Ahh. I remember the first time I sat down and learned Google AdWords. Nothing was more entertaining than learning all the acronyms thrown at me.
GOOGLE: PPC, CPC, ROI, ROAS, CPM, CPL, DSP, CTA, CTR, CPA
Like Creed, many advertisers can get confused by all the jargon and acronyms thrown around, which is why I’m writing this post just for you. Today, we’re going to cover what Target ROAS is, what it means, when to use it, and how to set it up. Let’s get started.
What is Target ROAS and How the Heck Do You Pronounce It?
Measuring the returns of an advertising campaign is a largely debated topic when it comes to traditional media. Heck, it even lead the IAB to come out with a “transparency calculator” for media companies running programmatic ads.
AdWords, on the other hand, possesses a significant upper hand when it comes time to measure the success of a campaign (no transparency calculator required thanks to conversion tracking).
Enter: Target ROAS
Return on Ad Spend, or ROAS for short, is the average conversion value you receive in return for every dollar you spend on your ads. The Target ROAS Bidding Strategy focuses on driving the highest value of conversions, rather than the most amount of conversions. Here’s how it’s calculated:
Return on Ad Spend = Revenue / Ad Spend x 100
For example, if you spend $10 on an ad and it drove $100 in revenue, your formula would look like this:
ROAS = $100 / $10 x 100 = 1,000%
To see the ROAS of your Ads:
- Click the Ads & Extensions section on Adwords
- Select the column icon on the right
- After a pop-up menu expands, select “Conv. Value / Cost” and hit save
Note: This will multiply your ROAS by 100, so expect a whole number rather than a percentage. Oh and we pronounce it Row-Ahs.
How Does Target ROAS Work?
Target ROAS is an Automated Bid Strategy, which means that AdWords will automatically adjust your bids depending on the end goal you want to achieve. When using Target ROAS, AdWords uses your historical conversion data to predict:
- Future conversion opportunities
- The return these potential opportunities will yield for you, the advertiser
AdWords will then set a maximum cost-per-click (max CPC) bid to target the average ROAS you’ve specified. Bids using Target ROAS fluctuate because they are made in auction time, which also means you can not create custom bid adjustments.
But there is one exception! You can set mobile bid adjustments as low as -100%, which means you can lower your mobile bids as much as you’d like but can not increase them.
Target ROAS Optimizes Your Bids Differently
The Target ROAS Smart Bidding strategy will decide which bids to adjust according to your campaign type and network settings.
Search Network Only & Search Network with Display Select: AdWords will optimize for average ROAS across all your campaigns, ad groups, and keywords.
Display Network Only & Shopping Campaigns: All campaigns and Ad Groups will be optimized for your target ROAS.
Display Network Only – Mobile Apps: Target ROAS is currently not available
How to Set Up Target ROAS
Now that you understand how Target ROAS works, here’s a video tutorial and step-by-step instructions on how to apply the strategy to your campaigns.
- Open AdWords
- Select your Campaign
- Click Settings Tab
- Make sure you’re on “all settings”
- Scroll down and find “Bid Strategy”
- Click edit
- Click on “Change Bid Strategy”
- Click dropdown and select “Target ROAS”
- Enter your ROAS as a percentage
- Click SAVE
Criticisms Against ROAS
ROAS is measured by total revenue generated while Return on Investment (ROI) is measured by profit. As a result, your ROAS will be 100% at your break-even point, even though you haven’t made a penny in profit.
While the percentage looks great, in reality, you’ve only returned 100% of your ad spend. Some people believe this is a purposefully inflated metric that makes Google look good, while others argue ROAS is a valuable metric when comparing large conversions to small conversions. I believe that if you report ROAS, it comes with the expectation that both you and your manager (or whomever you’re reporting to) have an understanding of what the metric means. If not, be sure to send them this article!
Additionally, Target ROAS optimizes bids on historical data, which means that if you had an abnormally strong or weak sales quarter, it can heavily skew your Target ROAS performance – so be mindful of that before proceeding.
It’s Time to Make Those Returns!
Congrats! You’ve made it all the way through. If you want to read about more automated bid strategies, check out our Ultimate AdWords Automated Bidding Guide.
You can also tweet at me at @JonJMPark and I’ll be more than happy to chat! Thanks for reading.