Explore key factors for evaluating Google Ads’ value-centric bidding strategy.
Target ROAS is the ultimate goal in PPC advertising, different from traditional click-based and conversion-centric bidding methods, aiming to optimize fiscal business outcomes.
Although positioned prominently on the evolutionary scale of Google Ads, Target ROAS mandates meticulous configuration before realizing its maximal potential.
A noteworthy tidbit: Advertisers who transitioned from Target Cost Per Acquisition (CPA) to Target ROAS reported a notable 14% surge in conversion value while maintaining a similar return on ad spend, according to Google’s internal data from March 2021. Additionally, Google asserts that advertisers who upgraded from Smart Shopping to Maximize Conversion Value and Target ROAS experienced an impressive 30% elevation in conversion value.
It’s important to acknowledge that outcomes may diverge substantially across various businesses and industry sectors.
The success achieved through value-based bidding hinges upon the alignment with your business model and the finesse of its implementation.
This article elucidates the pivotal facets of embracing Target ROAS, empowering you to evaluate its compatibility with your enterprise.
Decoding Target ROAS: A Comprehensive Overview
Target ROAS, abbreviated as tROAS, represents a Google Ads value-centered bidding strategy crafted to amplify the conversion value within your predefined return on ad spend targets.
Functioning as a Smart Bidding strategy, Target ROAS harnesses an amalgam of contextual cues and audience insights, complemented by historical proprietary data. Google employs advanced predictive modeling to estimate potential conversion values and autonomously adjusts your bids in accordance with your ROAS objectives. Remarkably, the higher your ROAS target, the more conservative the AI’s bidding becomes, and vice versa.
In practice, some conversions will yield a superior ROAS compared to others. Google duly incorporates this variability into its calculations and recalibrates bidding to sustain your desired ROAS level.
Transitioning from Conversion-Based to Value-Based Bidding: An Evolutionary Shift
Consider the paradigm shift from prioritizing the sheer quantity of conversions to affording primacy to the most lucrative customers. This shift, as noted by Ginny Marvin, Ads Product Liaison at Google, inevitably involves a trade-off between volume and value. Consequently, Target ROAS tends to yield a higher cumulative conversion value but potentially at the expense of reduced conversion volume in comparison to Target CPA.
Here, we present five pivotal factors to gauge your enterprise’s preparedness for implementing tROAS in Google Ads.
Variance in Sales Value
Before delving into the technical intricacies of value-based bidding, it is prudent to evaluate the magnitude of the opportunity at hand. Scrutinizing the variability in sales value provides valuable insights into the potential advantages Target ROAS can bestow upon your business.
At its essence, value-centric bidding aspires to optimize outcomes by prioritizing high-value conversions over their lower-value counterparts. Businesses characterized by substantial variability in sales value within the same product or service category are aptly positioned to reap the rewards of Target ROAS.
Consider an e-commerce establishment retailing products ranging from $20 to $100. This business is inherently better suited for value-based bidding compared to a store exclusively offering $50 products. The algorithm’s capability to generate more than $100 sales while curbing $20 sales thrives on the disparities in product value.
This principle extends to scenarios marked by greater variation in conversion values. In our initial example, where products are priced at $5, $50, and $500, the AI gains a wider canvas to identify efficiencies and amplify overall conversion value.
The concept of variability holds true irrespective of the assigned conversion value, whether it pertains to revenue, gross profit, or a distinctive value estimate unique to your enterprise.
Leveraging Value-Based Bidding in Low Variability Scenarios
Even if your products or services exhibit uniform pricing, variations may persist in profit margins. Divergent customers may display varying purchasing patterns, frequencies, and repeat rates. Therefore, in situations where revenue-based conversion variability appears limited, other facets like gross profit or Customer Lifetime Value (CLV) warrant exploration.
Assuming that each sale in your business generates an identical conversion value, irrespective of the financial metric associated with it, you would attribute uniform values to all conversions. This approach bears similarities to Target CPA, with the distinction being that, in value-based bidding, bids are tethered to returns. The AI dynamically adjusts bids based on the conversion value in relation to the ROAS target. This aspect confers an automation advantage, even when conversion values remain constant.
Sales Volume
The quantity of sales generated monthly by your enterprise emerges as another pivotal consideration. This metric signifies whether you can accumulate a substantial corpus of conversion data consistently, a prerequisite for meeting minimum conversion thresholds mandated by Target ROAS.
Target ROAS hinges upon the availability of adequate conversion data to facilitate statistically sound bidding decisions by the AI. Inadequate conversion data could compel the AI to rely on smaller, potentially unrepresentative samples, compromising its predictive prowess. Different campaign types necessitate varying minimum conversion thresholds, as illustrated in the following table.
Minimum Target ROAS Conversion Thresholds by Campaign Type:
- Search campaigns: At least 15 conversions in the last 30 days.
- Shopping campaigns: At least 15 conversions in the last 30 days.
- Display campaigns: At least 15 conversions in the last 30 days.
- Video action campaigns: At least 30 conversions in the last 30 days.
- Discovery campaigns: At least 75 conversions in the last 30 days.
- App campaigns: At least 300 conversions in the last 30 days.
New or smaller campaigns lacking sufficient conversion data can commence with Maximize Conversion Value, which imposes no minimum prerequisites. Subsequently, as the requisite thresholds are achieved for the respective campaign type, transitioning to Target ROAS becomes a viable option.
Selecting the primary conversion action that best aligns with your sales volume and sales cycle duration assumes paramount significance. Optimal performance necessitates considering the relationship between the sales volume and the length of your sales cycle.
Sales Cycle Length
The duration of your business cycle exerts a profound impact on the promptness with which conversion values can be assigned and relayed to Google. The swifter the integration of conversion values, the sooner the AI can incorporate this data into its calculations.
Sales cycles can vary considerably depending on your industry. In the realm of lead generation, B2B sales cycles typically span 60 to 90 days due to their inherent complexity and the involvement of multiple decision-makers. Conversely, B2C scenarios tend to feature markedly shorter sales cycles, spanning from minutes to a few weeks.
Notably, B2B e-commerce often witnesses shorter cycles compared to traditional B2B sales. Finally, B2C e-commerce typically boasts the briefest sales cycles, primarily owing to direct-to-consumer transactions and relatively lower costs.
It is imperative to consider the time elapsed between a user clicking your ad and the occurrence of the conversion event. Conversion events must transpire within a 90-day window from the click to be attributed to the original interaction. In light of this, selecting the primary conversion action capable of driving