{"id":6325,"date":"2023-12-14T11:25:50","date_gmt":"2023-12-14T11:25:50","guid":{"rendered":"https:\/\/ppcexpo.com\/blog\/?p=6325"},"modified":"2024-03-01T21:41:32","modified_gmt":"2024-03-01T16:41:32","slug":"what-is-roas","status":"publish","type":"post","link":"https:\/\/ppcexpo.com\/blog\/what-is-roas","title":{"rendered":"What is Return on Ad Spend? Benefits and Tips"},"content":{"rendered":"

Choosing the right keywords and bidding strategy can really elevate your PPC campaigns. When you align your PPC goals with the perfect bidding strategy, you soon experience a greater number of auction wins and overall stronger conversions.<\/p>\n

However, it isn\u2019t just a matter of selecting the right bidding strategy and pressing go. You still need to pay close attention to how your bids are performing. They are taking part in thousands of auctions at any given moment. Thus, managing bids can be a painstaking part of your campaign management.<\/p>\n

\"What<\/div>\n

Luckily, Google Ads has introduced Smart Bidding strategies<\/a>, which lessens this burden placed on PPC managers, while still tapping into the powerful benefits that come with having a great bidding strategy.<\/p>\n

What Is ROAS and How Does Target ROAS Work?<\/h2>\n

ROAS stands for \u2018return on ad spend.\u2019 Essentially, it is how much value you receive through conversions for every dollar spent on PPC ads.<\/p>\n

So, ROI?<\/p>\n

Not quite. ROI is focused on calculating profits<\/em>, which means we not only have to factor in ad spend but also the cost of the goods being sold and operating costs.<\/p>\n


\n\"google<\/a><\/div>\n

How to Calculate ROAS: A Simple Formula for Return on Ad Spend<\/h2>\n

ROAS is a much simpler equation:<\/p>\n

Return on Ad Spend = Revenue \u00b7 Ad Spend \u2014 100<\/p>\n

If you spend $20 on PPC ads and return $50 in revenue, then your ROAS would be 250%.<\/p>\n

As a bidding strategy, Target ROAS focuses on maximizing the value of each conversion, instead of the number of conversions \u2013 quality over quantity<\/p>\n

Because this strategy is automated, machine learning does most of the work. You enter the maximum cost per click you\u2019re willing to pay and the desired ROAS. Then, Smart Bidding works to get you as close to that number as possible with the bid you\u2019ve supplied.<\/p>\n

Your bids will fluctuate all the time because the Target ROAS strategy calculates the best amount to bid at the time of auction.<\/p>\n

The drawback is that you cannot manually make your own bid adjustments, except in mobile ads.<\/p>\n

ROAS Versus CPA<\/h2>\n

ROAS and CPA are two common performance indicators that advertisers use. They both provide an overview of your campaign\u2019s health and performance, particularly with how they relate to cost.<\/p>\n

Unfortunately, it can sometimes be difficult for novice PPC<\/a> users to understand when to rely on each metric.<\/p>\n

CPA <\/strong>focuses more on the average <\/em>cost for each conversion. It\u2019s a nice metric when looking at a large volume of conversions. You can see a baseline for the average cost that you\u2019re paying for each individual action.<\/p>\n

You can even reverse engineer CPA by looking at how much your typical customer spends and then deciding a target CPA for your bidding strategy<\/a> that is less than that number, thereby creating room for profit.<\/p>\n

Compared to ROAS, though, CPA falls short for one key reason: not all conversions are created equal.<\/p>\n

To explain, you could spend $100 on two different ads, each one resulting in a conversion. This creates an identical CPA for both ad groups.<\/p>\n

But, when we look under the hood of each conversion, we find that one lead spent $70, while the second spent $250. Immediately we know that the ad that produced $250 more in revenue was wildly more successful.<\/p>\n

By injecting revenue into the equation, advertisers are able to better evaluate what happens after <\/em>each conversion is made. This is why many PPC professionals feel that ROAS is superior to CPA.<\/p>\n

