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What is Target ROAS?
Which type of automated bidding strategy is target return on ad spend (ROAS) and what exactly is Target ROAS?
Target ROAS, or ‘target return on ad spend’, is one of the smart bidding strategies available to use in Google Ads. Smart bidding uses AI and machine learning to manage bids on behalf of advertisers, optimizing campaigns for either conversions or conversion value.
There are four smart bidding strategies in total and choosing the right one depends on the objective of your Google Ads campaigns:
Smart bidding strategies
Increase sales and leads
Increase revenue and profit
If your objective is to increase revenue and profit, then ROAS bidding would be the best choice. However, there are other variables that need to be considered before switching to Target ROAS.
Target CPA vs Target ROAS
Target ROAS and Target CPA are very similar in how they operate since both are considered advanced bidding strategies and both prove effective for conversion-focused accounts. But what are some of the main differences between Target CPA vs Target ROAS?
Target CPA will work to generate the maximum number of conversions using a campaign’s budget as well as taking into account a desired target cost per action, which is chosen by the advertiser. For example, if an advertiser has chosen a $20 Target CPA, Google will adjust bids to drive conversions and aim to achieve that Target CPA.
ROAS bids work differently by generating the maximum amount of conversion value and taking into account the desired return on ad spend as chosen by the advertiser.
The advertiser must enter the Target ROAS as a percentage using the following formula.
Conversion value ÷ ad spend x 100% = Target ROAS percentage
For example, if a business spends $200 and this generates $1,000 in revenue (or conversion value), then the ROAS is 500%.
$1,000 ÷ $200 x 100% = 500%
It’s useful to work backwards by determining how much ROAS the business needs in order to be profitable. The above is essentially saying the business needs to make $5 for every $1 that’s spent on Google Ads.
As with Target CPA, Google Ads sets bids in order to achieve the desired return on ad spend (ROAS) for the campaign.
Hitting the desired cost per action or return on ad spend isn’t a guarantee as some conversions will be higher and some lower. It’s there to provide Google with some guidance. For example, setting the target too low could result in limiting the delivery of the campaign.
Who should use Target ROAS?
Use Target ROAS if your Google Shopping campaigns directly result in generating conversion value, i.e. if the conversions track sales and revenue. Online retail and e-commerce businesses should use ROAS bidding if value is being tracked in their Google Ads account.
The amount of data that’s being tracked is important as well and it’s recommended that the Google Ads account has a minimum of 15 conversions in the last 30 days. This is so Google has enough data to optimize effectively.
Who shouldn’t use Target ROAS?
If the conversions you are tracking are not value-based, such as an eBook or brochure downloads or lead capture forms, then don’t use tROAS. Instead, Maximize Conversions and/or Target CPA will be better suited instead of ROAS optimization.
If the Google Ads account generates less than 15 conversions in a 30-day period then I wouldn’t recommend using tROAS. This would include small Google Ads accounts with low ad spend, high-value products with low sales volume or purchases with a long sales path as conversions usually happen via another channel and Google Ads is a higher funnel channel.
In all of these scenarios, using Maximize Conversion Value or Maximize Conversions would likely be the best bidding strategy.
How to set up Target ROAS for Google Shopping?
To set up Target ROAS, advertisers must first ensure the conversion action that’s being used for the Google Shopping campaign has a value assigned to it. There are a number of ways to approach this and it depends on how each individual business assigns value to a conversion.
First, click on ‘Tools and Settings’ and then navigate to ‘Conversions’.
Next, click on the primary conversion action where the value should be assigned. You will then have two options.
- Use the same value for each conversion - select this option if you would like to assign the same value for every conversion, for example, if a lead or purchase is worth the same amount to the business.
- Use different values for each conversion - this is the most popular choice for e-commerce since different products cost different amounts and therefore do not all generate the same conversion value. In order to set this up, the Google Tag on the website will need to be edited to track transaction-specific conversion values.
The value of a conversion can also be imported from the source of the conversion. For instance, if the conversion event is pulling in from GA4, then the revenue that’s tracking in GA4 will assign value.
Select tROAS bidding strategy
Once conversion value is being tracked in your Google Ads account and the account is achieving a minimum of 15 conversions in a 30-day period, there’s one final consideration to keep in mind.
For new (or recently amended) conversion goals that are now recording conversion value, it is recommended you apply the conversion to the campaign and wait six weeks for the campaign to record conversion value. This is so the campaign can take learnings and it’ll also provide the advertiser with an indication of performance.
