If your business wants to increase ROAS, setting a target ROAS in Google Ads is essential. With this bidding strategy, businesses need to set specific goals for Google Ads campaigns to ensure the desired revenue is generated on a certain investment. To better understand target ROAS in Google Ads and how to set up and measure effective Google Ads campaigns, follow the article below.
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What is Target ROAS?
ROAS, or return on ad spend, is a key performance metric used in Google Ads to measure the effectiveness of online ads campaigns. This metric helps calculate the revenue generated from each dollar spent on advertising.
ROAS is evaluated at various levels in Google Ads, including accounts, campaigns, ad groups, and ads. Particularly, ROAS is more important than the CTR in Google Ads as it is one of the key metrics for assessing advertising performance.
The formula for calculating ROAS is ROAS = Total Conversion Value / Total Advertising Spend.
Target ROAS in Google Ads, or tROAS, is one of the bidding strategies under Google Ads’ automated bidding strategies. Target ROAS utilizes the Bid at Auction Time feature supported by AI and machine learning technologies to manage bidding.
This means that Google will automatically target optimal profit levels based on your advertising spending. It optimizes Google Ads campaigns to achieve conversions or conversion value.
How does Target ROAS work in Google Ads?
The operation of Target ROAS in Google Ads involves analyzing ads campaign data and user information in real-time to adjust your bid for each auction.
Firstly, Google Ads collects data on user interactions with your ads, such as clicks, conversions, and revenue generated. Then, you specify the target ROAS you want to achieve, although the actual ROAS will vary.
Google’s algorithm will then use your target ROAS and ads campaign data to estimate the likelihood of each click and ad converting at different bid levels.
During real-time ad auctions, Google adjusts your bid based on the expected value of each click. Higher bids are set for target audiences with higher conversion potential, while lower bids are set for those with lower conversion potential.
The Google Ads system continuously learns user behavior over time and fine-tunes bidding strategies to improve campaign performance.
>>>Learn more: how to use Google Data Studio
Why should you use Target ROAS?
Choosing the target ROAS in Google Ads bidding strategy offers several benefits for businesses:
Maximizing conversion value
The main purpose of using the tROAS strategy is to maximize conversion value based on your set target ROAS. This means that target ROAS helps you achieve the highest revenue for every amount you spend on advertising.
Most advertisers choose to use Target ROAS because of its precision in tailoring ads to achieve specific ROI goals. With any return on ad spend goal you set, you can determine your desired revenue with absolute precision.
Automatic bid adjustment
This is another common reason for choosing target ROAS as the bidding strategy. With tROAS, Google’s algorithm automatically adjusts bids in real-time to maximize conversion value.
By leveraging machine learning algorithms to make predictions and optimize accurately, these algorithms take into account various signals, such as position, time, device,…, to optimize advertising bids for each auction. This helps you save time and effort managing bids.
Easy campaign management
The tROAS strategy allows you to set different ROAS goals for different campaigns, ad groups, or even individual keywords. This allows you to have detailed control over your advertising expenses. Additionally, you can optimize different components within your Google Ads account based on specific goals and performance.
Achieving business goals
By setting target ROAS, your Google Ads campaigns can achieve overall business objectives. Whether your goal is to maximize revenue, increase profit, or achieve other financial goals, the tROAS strategy helps you accomplish that.
In particular, e-commerce businesses can maximize profit by setting target ROAS bids. This bidding strategy helps online businesses balance advertising expense, ad revenue, and increase profitability.
>>>See more: facebook dropship ads
How to set up Target ROAS in Google Ads?
Setting a ROAS target in Google Ads is a crucial step to optimize ads campaigns and increase profit. In particular, you can follow these steps:
Set the value for your conversions
To set the value for conversions, you need to log in to your Google Ads account. You will then be taken to the main dashboard to view all the detailed information about your ads campaigns.
Next, click on “Tools & Settings” and then select “Conversions” under the “Measurement” section. Then choose the primary conversion action you want to assign a value to. Here you will have two options:
Use the same value for each conversion: This option is suitable when you want to assign the same value for each conversion. This is often used when each potential customer or purchase transaction brings the same value to the business.
