Target return on ad spend (ROAS) (PPC)

What is ROAS?
As mentioned above, ROAS stands for Return on Ad Spend, and measures the amount of revenue your business earns for each euro you spend on advertising. Its main purpose: to determine how well your ads are performing and provide a numerical return value on each ad. To measure ROAS in Google Ads, you must know how much you are spending and your target return. Once established, you can measure ROAS at different levels within your account, from the account level all the way down to ad groups and individual ads. Within the ROAS metric, it is essential to note that contributing factors to Return on Ad Spend will include your keywords, audience targeting, and providing quality and useful content to convert customers

How do you calculate ROAS in Google Ads?
The ROAS formula is simple, nevertheless the numbers that it involves can take time to track. Your Return on Ad Spend equals the Total Conversion Value divided by your advertising costs. The Total Conversion Value measures the amount of revenue your business earns from a given ad conversion.

While your ROAS average will vary by industry and Marketing goals, a good ROAS average is generally around 4:1. A very successful ROAS will be 5:1, meaning that if your ad is generating 10 dollars in revenue and it costs 2 dollars, for each euro you spend you earn 5 dollars back. You might notice this calculation bears a striking resemblance to the ROI equation (net return on investment divided by the cost of the investment, multiplied by 100). The difference here is that ROI tends to look at the big picture, while ROAS will be more specific, depending on the level you are investigating (overall account vs. individual ads, etc.)

Why does ROAS matter?

Along with other metrics that track your campaign performance, ROAS indicates to you the health of your ads and their current return value. Basically, if your ad campaign is performing above expectations, you may want to consider increasing your budget or assets in this area. On the other hand, if you are not seeing the expected return for an ad campaign, you can delve into what might need improvement or consider eliminating the campaign altogether.

What are other key metrics to consider alongside ROAS? 

it is important to note that ROAS is not a single, end-all, be-all metric that will magically improve your campaigns and profits. It must be used in conjunction with other metrics to truly get to the center of your Google Ads performance. These are the most important ones to keep in mind are: 

• Return on Investment (ROI): As previously mentioned ROI is useful when looking at the big picture and is a general indicator of your overall business performance. You can see how profitable your overall investment is to your business, something your shareholders will be interested in. 
• Click Through Rate (CTR): The number of people that click on your ad when it appears for one of your chosen keywords. This ratio helps you understand how well your keywords and ads are performing.
• Cost Per Acquisition (CPA): The average cost per each action or conversion. When your Marketing goal is to obtain a large number of conversions, this number will give you great insight into real costs for obtaining leads or customers.

When to use Target ROAS?

You can use Target ROAS bidding for Search, Shopping and Display campaigns. The most important requirement to use it effectively is having enough conversion data.

The minimum requirement for this strategy is 15 conversions in the last 30 days for campaigns on the Search and Display network and 20 conversions in the last 45 days for Google Shopping campaigns. However, Google recommends at least 50 conversions in the last 30 days to maximize the efficiency of this bidding strategy.

To clarify: these are conversions per campaign, not your whole account.

Bid limits

Setting bid limits for Target ROAS is not recommended because it restricts Google Ads from automatically optimizing your bid. It can also prevent Google Ads from adjusting your bids to the amount that best meets your target ROAS. Bid limits are available for Search and Shopping portfolio bid strategies. If you do set bid limits, they’ll be used in Search Network auctions only, and are only available for portfolio bid strategies.

• – Max. bid limit: The highest CPC bid you want Google Ads to set when using Target ROAS.

– Min. bid limit: The minimum max. CPC bid you want Google Ads to set when using Target ROAS. Note that Google Ads might set a max. CPC bid that’s below your minimum bid limit, generally due to smart pricing. This means that the bid limit you set here isn’t the absolute lowest bid that could be set.