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AdWords Bidding Options
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Target ROAS
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Target ROAS
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By David Smania
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In the previous section, we discussed how Target CPA bidding can be selected to drive as many conversions as possible at a specific cost-per-acquisition (CPA).
This works great when you know your required cost per conversion to maintain healthy profit levels. It’s often the bidding strategy of choice for lead gen campaigns.
But what happens when you have many different products representing different margins?
Target ROAS is calculated by taking your average conversion value (commonly revenue) and dividing it by the cost of advertising that was needed to acquire it.
As an example, if you spend $100 and earn $600 back, your ROAS is 600%.
Like other bidding strategies that utilize conversion data, Google wants to see at least 15 conversions in the last 30 days.
For even greater accuracy and performance, Google recommends at least 50 conversions during the same time period.
It’s through this sample data that Google is able to predict future conversion values, setting a maximum cost-per-click to optimize conversions and reach an average return on ad spend (ROAS) that matches your stated goals.
With Target ROAS bidding, Google tries to maintain a conversion value as close as possible to the ROAS value entered as a target, but it should be noted that some conversions could return a higher ROAS, while some could return a lower ROAS.
If you set a ROAS of 600% for instance, Google will optimize the performance of your ads during the auction through a myriad of real-time signals, such as remarketing lists, location, time, browser, device, etc.
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“Target ROAS is calculated by taking your average conversion value (commonly revenue) and dividing it by the cost of advertising that was needed to acquire it.”
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Establishing Your Target ROAS
To set your target ROAS, you should try to be as realistic as possible. Selecting a value that is disconnected from reality could limit the traffic your ads receive.
It’s suggested that a target ROAS is derived from actual historic conversion values in comparison to cost. This will give your campaign the best possible chance at success right out of the gate, as it’s more aligned with the ROAS your campaigns have been achieving.
To locate this historic conversion value data in comparison to cost, modify your columns to include “conv. Value/cost” from the list of conversion columns. This value multiplied by 100 will give you the percent value for your target ROAS.
Target ROAS Bid Limits
While Google provides the option to set upper and lower bid limits on Target ROAS campaigns, they do not recommend it as it can restrict the ability of AdWords to truly optimize and adjust bids to a level that aligns with your target ROAS.
A Quick Word About ROAS
As you can see, a 100% ROAS return is simply breaking even if you have 100% margins. This is fairly common for companies without physical goods. As an example – software as a service (SAAS) or the distribution of digital resources (eBooks, training, etc).
For companies selling actual products, a 100% ROAS would equate to a loss of the cost of goods sold and perhaps even shipping, as it’s simply reclaiming the expense of the advertising.
This is in contrast to ROI measurements, which do factor in the true cost of selling products or delivering a service. A 50 percent ROAS might appear to be a positive return, but it’s actually a loss. This is important to keep in mind when setting this value as a Target ROAS.
Next Up – Target Outranking Share
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