Use different values for each conversion: This option is selected when running e-commerce ads. Different products will have different costs and will not all bring the same conversion value.
Select the campaign
On the Google Ads dashboard, select the campaign to which you want to apply the target ROAS. Once you’ve selected the campaign, click on “Settings” in the left menu. You will then be redirected to a new page to adjust various parameters for your campaign.
Choose the bidding strategy
On the Settings page, find and click on “Bidding” section. A dropdown menu will appear, then choose “Target ROAS”. Then select “Maximize conversion value” as the bidding strategy and enable “Set a target profit on ad spend”.
Enter the desired ROAS
When selecting target ROAS, enter the desired % ROAS to achieve on each dollar spent on the ads. To determine the desired % ROAS, consider the conversions you want to optimize, how ROAS is calculated, and ROAS not accounting for everything that ROI does.
Tips for using the Target ROAS bidding strategy
While Target ROAS bidding in Google Ads is the way to maximize your advertising ROI. However, if you want to make the most of this strategy, you need to follow the following:
Set realistic goals
Ensure this factor is feasible based on past performance and industry benchmarks. Realistic ROAS is crucial as it guides Google’s algorithm in optimizing ad bids. Setting goals too high may result in fewer conversions as Google may not find enough bidding opportunities to meet your target.
Do not set a maximum budget limit
The tROAS strategy works based on Google’s algorithm finding the highest-profit opportunities within your budget limit. Therefore, if you set a maximum budget limit, it may limit the performance of this bidding strategy. Google’s algorithms will strive to spend the entire budget before they can identify profit-making opportunities based on your target ROAS.
Therefore, not setting a maximum budget limit will allow the tROAS strategy to fully unleash its potential to maximize overall profit on your advertising spend. However, advertising budgets need to be balanced with financial resources and your business goals.
Ensure accurate conversion tracking
The effectiveness of the target ROAS strategy is determined by whether conversion tracking is accurate. Therefore, you need to ensure that all relevant conversions and conversion values being tracked are accurate. This will allow Google’s algorithms to make accurate predictions and optimizations.
Use enough conversion data
Google’s algorithm relies on historical conversion data to make accurate predictions and optimizations. Before using the tROAS strategy, the campaign needs to have at least 15 conversions in the past 30 days. This will help Google’s algorithms have enough data to make accurate predictions and operate most effectively.
Learning to set target ROAS in Google Ads enhances profitability and business growth. We hope the shared content aids your understanding of running effective Google Ads campaigns.
See more articles:
- Conversion Value Rules in Google Ads
- Common Google Ads mistakes to avoid in 2024
- Is running Google Ads worth it in 2024?
Frequently asked questions
When to Use the Target ROAS Bidding Strategy in Google Ads?
The Target ROAS bidding strategy is the choice of advertisers aiming to increase revenue and maintain return on investment (ROI). This bidding method is particularly useful for e-commerce businesses looking to boost sales through Google Ads.
To ensure maximum profitability for these businesses, you should set up separate ads campaigns for each product group. Additionally, adjust the target ROAS bids to fit the specific characteristics of each group.
You should only use tROAS if you have specific revenue goals, sufficient conversion data, and accurate conversion values tracked.
Similar to smart bidding strategies, Google’s bidding system requires time to learn and achieve your goals. You shouldn’t adjust the ROAS too frequently but rather monitor the performance of your Google Ads campaigns regularly. Adjust the ROAS target once every 1-2 times to allow the system to optimize and achieve your goals.
Most campaigns require at least 15 conversions in 30 days. However, the number of conversions required before using the target ROAS will vary depending on the type of campaign. Specifically:
Display campaigns need a minimum of 15 conversions (with valid conversion values) in the last 30 days across all campaigns.
Lead generation campaigns require a minimum of 100 conversions in the last 30 days, with 10 conversions within the last 7 days.
App campaigns require at least 10 conversions per day or 300 conversions in 30 days.
Action campaigns in videos must have a minimum of 30 conversions in the last 30 days.