CPA can even be misleading at times! If a PPC manager sees that a particular keyword has a higher-than-normal CPA, they may feel compelled to bid down, thereby spending less money on these terms.<\/p>\n

However, without looking at the ROAS of that keyword, they neglect to realize that conversions from this keyword have a much higher value!<\/p>\n

Measuring ROAS Isn\u2019t Always Easy<\/h2>\n

On paper, every marketing metric<\/a> seems easy to calculate. Yet, there are always a number of other factors that can throw off the exact number. For ROAS, there are two key influences that can affect its precise value: marketing attribution and customer lifetime value (CLV).<\/p>\n

Marketing Attribution: <\/strong>Customers<\/a> are engaging with your brand and products across many different touchpoints. Marketing attribution is the act of tracking a customer\u2019s journey across these touchpoints with the intent of evaluating each step\u2019s credit towards making that final sale.<\/p>\n

In a perfect world, a customer would see your PPC ad, click it, convert and boom<\/em>. Easy to measure return on your ad spend.<\/p>\n

The reality is rarely so simple.<\/p>\n

A more likely scenario is a customer sees your ad, clicks and doesn\u2019t convert<\/a> right away. Days later, a social media post reminds them of that great product they saw, they return to the site and then<\/em> make their purchase.<\/p>\n

Both the social media post and the PPC ad played a role in this conversion, but how do you decide which strategy to give the credit to?<\/p>\n

Does the PPC ad take the credit for being the first through the door, or is the social media department responsible because they sealed the deal? Maybe credit should be split?<\/p>\n

You need to decide on a single attribution model and run with it. This will help keep your ROAS calculations consistent.<\/p>\n

Customer Lifetime Value: <\/strong>ROAS is also challenged by the lifetime value of each customer. Initially, your ad traffic may only spend $50, but next month they return for another purchase, and then another and another.<\/p>\n

Soon, they\u2019ve spent $600 in the year and it all came as a result of that first PPC ad!<\/p>\n

When a new customer first converts it is impossible to know how much they\u2019ll spend in a lifetime with your company. They may never return or become a loyal, long-term customer.<\/p>\n

The best way to guess at the lifetime value of a new lead is to look at the average lifetime value of your past and current customers.<\/p>\n

Does Target ROAS Have Limitations?<\/h2>\n

Absolutely!<\/p>\n

Because we\u2019re measuring our ROAS alongside other numbers, like the average lifetime value of our customers, there\u2019s a fair amount of wiggle room between your calculated ROAS and your actual ROAS.<\/p>\n

Before you start treating the Target ROAS bidding strategy as your PPC campaign\u2019s gospel, ensure that your conversion tracking and attribution models are as accurate as possible.<\/p>\n

For smaller businesses, this may take some time, as you need ample experience and historical data available.<\/p>\n

What\u2019s A Good ROAS?<\/h2>\n

This is a common question and perhaps the one that is hardest to answer. We all hate to hear this, but the answer is: It depends<\/em>.<\/p>\n

Every business is different and has its own operating margins and other expenses that will affect what a viable ROAS is.<\/p>\n

For example, if your gross margins are very tight, then spending too much on ads is going to severely hamper your revenue. You can even lose revenue if you aren\u2019t careful!<\/p>\n

You may want to work with your accounting department when determining a viable ROAS for your bidding strategies<\/a>, especially because this metric is so closely related to revenue.<\/p>\n

\"<\/a><\/div>\n

How Do I Set a Campaign With Target ROAS?<\/h2>\n

For Google Ads<\/a>, it is very easy to change your bidding strategy to Target ROAS. Here\u2019s a simple breakdown of the steps:<\/p>\n

    \n
  1. Access your Google Ads account<\/li>\n
  2. Select the campaign you want to optimize with Target ROAS bidding strategy<\/li>\n
  3. Click the \u2018Settings\u2019 tab within this campaign<\/li>\n
  4. Then, select \u2018All Settings\u2019<\/li>\n
  5. Scroll until you find \u2018Bid Strategy\u2019 and press \u2018Edit\u2019<\/li>\n
  6. \u2018Change Bid Strategy\u2019 will create a dropdown menu, where you can then select \u2018Target ROAS\u2019<\/li>\n
  7. Enter your desired ROAS (as a percentage)<\/li>\n
  8. Save your campaign!<\/li>\n<\/ol>\n

