What is Target ROAS? How and When to Use it + Pro Tips

Target return on ad spend (ROAS) bidding is a Google Ads Smart Bidding strategy. It uses machine learning algorithms to automatically adjust bids for each click — maximizing the chances of achieving your desired return.

Here you’ll find:  

• What is target ROAS bidding?
• How target ROAS bidding works
• Why you should use it
• Common mistakes to avoid

Every click counts in the world of Google Ads. But how can you make sure that you’re getting the right clicks? Ones that will turn into paying customers?

Picture an ad campaign that can adapt in real-time to changes in user behavior and efficiently allocate your budget for maximum profitability. 

With target ROAS bidding in Google Ads, that’s exactly what you get. And it can help ensure that your ad spend only goes on the clicks that truly matter.

This cutting-edge strategy can transform your advertising game. How, exactly? Read on to find out more.

(Image: Adobe Stock)

 What is Target ROAS bidding?

Target ROAS bidding is one of several Google Ads Smart Bidding Strategies that allows advertisers to set a specific target ROAS for your campaigns. 

This strategy uses Google’s machine learning algorithms to automatically adjust bids for each click to maximize the chances of achieving the desired ROAS. 

(Image: HawkSEM)

 How does target ROAS bidding work?

Target ROAS works by reviewing historical ad data and real-time user information to adjust your bid at each auction. 

Here’s a simplified step-by-step breakdown of how it works.

• Data collection: Google Ads collects data on user interactions with your ads, including clicks, conversions, and revenue generated.
• Set a target ROAS: You specify your desired ROAS target. For example, if you aim for a 500% ROAS, Google will strive to generate $5 in revenue for every $1 you spend. Keep in mind your actual ROAS will vary. The target is just a goal.
• Machine learning magic: Google’s algorithms use your target ROAS and historical data to estimate the likelihood that a click will turn into a conversion at different bid levels.
• Bid adjustments: In real-time ad auctions, Google adjusts your bid based on the expected value of the click. Higher bids may be placed on users with a higher likelihood of converting and lower bids on less promising prospects.
• Optimize campaigns: The system continuously learns from user behavior over time and refines bidding strategies to improve campaign performance.

Should I use target ROAS bidding?

Target ROAS bidding is a powerful tool, but it’s not a one-size-fits-all solution. 

Whether you should use it depends on your business goals, budget, and existing campaign performance. 

This might be a good fit if…

1. You have a well-established e-commerce businesses

Let’s say you run a business with a history of successful online sales and want to maximize your return on investment (ROI) on your ads. 

Target ROAS bidding can be a great option to boost your campaigns. You already have historical data from previous campaigns, which will help make the algorithm run more effectively.

2. Your products have varying profit margins

For businesses with a diverse product catalog and items with different profit margins, target ROAS allows you to allocate ad spend more efficiently. 

You can set a specific ROAS target for each product or category to help you prioritize higher-margin products.

3. Limited budget with profitability goals

If you have a strict budget but aim to achieve a specific ROAS, this bidding strategy can help you maximize your limited resources.

4. Seasonal campaigns

During peak seasons or holidays, when competition intensifies, and user behavior fluctuates, target ROAS bidding can adapt your bids to maintain performance and ROI.

Now let’s take a look at some situations when you might want to avoid target ROAS.

5. Improve lead generation campaigns

At first glance, you might think this bid strategy is just for ecommerce campaigns. That’s not the case, though.

“With lead generation campaigns, as long as you are attributing values to your conversion actions, you can take advantage of tROAS strategies even if you are not an e-commerce business,” says HawkSEM Senior SEM Manager Ian Dawson.

“If a company knows a lead’s average value, this can be inputted into the conversion action to help train tROAS bidding models,” he says.

Using target ROAS for a lead generation campaign allows you to improve your profitability and your ad campaigns.

This might be a bad fit if…

1. Brand awareness campaigns

When your primary goal is to raise brand awareness, you’re often not concerned about immediate conversions and revenue. Therefore, other bidding strategies like target impressions or clicks may be better.

2. New businesses or products

For startups or new product launches without any historical data, it may be challenging for the algorithm to optimize your bids effectively. 

As such, you probably want to begin with different bidding strategies and transition to target ROAS as your data accumulates.

What is a good ROAS?

When they start using target ROAS, many people want to know what a good return to aim for is. But it’s a complicated question. 

The definition of a good ROAS varies depending on your business objectives and industry. 

Generally, a ROAS of 400% or higher is considered excellent. This means you generate at least $4 in revenue for every dollar spent. 

However, what constitutes a good ROAS can differ significantly between industries and niches.

For example, Google estimates businesses make an average of $2 in revenue for every $1 they spend on Google Ads. So, a 200% ROAS could be considered average. 

(Image: Adobe Stock)

What is 5X ROAS?

In your research, you may have come across the term 5X ROAS. And you might be wondering if you should aim for a 5X return on your ad spend.

A 5X ROAS means that you generate five dollars in revenue for every dollar spent on advertising. 

This level of performance is a strong indicator of a successful advertising campaign, but keep in mind that it might not be achievable or necessary for every business or product.

For example, data from First Page Sage shows that ROAS on PPC/SEM campaigns varies greatly across industries. 

The lowest in their data set was PCB Design & Manufacturing at a 105% ROAS. The highest was Construction at 225% ROAS, showing a large variation across industries. 

Dawson says, “A good target ROAS is going to involve some internal research and some external testing. Ideally, a company advertising in Google Ads will know its overall revenue or sales goals.” 

He says this data helps inform your testing and strategy.

 Why should I use target ROAS?

Now you know whether target ROAS could be a good option for your ad campaign or not, let’s explore why you might decide to use it instead of other bidding strategies. 

Target ROAS can give you a lot of advantages. Let’s explore a few. 