During this period, use Maximize Conversion Value. Following the six-week period, head over to campaign settings and under ‘Bidding’, tick the ‘Target ROAS’ check box.
Google may provide a recommended Target ROAS based on the existing performance of the campaign. You can either go with the recommendation or input your desired tROAS based on what you need to achieve.
The path to Target ROAS and Target CPA
For conversion-value-based bidding, starting with Maximize Conversion Value and then moving over to Maximize Conversion Value with Target CPA is what is known as the path to ROAS bidding. This is the recommended approach, rather than starting straight away with tROAS.
The same applies to conversion-based bidding, whereby it’s recommended advertisers first start with Maximize Conversions to ensure a period of collecting conversion data and finally switch over to ‘Maximize Conversions With Target CPA’ once there is a steady flow of conversion data and the campaign has gathered a sufficient amount of data.
5 Best Practices when Using Target ROAS in Google Ads
To ensure tROAS will work effectively there are some key best practices to follow. Doing so will improve performance, allowing you (and Google) to optimize your campaigns and most importantly, maximize the return on ad spend.
1: Ensure conversion tracking is accurate
As with most things related to digital marketing, data is the key to success. When talking about smart bidding strategies, accurate measurement of conversions and conversion value is fundamental. As well as being accurate, conversion data needs to be consistent and reliable.
Tracking issues can be common, especially for large websites with a lot of inventory, resulting in all sorts of inaccurate or unreliable data. Issues such as double counting, underreporting, not measuring the full funnel and failing to track secondary actions could all be harming the accuracy of data and therefore your campaigns.
Scrutinize and troubleshoot tracking regularly to ensure it’s set up correctly. It is good practice to have this verified by devs who are responsible for the website, along with using tools such as the ‘Tag Assistant for Conversions’ Chrome extension and preview mode in Google Tag Manager. Performing test conversions is another smart way to ensure they are tracking properly.
2: Gather sufficient conversion data
To ensure the automated bidding strategy functions optimally, it’s essential that enough conversion data has been collected before using Target ROAS.
Automated bidding strategies in Google Ads use machine learning algorithms to power the optimization. The algorithm relies on conversion data and it’ll struggle to optimize without it.
In simple terms, let’s say an account has 1,000 conversions and each conversion has a conversion value assigned to it. Google Ads will be able to decipher this data, look at user behavior leading up to each conversion, take into account millions of intent signals and then optimize bids to generate more conversions. In comparison, if an account only has 10 conversions, there’s simply not enough data for Google Ads to do this accurately and effectively.
3: Set a Realistic Target ROAS
The second best practice is to set a realistic Target ROAS. There are two elements that need to be considered when setting it:
- Establish a tROAS that aligns with the business and that is profitable. It needs to be able to meet business objectives otherwise the campaigns could fail to hit revenue and goals.
- Take into account historic and current performance when setting tROAS. Essentially, it’s a balancing act between business objectives and actual performance. The tROAS needs to be achievable.
For example, setting the Target ROAS at 2,000% if the average return on ad spend in the account is much lower than this would not be advised. Setting the Target ROAS too high could result in campaigns not delivering since Google will perceive it’s too difficult to hit the target and hold back spend.
Another scenario is if the business needs to generate 600% ROAS to be profitable, but actual performance is closer to 300%. Again, it’s important that the advertiser considers both. Rather than setting the Target ROAS at 600%, the best practice is to set it closer to actual performance, such as 350% and then overtime steadily increase the Target ROAS until you reach the desired ROAS.
4: Segment campaigns to improve performance
Target ROAS works best in campaigns where products generate a similar return on ad spend. Therefore, further segmentation is a more advanced way to optimize for a higher return on ad spend, especially for merchants that sell numerous products that all generate varying ROAS.
Divide up your campaigns so that you have multiple campaigns and ad groups based on product ROAS. Whether it’s groups of product keywords together in ad groups, or by using custom labels in your product feed and grouping products based on ROAS.
Doing so will enable you to set a different Target ROAS for each group of products. For example, the screenshot below shows how a business selling electronic consumer goods has segmented campaigns based on product type, each with a different Target ROAS.
Ensure that optimizing ROAS for each segment is data-driven, using actual performance data and taking into account return on ad spend.
5: Set up bidding strategy experiments
To minimize disruption in Google Ads when changing bidding strategies and get the most out of ROAS optimization, setting up a campaign experiment is recommended. This is because a campaign will go through a learning period once a bidding strategy is changed. Consider an experiment if performance is really good and you are concerned about the impact changing a bidding strategy will have.
