avoid tROAS if: your Google Ads conversions don’t directly lead to a return on investment (e.g., ebook downloads or free tools).
- Consider tROAS if: your Google Ads conversions directly result in a return on investment (e.g., online sales).
Let’s explore some scenarios to determine if tROAS is the right strategy for your business:
Scenario #1: Your business focuses on driving qualified leads to a sales team, with conversion actions including signing up for a sales demo and ebook downloads.
In this scenario, Max Conversions or Target CPA bidding may be more suitable. Generating leads for a sales team involves a longer conversion cycle, and it may be better to opt for strategies that consider conversion quality over quantity.
If you integrate Salesforce with Google Ads, you could potentially leverage tROAS. However, setting this up requires expertise in Salesforce or collaboration with someone who is proficient in it.
Scenario #2: You operate an ecommerce store where users can make direct purchases on your website. In this case, tROAS is recommended as your conversions have clear associated values. Whether you offer one product or multiple products at varying prices, tROAS can help optimize each campaign for the desired return on investment.
Setting up tROAS
If your business generates revenue online or sees a direct ROI from conversion actions, you have several options for setting up tROAS bidding on your campaign(s). How you define conversion values will influence how you structure your campaigns for ROAS optimization.
Defining Conversion Values
You can assign values to existing or new conversion actions in your Google Ads account. Navigate to the “Tools and Settings” icon in the top right of your Google Ads dashboard and select “Conversions” under measurement:
Within the conversion settings, you can create a new conversion or edit an existing one. Look for the “Value” section:
You can then assign a value to your conversion in one of two ways:
- Use a consistent value for every conversion: This assigns a fixed value to each lead or purchase. For instance, if you sell a single product, enter the value of each sale.
- Use varied values for each conversion: If you sell multiple products at different prices, assign a unique value to each conversion. This may require editing the Google Tag on your website. For more details, refer to Google’s guide on transaction-specific conversion values.
Setting Your Target ROAS
When opting for tROAS as your bidding strategy, you’ll need to specify a target return percentage for the campaign:
When determining this percentage, consider a few factors:
- The conversion values you are focusing on
- ROAS = (revenue/ad spend) X 100
- ROAS doesn’t encompass all aspects of ROI
For example, if you spend $50 to earn $100 in revenue, your campaign’s ROAS would be 200%. While this may seem impressive, it’s essential to set your target ROAS to maximize profitability based on your business goals and operations.
Key Tips for tROAS
With a platform as intricate as Google Ads, selecting the right bidding strategy is crucial for marketers. Google’s Smart Bidding has proven effective for optimizing Search, Display, and Shopping campaigns. Apart from strategic campaign planning and organization, the key to successful Smart Bidding lies in providing sufficient data for Google to make accurate optimizations on your behalf.
Setting up proper tracking is crucial when running tROAS campaigns. Adjustments at the ad group level and data-driven decisions regarding your target ROAS percentage are essential. Remember that success on Google Ads is a long-term endeavor, so patience and adaptability are vital if your initial efforts don’t yield immediate results.
