Understanding Return On Ad Spend (ROAS)

We get lots of questions about Return On Ad Spend (ROAS) and how to get the best conversions from your campaigns. Here’s a video all about this topic which may just help you get to get to grips with ROAS:

What Is Target ROAS Bidding?

There are two main types of target ROAS, ‘standard strategy’ which is used alongside a single campaign or ‘portfolio strategy’ which is used for multiple campaigns. 

This topic is important because you need to know what type of strategy is right for your business. If you need more information before delving in how to set things up, we recommend accessing: About automated bidding as a starting point.

Targeting ROAS allows you to base your bids on a selected target Return On Ad Spend. ‘Google Ads smart bidding strategy’ can help you to get more conversions or revenue, at the level of your ROAS which you have set yourself. This means that your bids will be optimised automatically when it comes to the time of the auction, enabling you to tailor each bid to specific auctions. 

Before You Begin

You will need to begin by setting values for the conversions that you are tracking within your campaigns. For Target ROAS to work, your campaigns need a minimum of 20 conversions within the past 45 days of the ad’s run time. There is an exception for Search campaigns where the minimum is at least 15 conversions within the past 30 days. Google recommends figures of 50 conversions over the past 30 days, to allow the algorithms substantial data to base bidding decisions upon. 

The Methodology

Google Ads works on the basis of predicting future conversions by using your actual conversion values that have been reported via your conversion tracking tools. Google Ads will then set a maximum CPC (cost per click) in order to elevate your conversion values, simultaneously aiming to achieve an average ROAS that matches your target. 

You need to be aware that some conversions will deliver a higher ROAS and others will deliver a lower ROAS. Overall Google Ads aims to maintain a conversion value that is equal to the ROAS that you have set. To enhance your performance in ad auctions, the system will adjust bids with real-time measures against the device, browser location, timings within the day and so on. It will also take into account if the user already appears on your remarketing list. Analysing these insights and performance metrics are the key to setting up successful campaigns.

The recommended target ROAS becomes available to view after you have set up a new bidding strategy within your ‘Shared Library’ and selected the campaigns you want it applied to. The calculation is based on the actual ROAS taken over the past few weeks. Therefore you can choose to go with Google Ads ROAS or set your own value.

Setting Your Target ROAS

The target ROAS is worked out on the average conversion value that you want to receive back for each £ you spend on your ads. The target ROAS has a possibility of influencing your conversion volume, therefore if you set your target too high it may limit the amount of traffic coming to your site and hitting your ads. 

  • Aim to set your ROAS on historical conversion values per cost data, this can aid in maximising the conversion value whilst maintaining the same ROAS that your campaigns have already achieved.
  • Your historical conversion value per cost data is found under ‘Modify columns’ from the ‘Columns’ drop-down, then add the conversion value per cost column from the ‘Conversions’ list columns. After you have done that, multiply your conversion value per cost metric by 100 to get your target ROAS percent.

There are a lot more areas to be covered on this topic, if you’d like to learn more about how to set up target ROAS, Google Ads or YouTube video marketing, make sure you check our blog regularly at www.sfdigital.co.uk/blog.

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