For example, if a campaign is currently using Maximize Conversion Value and a sufficient amount of data has been collected, set up a bidding strategy experiment that uses ROAS bids for a portion of traffic and let the experiment run for a period of time. After a while, you’ll get an indication of how Target ROAS performs in comparison to the original campaign that’s using Maximize Conversion Value. If Target ROAS outperforms Maximize Conversion Value, switch over entirely.
Another way to use bidding strategy experiments is by testing varying Target ROAS percentages to see how they impact performance. For example, if a campaign has a 200% Target ROAS and you are interested in increasing it, rather than disturbing the main campaign, use an experiment to test 300% or 400% ROAS and gauge performance first.
3 Case Studies where Google Shopping ROAS Increased
Case Study 1: ROAS increased +46% in 3 months
Swedish-based premium kitchenware retailer KitchenLab needed to drive profitable growth by increasing online revenue, without increasing ad spend. KitchenLab and its competitors sell many of the same products, therefore the challenge was finding the most profitable products to advertise on Google Shopping.
The first action that was taken by KitchenLab was to improve the quality of the product feed using DataFeedWatch. Product titles were optimized to include brand name, color, size and other relevant parameters that are important for user experience and CTR. Product categories were added when missing from the feed, or improved by making them more specific.
Secondly, and crucially, the product feed was optimized by mapping the product margin of different categories. This was added using custom labels in DataFeedWatch’s internal fields. This meant the actual net income from digital sales could be better understood, which then enabled the advertiser to prioritize products based on profit.
Finally, a new Google Shopping campaign structure was implemented, prioritized by the margin labels that had been assigned in the feed.
After 3 three months of working with their new digital agency Keybroker, as well as DatafeedWatch, KitchenLab achieved the following:
- Reduce advertising costs by -35% - focusing on the most profitable products
- Increase traffic by +18% - Higher relevance of Shopping titles/categories
- Reduce CPO by -23% - More relevant traffic
- Increase ROAS by +46% - More relevant traffic and lowered costs
Case Study 2: ROAS increased +451% for Google Shopping ads
Pest Control Retailer that sell specialized industrial pest control products and gear experienced a sudden and significant decrease in revenue from Google Shopping in March, following months of satisfactory results. They were using a Content API feed which limited the management and control of the feed. The objective was to improve Google Shopping performance again.
The first step was to replace the content API feed and implement DataFeedWatch. This enabled the business to create and manage the Shopping feed with a lot more control. Using DataFeedWatch, the Pest Control Retailer was able to take a strategic approach to product categorization for each channel, along with the use of rules and filters to exclude low-margin and non-profitable products.
After the newly optimized feed that was created by DataFeedWatch was implemented, performance improved drastically producing solid results for the business. Using DataFeedWatch, the Google Shopping campaigns generated a +451% increase in ROAS overall.
Case Study 3: ROAS increased +25% for fashion brand’s Google Shopping campaign
An NYC-based fashion brand needed to improve its Google Shopping campaign ROAS to be more profitable online.
Shopping titles, which are made up of different ad components, were under scrutiny because they first contained the brand name of the products, taking up valuable space in the titles that have limited characters. It was also speculated that branded keywords were receiving the majority of impressions due to being displayed first in Google Shopping ads.
The obvious solution was to run product title experiments to understand how to improve the performance of titles. Using the DataFeedWatch A/B title testing functionality, two product title variations were tested across all Google Shopping campaigns.
Variation A was the existing ads, which included the brand name at the beginning of the title. Variation B was the experiment whereby brand name was moved to the end of the product title:
- Title (Variation A): [Brand Name] [Style, Color] Sneakers | Size 9
- Title (Variation B): [Style, Color] Sneakers by [Brand Name] | Size 9
Traffic was then split and served one of the variations, nothing else was changed in order to get a fair result and unique parameters were created so the results could be monitored live in Google Analytics.
After a test period of 30 days, allowing the experiment enough time to exit the learning period and generate a statistically significant result, there was a clear winner. Benefit from ROAS bidding on your shopping campaigns by making the most of machine learning in Google Ads. Variable B, where the brand name had been moved to the end of the title, saw a -10% decrease in average CPC and a +25% increase in ROAS. CTR and conversion rate also improved.
Target ROAS is an advanced bidding strategy that’s best suited to e-commerce advertisers. To maximize its potential, follow the five best practices in this article and benefit from ROAS bidding on your shopping campaigns by making the most of machine learning in Google Ads.
As well as using bidding strategies to optimize your Google Shopping campaigns, find out how to use negative keywords and priority settings on your Google Shopping to increase their effectiveness.