For advertisers prioritizing conversions in their paid search campaigns, maximizing profitability is paramount. Google’s Smart Bidding strategies, including Target ROAS (tROAS), are designed to boost conversions within budget constraints, with tROAS focusing specifically on ROI. While not universally applicable, tROAS can significantly impact campaign success. This post will explore:

• What Target ROAS is
• Who should use it
• How to set your tROAS We’ll also share tips for optimizing your budget. Let’s dive in.

What is Target ROAS?

Target ROAS, or tROAS, stands for “target return on ad spend” and is categorized under Google’s Smart Bidding strategies. These automated strategies utilize “auction-time bidding,” where Google optimizes for conversions or conversion value in every auction your ads participate in.

What is ROAS? Return on ad spend quantifies the revenue generated per dollar spent on advertising. It’s essentially ROI, where the investment is your ad expenditure on platforms like Google Ads. You can measure ROAS at various levels within Google Ads: account, campaign, ad group, and ad level. For bidding strategies, it’s set at the portfolio, campaign, or ad group level.

Understanding Target ROAS

To fully grasp tROAS, it’s crucial to understand its connection to other bidding strategies.

Max Conversions

Maximize Conversions, or Max Conversions, aims to secure the highest possible number of conversions within your daily budget. While there are pros and cons to this strategy (covered in detail in our guide to automated bidding strategies), it’s worth noting that conversion quality isn’t considered as Google prioritizes volume. Think of it as a simplified version of the next two strategies.

Target CPA

Target CPA, short for Target Cost Per Action, represents the next stage in conversion-focused automated bidding. This Max Conversions option lets you define a desired cost per action (CPA), sometimes called cost per acquisition (distinct from customer acquisition cost). Google then adjusts bids to align with your specified average cost per conversion.

Max Conversion Value

Functioning similarly to Max Conversions, this strategy prioritizes maximizing conversion value instead of volume. Utilizing this strategy (and tROAS) requires assigning values to your desired conversion actions.

Therefore, if you’re focused on simple lead form submissions without a direct value attached, these strategies might not be suitable.

Target ROAS

Target ROAS is nested under the Max Conversion Value option:

Leveraging your assigned conversion values, Google Ads predicts future conversions and their associated values. This allows the system to set maximum cost-per-click bids that maximize your conversion value while striving to reach your specified target return on ad spend. What distinguishes tCPA from tROAS? Though similar in operation, the key distinction lies in their focus: Target CPA adjusts bids to meet a predefined cost per conversion target, while Target ROAS aims to maximize the value derived from those conversions.

When is Target ROAS appropriate?

Using tROAS effectively hinges on assigning values to conversion actions, ideally reflecting the revenue generated from conversions driven by your ads.

• Avoid tROAS if: your Google Ads conversions don’t have a direct ROI (e.g., ebook downloads or free tools).
• Consider tROAS if: your Google Ads conversions directly contribute to revenue (e.g., online sales). Let’s illustrate this with scenarios: Scenario #1: Imagine a business needing qualified leads for its sales team. Conversion actions revolve around demo sign-ups and ebook downloads.

Here, Max Conversions or Target CPA might be more suitable. Leading a prospect to a sale involves a non-instantaneous cycle, as sales reps connect, nurture, and guide them through the purchase journey. While you could connect Salesforce to Google Ads to enable tROAS, it would require advanced integration and expertise with platforms like Salesforce. Scenario #2: An ecommerce store enabling direct purchases from the website is a prime candidate for tROAS. Since conversions (sales) have inherent value, tROAS can optimize each campaign to achieve desired ROI, regardless of product variety and pricing.

Implementing tROAS

For businesses with online sales or direct ROI from conversions, there are several setup options before launching a tROAS bid strategy. Your approach to setting conversion values will influence your campaign structure for ROAS optimization.

Assigning conversion values

You can assign values to existing or new conversion actions within your Google Ads account. Locate “Conversions” under “Measurement” in the “Tools and Settings” menu:

Next, create a new conversion or edit an existing one. The “Value” section within the conversion settings allows you to:

1. Use a fixed value for all conversions: Ideal for single-product businesses, enter the value of each sale.
2. Use dynamic values for each conversion: For businesses with varying product prices, assign unique values to each conversion. This requires modifying the Google Tag on your website, with further guidance available on Google’s help article on transaction-specific conversion values.

Determining your target ROAS

When opting for tROAS, you’ll need to specify the desired return percentage:

Consider these factors when defining the percentage:

1. The conversion value(s) you’re optimizing for
2. ROAS = (revenue/ad spend) X 100
3. ROAS doesn’t encompass all aspects of ROI For instance, spending $50 to generate $100 in revenue results in a 200% ROAS. However, this doesn’t factor in all business expenses. Therefore, carefully plan your target ROAS to ensure profitability aligns with your business goals.

Final tROAS tips

Choosing the right bidding strategy in the complex world of Google Ads is crucial. Google’s Smart Bidding has proven effective for optimizing various campaign types. Apart from strategic planning and structure, data availability is paramount for efficient Smart Bidding. Proper tracking is essential for successful tROAS campaigns. Be prepared to make adjustments at the ad group level and leverage data to inform your target ROAS percentage. Remember, Google Ads is a marathon, not a sprint; persistence and optimization are key to achieving your desired outcomes.