le Ads ROI: Five key considerations

PPC advertising is hailed as having the Holy Grail of ROI (target return on ad spending).

This strategy, unlike click-based or conversion-based bidding strategies, is designed to maximize financial business outcomes.

Target ROAS is a powerful tool, but it requires some serious setup to realize its full potential.

Google internal data for March 2021 shows that advertisers who switched from Target CPA (cost per acquisition) to Target ROAS experienced a 14% rise in conversion value with a similar return on advertising spend.

Google claims advertisers who upgraded their Smart Shopping campaigns to Maximize conversion value and Target ROAS saw a 30 percent increase in conversions.

The results can differ from one company to another, and even across sectors.

Your success with Value-Based Bidding will depend on the alignment of your business model with and the quality of implementation.

This article will help you determine if value-based bidding fits your business.

Overview of Target ROAS

Target ROAS (or tROAS) is a Google Ads bid strategy based on value, designed to maximize the conversion value of your ad campaign.

Target ROAS is a Smart Bidding Strategy that leverages contextual and audience signals, in conjunction with historical data from the first party.

Google’s advanced predictive models estimate the potential conversion value of users, and automatically adjust your bids to match your ROAS target.

The lower your bid will be, the higher the AI’s.

In reality, some conversions yield a greater ROAS than others. Google takes this into account and adjusts the bidding in order to maintain the desired ROAS.

Bids based on the potential value of a customer

According to Ginny Marvin Ads Product Liaison, Google, the shift from a conversion-based strategy to a value based one represents a change from optimizing conversions towards prioritizing customers who are most valuable.

Advertisers should expect a tradeoff between value and volume as a result of this shift.

Target ROAS will generally return a greater total conversion value, but a lower conversion volume.

Google Ads offers five important considerations for your business to assess its readiness.

1. Variation in the sales value

It is important to consider the size of an opportunity before focusing on the technical aspects of value-based bids.

Consider the variation in the sales value to get an idea of what potential benefits Target ROAS can bring your business.

Value-based bidding is a method of optimizing bids to achieve high-value conversions and to avoid low-value conversions.

Target ROAS is more likely to be achieved if your business experiences high sales variability within a single product or service category.

Imagine an online store that sells products for $20, $50, and $100.

This store, assuming all other factors are equal, is more likely than another to benefit from value based bidding. This is because the algorithm could drive more $100 sales, and fewer sales of $20.

This disparity creates an opportunity to optimize conversion outcomes for greater value.

The store in the second case, however, lacks the ability to optimize as all the products are the same value.

The value-based bidder is further amplified when there is a greater spread or variance in the conversion value.

In our first example, we have a moderate variance. The variance would be much higher, for example, if the product was worth $500, $50, or $5.

The AI can find more efficiencies by maximizing the overall conversion value with a wider distribution of conversion values.

Any value assigned to conversion, whether it is revenue, gross profits, or any other value unique to your business, will be subject to the principle of variability.

Value-based bidding for low variability scenarios

What happens if you have similar prices for your services or products? Would you still be able to benefit from value-based bids?

Profit margins can vary even if you have the same prices. Customers may purchase different quantities and at different rates.

If conversion value variability from a revenue standpoint is low, then it’s not likely to be the case when viewed through a lens of gross profits or customer lifetime value. In a moment, we’ll discuss the implications of all three options.

Imagine that every sale you make in your company generates the exact same conversion value regardless of the financial measures you assign to it.

You would then assign the same value to every conversion.

It’s similar to Target CPA but instead of telling Google how much you are willing to pay per conversion, you define the value of a conversion and use the ROAS as your target.

With value-based bidders, your bids will be based on your return.

The AI will automatically adjust your bids based on the conversion value compared to your ROAS target.

Target ROAS is a great way to automate, even if conversions are stable.

2. Sales volume

The number of monthly sales generated by your company is also important.

You can then determine if you have enough conversion data to meet the conversion thresholds.

Google needs to have sufficient data to make reliable bid decisions based on statistically valid statistics to achieve the target ROAS.

The AI can then use this data to identify patterns, make correlations and derive meaningful insights, which fuel machine learning.

