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Your Ultimate Guide To Target ROAS
Last Updated:  
December 14, 2022

Your Ultimate Guide To Target ROAS

If you're a marketer in the world of digital advertising, you've likely heard of Target ROAS. This powerful PPC bidding strategy allows businesses to set a specific goal for their Google campaigns, ensuring that they are generating the desired revenue for their investment. This guide will cover everything you need to know about Target ROAS advertising, including how to calculate it, how to set up a target ROAS campaign, and how to measure your results and scale with data.

What is Target ROAS Bidding

Target ROAS, or target return on ad spend, is an Automated Smart Bidding strategy that allows you to set a specific goal for the return you want to generate from your ad spend. When running with Smart Bid Strategies, Google will "optimize for conversions or conversion value in every auction." This means that Google will try to get as many conversions as possible, helping you be profitable towards your goals.

With Target ROAS, if you set your goal of 500%, then you're telling Google Ads that for every $1 you spend on advertising, you want to generate at least $5 in revenue. Google does this by tactically adjusting CPC bids, to bring you your desired return.

When To Use Target ROAS

If your store generates online sales with a conversion value (or revenue per transaction), then Target ROAS would work well. TROAS does not work if you're selling any free products, such as digital downloads and guides, because these products don't have any conversion value.

If your Google Ads account is brand new, stick with Manual CPC. The number of conversions you need to switch to an automated bidding strategy is at least 30, preferably 50. Google needs your historical conversion data to understand which customers purchase at what costs. After 50 conversions, switch your bidding strategy to Maximize Conversion Value with a Target ROAS.

How Does Target ROAS Work?

Once you set a Target ROAS at the campaign level, Google completely takes control over your keyword bids. Google will dictate CPCs for your entire campaign, regardless of any bid adjustments that you provide (except a -100% decrease in bids at the device level).

Any bid adjustments that you provide will most likely be ignored.

If you have a few keywords that aren't generating any revenue, Google will most likely no longer bid on those. If you have a few keywords that are contributing to a few purchases, then the algorithm will lower those keyword bids to decrease costs while increasing profits. If you have keywords that have been carrying your campaign, Google will increase bids for those keywords, in an attempt to invest in your highly profitable keywords.

Your tROAS will be reflected in the average ROAS of the campaign, not in the day-to-day results.

Target ROAS vs. Target CPA: What's the difference?

You set the Target ROAS when you choose the "max conversion value" bidding strategy on Google. tROAS pushes Google to generate a specific return on your ad spend.

For example, you set tROAS to 500%, which means you plan to earn $5 for every $1 you spend. Therefore, tROAS also takes into account your order value.

Target CPA (Cost Per Acquisition) is set when you choose the "max conversions" bidding strategy. Google will adjust your bids to hit your CPA goal. You're asking for a specific cost per conversion with tCPA. I.e: I want to spend $15 for a purchase! tCPA does not take your account order value into consideration.

Setting Up Target ROAS in Google Ads

How to Calculate Target ROAS

To calculate tROAS, you'll need to know three key pieces of information:

        Your Google ad revenue

        Your Google ad spend

        Your desired return on ad spend (i.e: what will make you profitable!)

Google sets the ROAS target as a percentage, so you'll have to multiply your ROAS equation by 100.

ROAS = (Revenue / Ad Spend) x 100

So, if your campaign spent $5,000 and generated $10,000 in revenue, the ROAS for the campaign is 200%.

If you want to spend $5,000, and generate $15,000, then you would set your ROAS target to 300%.

Setting Up tROAS

You can set an automated bid strategy in any (or all) of your Search campaigns, Display campaigns, Shopping campaigns, and Performance Max campaigns.

        Go to the "settings" of a campaign that is already running on Manual (or Enhanced) CPC.

        Click on "Change Bid Strategy" under "Bidding"

target-roas-content

        Choose "Maximize Conversion Value" as your bidding strategy

        Enable "Set a target return on ad spend"

        Set your desired ROAS as your Target ROAS

        Click "Save!"

target-roas-content

Mistakes To Avoid With Target ROAS

Not Having Conversion Values

Setting a tROAS only works for businesses that carry a dollar-value revenue. It won't work for any free products, including digital products and tools. This means that it's important for Google Ads to be recording revenue that comes in from purchases.

