What is Target ROAS?
Let’s cover the bascis first.
Target ROAS is an automated smart bidding strategy that optimizes conversion value to achieve the set return on ad spent. It takes revenue into account. For example, If you invest $100 on the campaign and you get $500 in revenue, then your return on ad spent is calculated as
ROAS = (Revenue/Cost)*100
ROAS = ($500/$100)*100 = 500%
Google claims that this bidding strategy helps you get maximum returns at a given cost. Due to this, marketers widely use this for eCommerce campaigns where the product cost varies from one variant to another.
Sounds great right?
Well not so much! Despite the growth in the trend of machines making decisions for us, some marketers are reluctant to hand over the complete bidding decisions to the company that actually charges you for ads. Who is right here? We will find out.
By the end of this post, you will find answers to the following questions:
Target ROAS can be used as a standard strategy for individual campaigns or even as a portfolio strategy across multiple campaigns. To use this bidding strategy, conversion tracking needs to be set up. It is advised to have at least 15 conversions in the past 30 days to use this bidding strategy.
How does Target ROAS Bidding Strategy Work?
Target ROAS as a smart bidding strategy is powered by machine learning algorithms that choose appropriate bid real time during the auction. The bid decision is made based on myriad contextual signals during the auction. Here is an exhaustive list:
Based on the campaign strategy and the auction environment, the bid may be adjusted as per the device. Let us consider an example: Your client is a hotel retailer and they would like to optimise on resevations. Google ads would bid higher in such instances.
Day Parting/ Weekday & Time of the day
This is no surprise. All the time of day or the day of the week does not have the same level of importance. The user behaviour varies depending on the type of business. For instance, If your client is a law firm, then monday morning has a high importance in comparsion to a restuarent where weekend/evening has the utmost importance. Hence, Google considers day parting as a strong contexual signal while making a bidding decision.
Physical Location and Location Intent
Bids vary based on the location intent in addition to the actual physical location of the user.
Google bids higher on the users who are in the remarketing list as they have the highest conversion rate. It takes into consideration of the recency of the user into the remarketing list.
OS, Browser, and Language
While making a bidding decision, Google considers the how users interact with your business based on the browsers they use, and the OS. For example: For luxury product range, iOS generally have higher conversion rate than android users.
Based on the keywords for search and the ad creative size for display, Google bids higher or lower on the ad that are likely to convert.
Mobile App Ratings
Based on the quality of the app reviews and ratings, Google will optimize the bid during an auction.
Based on the audience profile including age, gender, key life moments like graduation/birth/wedding, affinity, and in-market audiences, Google bids higher or lower to reach your target audience.
For display campaigns, web placement plays a crucial role in the performance of the ad. Google would bid higher on the site placement that are popular, with better visibility, and likely to convert.
If the user has a high interaction rate with the site, like browsing through multiple pages, or high number of page views in the category of your business Google adjusts the bid accordingly.
Search Network Partner
Depending on the search partner site the ad appears on, Google bids higher on the instances that are likely to convert.
Well this is both for search and shopping campaigns. Google bids higher if the actual search query matches the context and not just the keyword. For example: User with search query “blue watch” has a low conversion rate as compared to “buy blue watch”. Google will raise the bid in the latter case.
The bids are adjusted based on the product attributes such as brand, price, variant etc. Here is an exhaustive list of all the available attributes.
For shopping campaigns, Google will bid higher based on how compeitive your price is compared to other advertisers. Better the deal is, more optimized your bid with a higher chance of winning the auction.
In automated bidding, bids are optiised based on the seasonal trends throughout the year.
Is Target ROAS Cost Efficient?
There is no straight forward answer to this. It always depends on your business, fixed costs, and the profit margin. Target ROAS simply optimises on the revenue.
For example, if you would pay $0.90 as CPC during manual bidding and $1.3 with automated bidding with same ROAS, then the former is the best strategy. This is a sraightforward scenario.
However, if ROAS would double up with just 10 cents extra cost per click and not much fluctaion in the other costs, it would be justified to change your bidding strategy to Target ROAS.
Some businesses can afford a jacked up CPC while others with low profit margin cannot. Hence, it is always advised to test if this bidding strategy works for you.
When Should You Use Target ROAS?
With multiple smart bidding strategies all optimizing on conversions, it could get confusing on which bidding strategy to use. As Target ROAS optimizes on conversion value and not just conversion volume, it is widely used for eCommerce campaigns. The cost of the products/variants varies and each product has a separate cost i.e different conversion value. So as a rule of thumb, use Target ROAS when you would like to optimize conversion value and not just the conversion volume.
However, it is important to note that although Google bids higher in such cases it does not mean it would definitely win the auction. This depends on multiple other factors like competition, ad quality, quality score, etc. There is no one solution for all campaigns. So test with different strategies and see what works best for you.
How to Setup Target ROAS as a Portfolio Strategy
Portfolio strategy helps you to use one bidding strategy across multiple campaigns. It is quite easy to set this up. Click on the tools icon on the upper right-hand corner and under the shared library, click on “Bid strategies”. The Interface looks something like this:
Click on the plus icon and choose Target ROAS from the drop-down menu. You can either choose all the relevant campaigns now or set them up later as this is optional. Name the bidding strategy appropriately and set the Target ROAS. We will set it up to 100% for now and slowly increase it in a few weeks. Even though Google optimizes on conversions, advertisers need to pay for clicks. Hence the buying model is CPC. Advertisers can also set minimum or maximum bid limits, however, it is not recommended to do so as it limits the algorithm during its learning period. So we will leave it empty for now and we can come back and change it later.