The AI’s predictive abilities could be compromised if it relies on samples that are too small and unrepresentative.

Google can learn more and bid more efficiently with larger data sets.

Target ROAS is calculated based on the number of conversions in the last 30 days.

The table below shows that minimum thresholds may vary depending on the type of campaign. You must note that conversions are only valid if they include valid values.

Minimum ROAS conversion thresholds for campaign types

Campaign Type	Minimum Conversions	Qualification period
Search campaigns	Minimum 15 conversions	Last 30 Days
Shopping Campaigns	Minimum 15 conversions	Last 30 Days
Display Campaigns	Minimum 15 conversions	Last 30 Days
Video action campaigns	Minimum 30 conversions	Last 30 Days
Discovery campaigns	Minimum 75 conversions	Last 30 Days
App campaigns	Minimum 300 conversions	Last 30 Days

You can use Maximize Conversion value for small or new campaigns that lack conversion data. There is no minimum requirement.

Once you have reached the threshold required for your campaign type, upgrade to Target ROAS.

What conversion event you choose as your primary conversion act is a crucial decision.

You must take into account your sales volume and the length of your cycle when making a decision.

3. Sales cycle length

Google will only accept conversions that are within your business cycle.

The AI will factor in the data faster if you import the conversion values quickly.

The sales cycle can be affected by the industry that you are in.

Due to the complexity, cost and the multiple decision makers involved, the B2B lead generation sales cycle typically ranges between 60-90 days.

B2C has a shorter cycle. It can range from a couple of minutes to several weeks.

B2B ecommerce has a much shorter sales cycle than B2B traditional sales.

B2C ecommerce has the shortest sales cycles due to its direct consumer transactions and lower costs.

Take into account the time between the click and the conversion. The conversion must occur within 90-days of the click. It would then fall outside of the lookback period, and Google wouldn’t be in a position to attribute the value to the click.

Choose the conversion method that will most likely lead to optimal performance.

Google suggests optimizing your website for the conversion that occurs the furthest into the marketing funnel, and which meets the minimum criteria.

You can use these general guidelines when making a decision.

Scenario 1: High sales volume, short sales cycle

If you have a sales cycle of two weeks or less, and you make at least 100 sales per month, you can optimize your sales or closed deals.

Consider secondary conversion actions such as:

• Sales Qualified Leads (SQLs).
• Marketing Qualified Leads (MQLs).
• Submission of forms
• Calls.

Consider adding secondary conversions such as add to cart or begin checkout if you are running an ecommerce campaign.

Scenario 2: Low sales volume, long sales cycle

Consider using MQLs or SQLs as the primary conversion method if your lead generation sales cycle lasts up to three month and you make at least 30 sales per month.

You may want to consider including secondary conversions such as sales, form submissions and phone calls in your funnel for better visibility.

Consider using begin checkout or adding to cart as the primary conversion, and sales and subscriptions for secondary conversions.

Scenario 3 : Low sales volume with a long sales cycle and a long lead qualification period

If you lead qualification time is more than 30 Days:

• Calls and form submissions are the primary conversion methods.
• Importing sales, SQLs and MQLs as well as page interactions can be considered secondary conversions.

Conversion actions recommended in lead generation

Scenario	Sales Cycle	Sales vol.	Primary	Secondary
High sales volume, short sales cycle	2 Weeks	100/month	Closed Deals	Subs. are also called SQLs/MQLs. And calls
Low sales volume and long sales cycle	Three months	30/month	SQLs/MQLs	Closed deals form subs. Calls and subs.
Long sales cycle, low sales volume + high lead quality. Time (30 Days)	Three months	30/month	Subscribing to a form is easy. Calls and forms	SQLs/MQLs, closed deals, page engagement

Recommended conversion action in ecommerce

Scenario	Sales Cycle	Sales vol.	Primary	Secondary
High sales volume, short sales cycle	2 Weeks	100/month	Sales	Add to Cart, Start Checkout
Low sales volume and long sales cycle	Three months	30/month	Add to Cart and Checkout	Subscribe to our newsletter for sales and special offers

Google recommends that you import your entire conversion funnel to improve visibility, while focusing only on one primary conversion action in order to optimize bids.

