Transcript – Target ROAS Bidding Explained – How to ACTUALLY Use It
In today’s video, we are looking at Target ROAS, which is a Google Ads bidding strategy used to optimize your campaigns towards a revenue goal. ROAS stands for Return On Advertising Spend, and what we’re going to look at today is, first of all, what this bidding strategy is trying to achieve, answer the question as to whether or not you should be using it for your campaigns.
Understand why I think this is the best bidding strategy available in Google Ads. And finally, I’m going to show you how to transition to this bidding strategy if you’re not using it already. And if you are using it already, I’m going to show you how to implement it properly. So first of all, what is Target ROAS?
What is this bidding strategy? Well, it is a smart bidding strategy in Google Ads that basically allows you to optimize your campaign budgets towards a preferred. Target revenue Gold. So what do I mean by that? Say in your campaigns, you want to get $2 back for every $1 you spend. Well, that is essentially the ratio of return that you want for your advertising budget.
If we translate this into a target ROAS or a target return on advertising spend, this is illustrated as a percentage. So this would be a 200% return because for every dollar you spend, you want $2 back. If you wanted $5 back for every dollar you spent, that would be a 500%. Return on advertising spend that you would like.
So every $1 you spend, you get $5 back. Hope that makes sense. So what Google is trying to do with this bidding strategy is take your target return that you tell them. So whether it’s 200% or 500%, they’re gonna take that figure and try and find customers who align with that target to optimize towards a return.
High value customers or low value customers could play into that, but ultimately Google will look at the likelihood. of a customer spending large amounts or small amounts, understand how much it will cost to acquire that customer, and then look at the ratio of the cost of that acquiring versus the budget you have, and understand how they’re going to bid in the next auction to achieve that goal.
So now you understand what this strategy is trying to do. The question is, should you be using it in your campaigns? Well, the first thing to answer is, of course, are you tracking revenue? If you’re not tracking revenue in your campaigns, There is no point whatsoever in even considering this as a bidding strategy because you are bidding towards a target return and you have to track revenue in order for Google to be informed of what your return should be.
If Google can’t see the revenue in your account. Then you can’t use this strategy. So if you’re an e commerce business or you’re in any kind of business that takes payment online and you’re tracking revenue in terms of a business being able to transact on your website, you should be tracking revenue into Google ads for all of your campaigns because that revenue is what you’re ultimately going to want to optimize towards.
So we’ve covered e commerce businesses and businesses that take payment online, but what about lead gen businesses, businesses where a transaction isn’t actually a payment, it is just somebody getting in touch. for potential payment in future. A lead. Well, technically, this is still potentially the best bidding strategy for this kind of campaign as well, even though you’re not tracking revenue.
And here’s why. Say, for example, you’re a business that takes conversions online through many different types of method. You could potentially have a customer download a brochure. You could have somebody book a meeting or a call. You could have somebody complete a generic contact form. You could have somebody pick up the phone and make a phone call to your business.
All of these different touch points. will have different value to your business. You might think actually people who book a phone call in a meeting, they convert way better than somebody who downloads a brochure. So those two conversion points aren’t necessarily equal. Now at this point, you might think to yourself, well, if a conversion is weaker than another one, maybe I want to make that a secondary conversion, but you don’t want to do that.
Because if you set the conversion as secondary, Even if it’s valuable, Google will ignore it when it comes to bidding towards your goals. So even though that brochure download isn’t as important as that booked meeting, you’re still taking customer data in order for them to download that brochure, and you know in your business you can get sales down the line from that download.
So it’s a valuable conversion point. So what should you do? Well, luckily in google ads for all conversion points, you can set a value against a conversion google always say this is recommended and this is the reason they say it is recommended because If you set a value for your conversions based on the value to your business of those conversions You can then use a target row asset bidding strategy to better spend your budget.
So let’s illustrate that example. If you’re a business where somebody goes and downloads a brochure, you might want to give a value of 1 to that conversion. Maybe a phone call into your business is worth 2. Maybe a booked meeting is worth 5 because these aren’t actually what the value of those meetings or those conversion points are to your business.
Of course, if you close the sales, you’re going to be getting loads more value back than those numbers. No, those numbers are just. to illustrate to Google the value difference between the first conversion point and the second one. The difference between a brochure and a booked meeting. That 1 value to the brochure compared to the 5 value of the booked meeting is going to help inform the bidding strategy for Target ROAS.
So if you track conversions in this way and transition to Target ROAS and you set your return target in line with those values, then Google is going to spend your budget much more effectively. It’s going to be able to understand the difference in value between those conversions and work towards a ratio of value based on your budget that works best for your business.
If you tracked all conversions as the same value, then they will all be used in the smart bidding for a target CPA strategy. So it’s not as powerful. as a target ROAS strategy. So by now you understand why I think this is the best bidding strategy available in Google ads, but Google also thinks this as well because I’ve seen slides decks from Google themselves showing a hierarchy of bidding strategies from the very bottom of manual CPC, which they see as the lowest bidding strategy.
And there’s a hierarchy across all of the different smart bidding strategies from the more vanity bidding strategies, like maximize clicks all up to target ROAS, which sits on top of the tree, and that’s because of the reasons I just mentioned. So now you understand this, how can you implement this properly on your campaigns?
How can you ensure you get the right results from this strategy? First of all, you need to set a realistic target. If you’re not using this bidding strategy just yet and you want to transition to it, look at the data in your account. Look how much money you’re spending versus how much money you’re making when you’re tracking revenue in your account.
If the ratio of your returns is 200%, then set your ROAS target as 200%. Let it bed in at the same level it’s currently performing. So as the bid strategy transitions from a target CPA or even manual CPC, dare I say. to a target ROAS strategy, it means Google can find its feet and understand what’s going to work and what’s not going to work.
If you set your target too high because you think that Google can do all the heavy lifting and make things very easy for you, then you’re wrong. If you set the target as high as maybe 300 percent or 400 percent when you’re currently achieving a 200 percent return, Google just won’t spend because ultimately, they don’t know what’s going to work, they don’t know how they’re going to hit that massive goal you just set them.
So they pull back. They understand the value of a click. If the click cost is high, they’ll try and pull that bid cost down because they need to achieve a certain amount of traffic. And it just comes to a complete halt. So don’t do that. And finally, the last thing to consider is this. When you’re looking at your return on advertising spend as a percentage, The higher you go in terms of the returns you want, the less volume you get overall.
What do I mean by that? Well, say I set the target relatively low, maybe 150%, so for every dollar I spend, I get 1. 50 back. That kind of ratio is quite low, so Google can find many more transactions at that ratio. If I set the ratio at 500%, which means I get 5 back for every dollar I spend, yes, this looks like it’s more profitable, but the volume of revenue coming into my account from Google is going to be lower.
Because that trade off between value and volume is always going to be there So you need to find the line that works for your business if you set the returns quite low But you get loads more volume of transactions in terms of how many transactions are being tracked in Google Then that might work for you, or you might want less transactions just at a higher return.
Ultimately, that’s a business decision and down to how you think your business needs to operate. Thank you guys so much for watching. If you liked this video, please leave a like below. Let me know in the comments if you are using a target return on advertising spend, target ROAS strategy. I reply to pretty much all comments on all of my new videos.
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