It’s never been more important to understand how your target return on ad spend (tROAS) changes to automated bidding strategies impact campaign performance.
Your decisions can be make or break for your business!
Set your target too high, and your campaign won’t fire, causing you to miss out on much-needed revenue.
Set your tROAS too low, and your ad spend will go through the roof, leaving you with empty pockets and a very disgruntled Finance Director.
Before we get started, it’s critical that your business is aligned with its objectives.
Put simply, are you looking to grow your business/customer base or make acquisition more profitable?
Without clarity on this objective, you’ll struggle to direct campaigns in the right direction, as these objectives require a very different approach.
If you’re looking to grow your business, you’ll want your campaigns to reach as many relevant potential customers as possible at an acceptable ROAS.
For instance, a 300% ROAS might be your break-even point, and you might typically strive for a 400% ROAS throughout the year to give yourself a bit of wiggle room and some initial profit. However, the difference in the volume of customers that you can acquire from 400% vs 300% will be significant.
In this graphic, you can see what this looks like with a much greater market share with a lower tROAS.
It’s worth noting that this will vary depending on your current market share. For example, if you’re already a big player with a strong market share, decreasing your Target ROAS may lead to higher CPCs and no significant change to other metrics, resulting in a less efficient performing campaign.
Giving yourself the best opportunity for tROAS to work:
- Conversion tracking – You’re using Google Ads Tag conversion tracking, bonus points if you’ve got enhanced conversions & consent mode set up.
- Conversion volume – Your campaigns are achieving a significant amount of conversion over a 7-day period. Ideally, 15+ conversions every 7 days should be used as a starting point.
- Consistency outside of the campaign – The fewer crazy offers, peaks, and troughs, the better. If these events or conversion tracking issues occur, use data exclusions to let the algorithm know this isn’t BAU and can be ignored.
Now, the practical part. Here, we look at how we’d suggest you respond to typical scenarios and some ideas on troubleshooting each situation.
When you’re spending the allocated budget and hitting your target ROAS:
Analysis: Your campaign is on fire (in a good way) you have the golden ticket!
Action: Consider/propose increasing your budget as you have the perfect business case to do so. This strategy supports growth when you’re already seeing positive results.
When you’re spending the budget but not hitting your target:
Analysis: This situation often indicates a learning phase or market disruptions, such as a new competitor or aggressive bidding.
Action: Allow more time for the algorithm to adapt and collect sufficient data. Depending on the insights gained, you might need to adjust your campaign strategy or proposition. Alternatively, temporarily lowering your target can align it more closely with actual performance and help you to continue spending your budget.
When you’re not spending the budget but hitting your target:
Analysis: You’ve got some research to do. Typically, this would indicate your target is too ambitious to reach, so the algorithm can’t spend any more budget without losing ground on your tROAS.
Alternatively, the search demand might not be there. If you’re in a niche area or in a quiet season, there may simply not be enough search volume out there for your given budget.
Action: Lower the target to give the algorithm greater flexibility, potentially increasing volume.
If the campaign is still in a learning phase or not gathering enough data, consider waiting a few more days or weeks before making changes.
Finally, check historical performance to see if there is an opportunity to spend more. If there isn’t, consider moving your budget into other areas, such as demand-generative activity through paid social media, display, video, etc., instead of damaging an on-target campaign.
When you’re not spending the budget and not hitting your target:
Analysis: This scenario typically calls for a review and modification of your campaign or proposition.
Action: Identify the root of the problem, such as low conversion rates, high cost-per-click (CPC), or irrelevant traffic. Focus on improving these aspects.
Post-improvements, consider adjusting your targets to stimulate the algorithm into change.
Nurturing campaigns through the process
All of this is well and good when working with existing campaigns with high conversion volumes. If this isn’t the case for you and you’re working with a new campaign/account, follow these steps instead:
Launch campaigns on Maximise Conversion Value without setting a target.
Closely monitor performance from keywords, search terms, and campaign insights through to website metrics & user behaviour analysis (through Microsoft Clarity or Hotjar). This is a learning period for both yourself and Google’s algorithm so it’s a prime opportunity for you to optimise the user journey and troubleshoot any issues on-site before your ad spend starts ramping up.
Once you’ve proven that the campaign can convert consistently, it’s time to add a tROAS.
This is unlikely to be where you want it to be in the long term, so again, say your goal is a 400% ROAS, and after 4 weeks, your actual ROAS is 200%; set your tROAS to 200%.
This is then your base level, and Google shouldn’t drop too far under this over a 7-day period. However, you’ll still see daily fluctuations, and this will always be the case.
Patience is key here as you don’t want to stretch the goal too soon as this will lead to your campaign reducing in spend as it doesn’t have the data to enable it to achieve your targets.
Therefore, once you’re consistently performing above the set tROAS, it’s time to start incrementally increasing your tROAS.
I’d always recommend 10-20% jumps as this prevents the campaign from falling back into a learning period in which performance is turbulent.
Depending on the volume of conversion data your campaign is receiving, nudge the tROAS up 10% every 3-7 days as long as spend remains consistent or increases while achieving the current tROAS.
Note – The same applies to tCPA, but the opposite change is required. For example, decreasing tROAS increases volume, but decreasing tCPA decreases volume.
Managing automated bidding algorithms takes time, and it’s not as easy as it sounds.
Without patience, you’ll be moving the dial too sporadically for the algorithm to adjust and grow, which inevitably leads to more poor decision-making and a spiral of downward trends for the account.
We’ve recently worked with a number of clients through this journey, launching tROAS as the bidding strategy and typically nurturing it over the space of 6 weeks to get it to a point where it’s balancing conversion volume with profitability.
At times, it would sway too far either way, but after 6-8 weeks, we would expect a level of consistency, depending on the volume of conversions in the campaign (the more conversions, the quicker the progress).
Following the steps mentioned in this blog is a safe bet and nudges you in the right direction in terms of finding the actual problem/solution as opposed to patching up your business with desperate campaign attempts.
If you’re still struggling after implementing these changes, get in touch with us and our team will happily take a look and offer our suggestions.
Want to see if your ROAS is profitable currently? Try our free calculator here.