In the Google Ads dashboard, if your "conversions" metric is >1, but your "Conversion value" metric is not reflecting the true value of the goods bought, then your product prices aren't linked to Google Ads. Make sure Google is recording the actual conversion value of a sale.

To fix this, go to Tools & Settings -> Conversions -> Purchases -> Edit Settings. Make sure your "Value" is set to "Use different values. If there's no value, use £1 (or any other number you want to put).

target-roas-content

It’s important to note that the target ROAS bidding strategy will not work with lead accounts, though!

Not Having Proper Conversion Tracking

To follow up with the last point, having proper conversion tracking is imperative for any of Google's automated bidding strategies to work properly. Make sure your account is recording "Purchases" only as a primary conversion action, with all other actions, including "Add To Cart," and "Page view" being counted as secondary conversions.

Also, make sure there is only one Purchase action set to Primary. If you import Google Analytics actions to your accounts, and you have website conversions set up, have one set to "Primary," and another set to "Secondary." It does not matter which one you choose, but this prevents double-counting and over-reporting conversions into your account, which will also mess with any of Google's automated bidding strategies.

Not Having Enough data

Another common mistake is not having enough conversion data. Google's Smart Bidding thrives on data. Do not set a campaign up from scratch and set it to "Maximize Conversion Value." Google does not know what your values are at that stage, your actual ROAS, or who is most likely to buy at which costs. Start with Manual CPC until you have 50 conversions in the campaign, and then switch over to Maximize Conversion Value, continuing with your Target ROAS strategy.

Being Too Aggressive

The benefit of having solid historical data is that you, as an advertiser, can use this data to make informed decisions. With tROAS, it's important not to shoot for the moon right away. If your current ROAS is 200%, push it up to 250%. Don't automatically set your tROAS to 900%. Doing so will cause Google to not deliver your ads.

The learning phase here takes about a week. After a week, if your tROAS is being achieved, you can slowly increase your target by 20%. In the meantime, you can invest time in the optimization of your Ads account.

Things To Keep In Mind

Having Varying Prices

TROAS works best if your products have similar ROAS performance.

If your Google Ads account has varying products with a wide range of prices, setting a Target ROAS can cause Google to focus only on a few of your highest return products. For example, if you have a product that is $8, while another product is $80, and you spent $4 to acquire each. The first product generates a very different ROAS from the second product (ROAS of 2 vs. ROAS of 20). Google will focus its budget on the second product since it's more likely to achieve your desired ROAS.

Although you'll still be making more revenue, you'll probably have a few products that are not generating any revenue through Google Ads, in this case. A solution for this is to group your keywords with similar ROAS by campaign, then run a tROAS in each of the separate campaigns.

Have Good Campaign Performance

Target ROAS is not the solution to your campaigns performing below what you expect. It is the push that some campaigns may need once it's exhausted all its other options. Do not expect a poor-performing campaign to suddenly perform well if you include a Target ROAS.

In addition to all of this, you're also able to choose the "Maximize Conversion Value" bidding strategy without a tROAS. This could be a good idea to start off, while you get an understanding of your campaign's ROAS as a whole. Once it performs well without a tROAS, then you can confidently set a target ROAS.

Google Might Spend Less

Increasing revenue does not mean that Google is increasing spend. In this case, Google is actually spending less to acquire higher revenue. Therefore, as you continue to increase your tROAS, you may see a dip in spend. This can make it tricky to scale using tROAS, as increasing your target may not necessarily push your Google Ads campaign to spend.

If this is happening, it's a good idea to run the campaign at a Max Conversions to ramp up spend. Once spend is high enough, you can switch it again to a tROAS. Switch it back again once you see that spend is low again and you want to stop spending at a high cost.

Conclusion

Although there are a lot of nuances when it comes to setting a Target ROAS on Google Ads, it is a valuable tool for businesses looking to generate a specific return on their ad spend. Depending on your business objectives, it's a great idea to dive into different bidding strategies, leaning on Google's automation to drive your efforts. By setting a target ROAS, you can push your campaigns to work towards your business's goals. Gain the centralized clarity you need by turning to Triple Whale, the purpose-built ecomOS for brands and agencies—get it today.

About the Author

Pia Mikhael

Paid Media Buyer | Writer

Pia Mikhael

Paid Media Buyer | Writer

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