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Transcript – Target ROAS in Google Ads (AdWords) Explained
In this video, we’re going to explore the target return on advertising spend bidding strategy on Google Ads. Now, this strategy, unlike target impression share or target of maximizing clicks, this strategy specifically targets increasing your revenue, which is the whole reason you’re probably on Google Ads in the first place. It’s a good strategy to look at, and it’s one you should definitely consider for your campaigns. In this video, we’re going to explore why you should use the strategy, how it actually works, and also when you shouldn’t be using this strategy. You will learn all of that and more coming up.
Hey, guys. Darren Taylor of thebigmarketer.com here and my job is to make you a better marketer. Now, if that sounds like your street, you should consider subscribing to my channel and in this video, we are exploring the target return on advertising spend, sometimes referred to as Target ROAS bidding strategy on Google Ads. A good place to start would obviously be to look at what the actual strategy is, what does it entail and what is it trying to do?
Well, the Target Return on Advertising Spend strategy is essentially exactly what it says. Google is essentially trying to attain a specific return on your advertising spend. So at the very point of the auction, what Google is going to do with your keyword bids is increase or decrease them in real-time, depending or not on whether or not Google’s algorithms and technologies and AI actually thinks whether or not you’ll actually attain your target return on advertising spend.
For example, a keyword in your campaign is very high converting, Google will push bids up because that could contribute to a great return on your advertising spend. But conversely, if a keyword doesn’t perform as well, but it still contributes to your overall success of your campaign, it could lower bids in order to make sure it attains your target return on ad spend.
Unlike other conversion focus bidding strategies where you’re setting a target costs, for example, target CPA, where you tell Google how much you want to spend before getting a conversion or the most you’re willing to pay for a conversion, this particular strategy sets a percentage. So the percentage of return you want to get from Google Ads.
If you sound a little bit confused, don’t worry. Here’s an example of exactly what I’m talking about. Say, for example, you want to achieve $5 in sales revenue, versus $1 of Google Ads spend. For every $1 you spend, you want to be able to make $5 back in return. Looking at the numbers here, that would mean if you wanted Google Ads to achieve this goal, you would set a 500% return on advertising spend. Therefore, for every $1 you spend, you want to make $5 back. It’s essentially a ratio percentage of how you want your ad spend to work for you.
If you wanted to work this into a real-life example, say for example, your campaign spends $8,000 per month. That means in a given month, you would want Google to bring in $40,000 worth of ad revenue. You can definitely see why this is a good strategy to use because essentially, you’re trying to guarantee yourself success from your Google Ads campaigns. It’s not about generating leads, which conversions take place after the fact when you get a lead into your business because somebody might need to make a sale. Whereas a target return on advertising spend, Google knows a sale has taken place, and you’re telling Google to make your business profitable, which can definitely be a very good thing for you, right?
Well, like anything in Google Ads, that depends. Now, of course, you have to have a conversion value set at your campaigns conversions in order for you to use this strategy. If you don’t have a conversion value, Google has nothing to work with. So when you look at the types of campaign that this works really well with, it’s obviously businesses where a sale takes place online. Now, eCommerce campaigns with Google Shopping works really well with return on advertising spend because there’s a good frequent number of transactions generally speaking, with an eCommerce business.
But remember, when looking at this strategy, the same rules that apply to target CPA also reapplies to target ROAS, and the reason for that is the more data you have, the better Google can optimize. So the same way with target CPA, if you get a good number of conversions, Google can better predict the conversion outcomes in the future and set their bids appropriately in order to achieve your target CPA. Now, with target return on advertising spend, the same principle applies. So if you get tons and tons of sales into your business through Google Ads, Google gets tons of data, it can optimize it better and you could probably achieve your target return on ad spend.
However, if you get very few conversions, and you don’t get many transactions going through Google Ads, then it will be a lot more difficult for Google to predict this. Now, I know Google say they can do this and they can obviously suggest and recommend this strategy, even though you don’t get many conversions, but my experience tells me that it doesn’t always work for you that well and you may need to fall back on to a different strategy if you’re not getting enough data.
There is also quite a big shortcoming to be aware of as well because when you about a target of this objective, it’s to increase your revenue, and Google doesn’t actually care which product or service it’s going to do it with. So if you set a target return on ad spend, Google doesn’t care if you’re not going to sell a certain product or a certain service and people only buy one of those products or services via Google Ads, because Google is essentially just looking to attain their specific return on advertising spend.
If you have a shop, for example, with five products in that shop, and Google determines product number one and product number two, provide a great return on ad spend, whereas product number three, four and five, have a much higher cost in terms of getting leads in and getting sales in, this causes an issue because if you need to sell product number three, four and five, you’re not going to do it with this method because Google is going to find the path of least resistance. It’s going to find the product that’s selling well and achieving the goal of the return on ad spend.
In that scenario, you may need to lower your ambitions a little bit and give Google a bit more room to play with. So maybe instead of setting a 500% return on ad spend, maybe set a 300% return on ad spend, and either way, it’s going to make your campaigns profitable, but it gives Google a lot more to work with, and it means your product lines that are more expensive to sell or more difficult to sell, also get a bit of a say on Google Ads as well.
While we’re on the subject of setting a sensible return on ad spend, don’t expect to go to Google and just put in a 900% return on advertising spend and expect it to work and expect it just to happen. You’ve got to look at your campaign data, look at historically what you’ve been doing, look at your other channels, look at what’s realistic for Google to achieve. Because if you set it too high, Google is going to be too scared to push the bids up, because it’s very aware, and if you achieve a certain ratio of spend to sales. If you do that and push Google too hard, then your campaign will stall because Google will be way too scared.
Make sure you set a sensible return on advertising spend. If you want to increment it, and increase it and see what happens, then, by all means, go with that strategy, Don’t go start at the top, start lower down and then build towards pushing the boundaries of how far you can go with this strategy, because it’s a really really good strategy. In fact, this strategy, in my opinion, is the best bidding strategy out there if you are measuring the value of sales in your conversions. If you’re not, then target CPA is probably a much better strategy for you because it gives you the data you need in order for Google to achieve the results you want to get with those data points.
But when you have the data of a conversion value, if you know how much money is coming into your business from Google Ads specifically, Google can do a lot more with that data. You can optimize your campaigns a lot smarter and it’s a great way to improve your business revenue.
Thank you guys so much for watching this video. If you liked it leave me a like below. Let me know in the comments if you’re planning to use target return on advertising spend as your bidding strategy. I’ll be more than happy to discuss it with you in the comments. I reply to pretty much every comment I get so feel free to hit me up below. More important than that, don’t forget to check out the other content across my channel, loads of digital marketing tips for you there. Don’t forget to subscribe and I’ll see you guys on my next video.