1. Precision in achieving ROI goals

Most marketers choose to use target ROAS because of its precision in aligning advertising efforts with specific ROI objectives. 

Whether your goal is a 200% or 400% ROAS, this bidding strategy allows you to define your desired return on ad spend with pinpoint accuracy.

2. Efficient budget allocation

Target ROAS ensures the budget is allocated efficiently. It prioritizes clicks that are more likely to convert and generate revenue while reducing spend on clicks that may not lead to profitable outcomes.

For example, let’s say you are the digital marketing manager of a software company that offers both free trial downloads and premium subscriptions. 

With target ROAS, you can allocate a higher budget share to keywords that historically convert trial users into paying customers at a profitable rate. 

Simultaneously, you can reduce spending on keywords that generate more trial downloads but fewer paying customers, thus optimizing your budget allocation.

3. Adaptability to market changes

Market conditions, user behavior, and competition constantly evolve in almost every industry. 

Target ROAS adapts in real-time to these changes. With this bidding strategy, you ensure that your campaigns remain competitive and profitable.

For example, in the retail industry, holiday seasons come with an increase in competition and fluctuating user behavior. 

Target ROAS can automatically adjust your bids to respond to consumer demand and competition changes, to help you maintain your ROI even in challenging market conditions.

4. Time-saving automation

As marketers, we love automation. This is another popular reason why target ROAS is chosen as a bidding strategy. It’s one of several automated bidding strategies you can choose in Google Ads. 

Managing PPC campaigns can be time-consuming, especially when dealing with numerous keywords and ad groups. 

Target ROAS automates bid adjustments, saving you time to allocate to other important tasks. Just keep in mind it

5. Maximize profitability in e-commerce

E-commerce businesses, in particular, benefit significantly from target ROAS bidding due to their emphasis on profitability. 

This bidding strategy helps online retailers balance ad spend and revenue, increasing profitability.

Suppose you operate an e-commerce store selling electronics. Some products have high profit margins, while others have lower margins. Target ROAS enables you to set different ROAS goals for these product categories. This way, you optimize your ad spend to maximize profits for your entire product range.

Target ROAS is a versatile and efficient bidding strategy. By leveraging target ROAS, you can ensure that every advertising dollar spent contributes to your profitability, regardless of your industry or campaign objectives.

However, you still need to be thoughtful about setting up your target ROAS campaigns. It’s not as simple as clicking a button to let the algorithm do all the hard work. 

 Common mistakes with Target ROAS bidding

While target ROAS bidding can be a powerful strategy, there are some common pitfalls you need to avoid to ensure that your campaign is a success.

1. Insufficient historical data

You’ll get suboptimal results if you create a campaign with target ROAS bidding and don’t have enough conversion data. First, it’s difficult

The algorithm relies on past performance to make bid adjustments effectively. If you’re just getting started, consider other bidding strategies initially. As time goes on and more data is collected, you can then switch to target ROAS.

2. Unrealistic ROAS targets

Can you set an 800% ROAS target? Yes. Is it realistic that you will achieve this return? No.

Setting overly ambitious ROAS targets can be counterproductive. Dawson says, “Like with other bidding models, starting with goals that are too aggressive can lead to limits on initial success.”

He tells us that you should start small. “By making incremental improvements towards an aggressive goal, the campaign can learn and improve, eventually hitting your goals. With anything in Google Ads, iterative testing is very important!” he explains.

If your target is too high, the algorithm may struggle to find enough opportunities to meet it, leading to reduced traffic and conversions.

3. Neglect ad creatives and landing pages

Target ROAS is not a magic wand that can be waived and fix all the problems with your campaigns. 

You can use this tool as part of your wider ad strategy. You still need to dedicate time and effort to other areas of your ads, such as creative and landing pages. 

Bidding is just one aspect of a successful campaign. Neglecting the quality of your ad creatives and landing pages can lead to low conversion rates, regardless of your bidding strategy.

4. Don’t monitor campaigns

Automated bidding doesn’t mean “set and forget.” 

Regularly monitor your campaigns and make adjustments as needed. Market conditions change, and so should your bidding strategy.

5. Not checking conversion tracking

Conversion tracking is not a set-it-and-forget-it task. Your website’s code gets changed, and Google makes updates. If you were previously using Universal Analytics for your tracking, the move to Google Analytics 4 (GA4) may have left you with tracking that doesn’t work or needs refinement.

Comparing target ROAS to other bidding strategies

What Smart Bidding strategies are there to choose from? Here’s a little bit about the bidding strategies and what goals they help you achieve.

• Maximize conversions: Use this when you’re focused on the conversion. It works for both lead gen and ecommerce campaigns. You’ll want to use this strategy if you want to focus on conversion volume.
  

• Maximize clicks: This is great for branding or when you want to get a lot of traffic to a page.
  

• Target CPA: Use a target CPA bidding strategy when you know what your ideal cost per acquisition is. Your Google Ads campaigns will be optimized to generate conversions at your target cost.

• Maximize conversion value: This strategy is ideal for businesses that want to get the highest value conversions. It works well with Google Shopping campaigns and Performance Max. It’s not exclusively an ecommerce strategy, but for other types of campaigns, you’ll need to provide a conversion value to Google.

The takeaway 

Target ROAS bidding is a powerful tool for advertisers and can give you precision, efficiency, and adaptability in achieving your Google Ads ROI goals. When you set a specific ROAS target, the machine learning algorithms can optimize your ad spend and maximize your revenue. 

However, it’s crucial to assess whether target ROAS is the right strategy for your business and to avoid common mistakes along the way. When used correctly, target ROAS can be a game-changer in your PPC advertising efforts and help you improve your ROI. 

Need help with your PPC advertising (or another digital marketing service)? Give us a shout.