    It\u2019s important to mention that Target ROAS will function differently depending on the campaign type and network.<\/p>\n

    For Search Network Only and Search Network with Display Select, the Smart Bidding feature will optimize for an average <\/em>ROAS across all ad groups<\/a> and keywords.<\/p>\n

    Display Network Only and Shopping Campaigns, on the other hand, will experience optimization for your targeted ROAS amount across all campaigns and ad groups.<\/p>\n

    Currently, you cannot use Target ROAS as a bidding strategy for mobile app campaigns on the Display Network<\/a>.<\/p>\n

    Optimizing Target ROAS Campaigns<\/h2>\n

    Any PPC campaign or bidding strategy, smart or otherwise, requires careful attention to details. Otherwise, it won\u2019t run optimally and your potential returns will be minimized.<\/p>\n

    We\u2019ve set our campaign, but it still needs to be optimized.<\/p>\n

    Review your margins: <\/strong>Some businesses may be lucky enough to find industry-specific benchmark data for how to set a Target ROAS objective.<\/p>\n

    That said, to protect yourself from setting the wrong ROAS percent for your campaign, it is important to review your own margins.<\/p>\n

    You\u2019ll want to evaluate this figure for each campaign by taking a detailed look at the products and services you\u2019re offering in those ads. What are the margins for those products\/services and where does your ROAS need to be to leave ample room for profit?<\/p>\n

    Split campaigns into smaller ad groups: <\/strong>You want to segment your campaigns based on similar offerings. You also want to split hyper-successful campaigns into smaller ad groups. This will help you better target the reasons behind those winning ads.<\/p>\n

    Then, you can use those insights to better target audiences<\/a> and receive even better returns.<\/p>\n

    As you\u2019re performing this step, pay close attention to the volume of conversions and their returns. You\u2019ll want to use data from past campaigns and bidding strategies to inform these decisions.<\/p>\n

    Allocate budget according to profit: <\/strong>Measuring ROAS is a great way to understand where and how to place your advertising budget.<\/p>\n

    Let\u2019s say that your ROAS across Search Network campaigns is 3.64, which means you\u2019re returning $3.64 for every dollar spent on the Search Network. But, Display ads are promoting a much stronger return at $4.50 per dollar spent.<\/p>\n

    This is a strong clue that you need to push more spend towards the Display Network. It\u2019s all about moving pieces around and understanding what works and where the value is.<\/p>\n

    General Best Practices For Improving Target ROAS Campaigns<\/h2>\n

    Campaigns utilizing the Target ROAS bidding strategy may have a different end goal in mind, but they still function like the rest of your pay-per-click advertising efforts. Thus, they benefit from many of the same best practices of PPC.<\/p>\n

    These are all general tips that any digital marketer or PPC advertiser can benefit from. And, they\u2019ll also be positive influences on your Target ROAS efforts.<\/p>\n

    Become Mobile-friendly<\/h3>\n

    Mobile devices (i.e. smartphones) have changed the way that consumers shop.<\/p>\n

    Your target audiences are using these tools at every step of the journey, whether it is to research products, compare prices, look for the best deals, find discounts, or make a final purchase.<\/p>\n

    For Target ROAS campaigns, this means that many of those clicks and conversions are coming from mobile devices. If your ROAS is suffering, don\u2019t immediately assume that the problem lies with bad keywords or poor campaign optimization.<\/p>\n

    It may be a matter of poor mobile <\/em>optimization.<\/p>\n

    If your site doesn\u2019t perform well on mobile devices, in terms of loading time and experience, there\u2019s a better-than-high chance that these consumers will click away.<\/p>\n

    There\u2019s a number of ways to improve your mobile experience:<\/p>\n