2nd August 2023

Target ROAS in Google Ads: An Ultimate Guide

Written By Willy Stewart

2nd August 2023

What is target ROAS and how does it help me? We get asked that a lot. Everyone who steps into the world of PPC advertising on Google has one main objective; getting as many conversions as possible while spending as little as possible. Here, we will focus on e-commerce conversions, and one bidding strategy in particular that focuses on that return on investment. Of all potential objectives - be that more revenue or more conversions - Target ROAS, or tROAS for short, has the potential to develop both, whilst primarily focused on one of the biggest concerns with digital advertising; the budget & investment you put in.

In this article, we will focus on;

  • What tROAS is
  • When should I use it?
  • How do I set Target ROAS up on my campaign
  • How to calculate your ROAS target
  • Common mistakes & top tips for a successful campaign

Bidding Strategies on Google Ads

Google Ads has many different bidding strategies which allow the user to leverage or concede certain metrics to achieve their overall objective. You could pay more per click to target higher positions. You could target more conversions at the expense of your acquisition cost. You could target a lower cost per lead at the expense of visibility at key performing times. One size strategies do not fit all, and picking the right strategy for your business, and ultimately your levels of comfort in investment, is vital in best achieving your goals.

One account isn’t betrothed to one strategy; accounts can have a campaign for every bidding strategy available. Due to the nature of campaigns and targeting, not all of Google’s bidding strategies are available to every network or type of campaign, nor are they always suitable. For example, targeting for conversion value wouldn’t be sensible if you were trying to generate leads for a service.

If you’ve read this far though, you’ve got an ecommerce business, and you’re looking at maximising that investment and getting a sensible return on products with a monetary value!

What is the Target ROAS Bidding Strategy & How Does It Work?

Target ROAS, or tROAS, or to use it’s full name - Target Return on Ad Spend - is a smart bidding strategy used to bid on auctions across Google’s Ads network. TROAS is an automated bidding strategy, which means Google optimises for every single auction your campaign enters.

ROAS itself is a common KPI for many businesses. It’s essentially the size of return for every pound spent. For example, you spend £1 on Ads to sell a product at £10. TROAS won’t account for internal market factors, for example material cost, labour cost, packaging etc. but it is extremely useful in looking broadly at how your overall marketing activities impact your gross revenue, and is essential in how you scale your business.

Google uses the automated tROAS bidding strategy based on your objectives. You set a target percentage of return you wish to achieve, and Google uses this to enter auctions where that set target return could be achieved. Sounds simple; but it requires a lot of planning & setup, with ongoing management and optimisation.

When Should I Use Target ROAS On My Campaigns?

Smart bidding strategies on Ads are effective at optimising all of Google’s networks, including Search, Display, & Shopping (or Performance Max if you are combining your network targeting). Google suggests you should have 15 conversions (with conversion values) over the last 30 days work effectively, but recommend a minimum of 50 for optimal performance.

To use tROAS, you need the conversion values to be accurately representative of the revenue gained.

What Campaigns Can I Use Target ROAS On?

Target ROAS bidding strategies can be applied to campaigns on the Search, Shopping, & Display networks. This also includes Performance Max campaigns.

How Do I Start Using Target ROAS Bidding On A Google Ads Campaign?

You can assign the Target ROAS bidding strategy by going into your selected campaign, clicking on settings, and choosing the “bidding strategies” option. Select the “Maximise conversion value” option, and select the tick box to “Set a target return on ad spend (optional). Here, you must add your target for the campaign.

Calculating Your Target ROAS

ROAS is calculated as: (Revenue / Ad Spend) x100

You should consider the conversion value you are optimising for against your budgets. The percentage you are setting is worked from your planning figures. For example, if you spend £50 on Ads to make £100 in revenue, your ROAS is £2, or 200%. You’re earning £2 for every £1 you’ve spent.

Managing A Target ROAS Campaign

Target ROAS is a bidding strategy that requires constant monitoring. You should always avoid making drastic changes to your campaigns often and all at once, as changes can put campaigns back into learning phases, where Google’s algorithms have to relearn and adapt the new parameters.

Market factors such as competition levels, stock levels, product ranges, rising supplier prices, your own costs can all impact the figures from which your target is set. You should always consider that Google can only work with the data it can acquire, and that your own business insights will play a part in how the ROAS can fluctuate.

Top Tips for Managing Target ROAS Bidding Strategies

  • Build from good campaign history and performance - Target ROAS is best when refining your campaign and building on established performance to grow your return. As a smart bidding strategy, tROAS needs to understand what value is attached to your range and the profile of potential customers. Grow your campaign on a Max CPC strategy to pull through data until you get a consistent number of conversions as a rough baseline to then develop that quality return
  • Develop clear & well grouped campaigns - Not all products, brands, items have the same price or margins. Grouping a large range of variants into 1 tROAS campaign can destabilise targeting and leave Google focusing only on higher value products more likely to achieve the target
  • Avoid drastic shifts in your target ROAS level - Substantial and constant changes without letting a campaign settle will keep your campaign in a learning phase, meaning you are never getting effective performance or data to work from. Only move your target ROAS +/- 20% incrementally and avoid a significant shift in your target figure

Common Mistakes & Troubleshooting Issues On Target ROAS Campaigns

  • Spend dropping on campaigns with a sizeable audience - More budget doesn’t mean more revenue, and more revenue doesn’t mean you’re spending more. Target ROAS works to deliver positive return where opportunities arise. Adjust your targets, but don’t be afraid to switch back to Maximise Conversions to propel spend when required
  • Being too aggressive when setting your target - Obviously, any advertiser wants the biggest return on their investment, but you need to be realistic and use data to inform your targets. Setting too high, or undervaluing, will cause Google to favour other advertisers
  • Incomplete conversion tracking - Regardless of the campaign, a conversion is a necessity to ensure an end user action. With tROAS, we need a quantifiable value sale to properly calculate & target the return. You should ensure your Ads account is fully tracking a monetary purchase conversion including value

Contact Mucky Puddle For Digital Advertising Strategy & Management

In increasingly crowded market places, there is more competition than ever for goods & services online. Great for consumers; less so for merchants. With extra emphasis on margins and more granular attention on the value of every penny spent, tROAS is an excellent option when utilising that return % as a business KPI.

At Mucky Puddle, we manage digital advertising campaigns across many industries, utilising an array of strategies to maximise the return for our clients. If you are looking for expert Ads strategy support or digital advertising campaign management, we have many different digital marketing options available to support your goals. Google Ads remains a highly profitable and engaging source for your potential customers, so maximise your advertising investment today with our crack team of PPC & digital marketing experts! Contact us today to discuss your requirements.