There are a multitude of bidding strategies to choose from on Google Ads, and you will often find Google default to a strategy called Target ROAS. Introduced in 2013, Target ROAS can feel like a swing in the dark. When launching with Target ROAS many advertisers enter an aspirational number and hope for the best. External information about how this bidding strategy actually works is quite limited, but we are here to explain what we do know along with assumptions we’ve made along the way.
Target ROAS increases Cost Per Click bids for clicks that have a history of being valuable, while decreasing Cost Per Click bids for clicks that may be less valuable. In Google Ad’s words: “Using Google Smart Bidding, this bid strategy analyzes and intelligently predicts the value of a potential conversion every time a user searches for products you’re advertising.” Based on this, we can make some assumptions about what motivates Google Smart Bidding to increase your Cost Per Click:
- Expected revenue from the potential click. The user searching has a history of high value conversions.
- Does this mean Google Ads also increases bids for users that are BUY NOW happy? Possibly. We are unsure if an individual’s conversion rate across sites is incorporated into the bidding strategy, or if Google only considers past purchase values.
- Available Ad Account data – what landing pages drive higher value.
- Which landing pages in this campaign are driving higher revenue? Which ads do? Which products? etc.
- Platform keyword data. What types of keywords drive higher revenue across the entire Google platform?
- The price of your products. Don’t expect lower value items to get a lot of love when they are running in the same campaigns as higher value items.
Some of these assumptions would require using existing Ad Account or campaign data, which is why you are not always allowed to use Target ROAS off the bat.
It is important to remember that this strategy optimizes toward an average ROAS that meets your target cost. Meaning some days your ROAS will be lower than target and other days should be higher than target, volatility is somewhat built into this bidding by design. Either way, this strategy should be used for long-term campaigns without daily optimization by the advertiser, if you need to report on performance daily or if you look at performance week over week this might not be the best option for you.
There are definitely limiting factors to this bidding strategy. If your goal is to maximize revenue and customer acquisition, we would discourage you from utilizing this strategy across your campaigns on Google Ads.
- Setting your Target ROAS goal too high could squash any type of scale.
- There is a large learning curve for this strategy. Depending on your spend volume, it could take a considerable amount of time to know if Google can actually accomplish your Target ROAS.
- You will miss acquiring customers that could have a lower first time AOV (thus losing their LTV as well).
- There is less control over the specific products that you are advertising.
Our best recommendation for any of the ambiguous bid strategies that Google Ads offers: test! Test Target ROAS vs manual CPC (using educated bids, of course!). Be intentional about Ad Groups and how you bid on each one. Isolate your test to products that drive similar value and give yourself the time to allow that Target ROAS to average out.