The exception could be to use both forms and calls for primary conversion actions if there is no duplicate.

A marketing funnel map can help you visualize the key steps your prospects take to convert.

Google’s conversion value calculator allows you to quickly calculate the average conversion values at each stage of the customer journey.

4. Data accuracy

We’ve already discussed the importance of volume, variability, and frequency. The quality of the data you collect will determine your level of success.

Data quality in the context of Target ROAS is the degree to which your conversion value accurately reflects their economic worth for your business.

Target ROAS depends on accurate inputs to deliver your desired return on advertising spend.

Your campaign results and the AI bidding will not be affected if your conversion values do not correspond to their real monetary value.

Here, the “garbage-in, garbage-out” principle is a must. A low-quality input will not produce a high quality output, no matter how sophisticated the algorithm.

The next decision is: what conversion values will you feed to the AI?

In general, your acquisitions strategy should be aligned with your business objectives. You can take several different approaches:

Optimizing for proxy value

You can still use static proxy values to run Target ROAS if you cannot measure or assign transaction specific values.

It’s simple, as you don’t need to configure a complicated conversion tracking system.

You can instead assign a value fixed to all your primary conversions, which means that every conversion will have the same value.

You can adjust values dynamically based on various criteria, such as the location, device or audience.

Proxy values will not accurately reflect your true economic value if your conversions are subject to fluctuations.

As such, using proxy is the easiest but most limited way to implement value-based bidding.

Revenue optimization

Consider using revenue conversion values if your goal is to maximize gross sales value. This will require the import of dynamic conversion values as well as an accurate estimate on how much revenue is generated by each conversion.

The AI will align your value-based bid with your revenue target to maximize your total revenue within your ROAS goal.

This can be used to increase top-line revenue, but also for expanding market share or promoting new products.

The neglect of profitability is a drawback to revenue optimization. If you sell a variety of products and services, they will have different profit margins.

AI will not take into account this difference, and could overemphasize products or services with high revenue but low margin.

Profitable optimization

Consider assigning values that closely reflect your gross profit if your business is focused on the bottom line. To calculate your gross profit, subtract the cost of goods from your sales revenue.

You can subtract the cost of your ad campaign from your conversion value by using custom columns within your Google Ads account (i.e. All conversion value-Cost).

The All Conversion Value column will continue to be optimized by Target ROAS.

The AI optimizes for profits, directing your budget to the most profitable outcomes.

This should, in the short-term, yield the highest gross dollar amount.

Be aware that optimizing profits could result in lower conversion rates.

Focusing on profits can also lead to a missed opportunity to expand your clientele or reach.

Due to the many cost factors involved, it can be difficult to measure and track the true profitability for each conversion.

Optimizing for Customer Lifetime Value (CLV).

Consider using the predicted Customer Lifetime Value (CLV) to maximize your long-term profits.

It is necessary to assign a value forecast for each conversion, based on the expected total value of the relationship with the customer.

CLV is a measure of customer value that includes average order values, frequency of purchases, retention rates, and costs associated with customer acquisition and retention. The exact formula and weighting can differ across industries.

This will likely also limit your reach, as it is optimized for short-term profits. Estimating long-term profits can also be exponentially complex.

CLV optimization can deliver the best return on investment over the long term.

Be careful. This strategy is based on the idea that you can spend money today to recover it in years.

If your projections are incorrect, the delay in receiving feedback about financial performance can be costly.

CLV is a potentially lucrative investment, but it comes with a lot of uncertainty and costs upfront, which makes it essentially a leveraged wager.

It may be prudent, given these risks to test CLV based bidding after successfully validating proof of concept with Target ROAS aligned either with revenue or profit.

5. Data Infrastructure

By now, hopefully, you’ve got a good idea on how to approach value-based bids for your particular use case. If your business meets all of the criteria, then the next important consideration is data logistic.

What systems do you need to put in place to streamline marketing data? Does your business have enough capacity to meet your needs?

Target ROAS requires a reliable method to collect, store, and import data into Google on a regular basis. This can be done manually, automatically or a combination of both, depending on your strategy.

There are three main options for tracking available:

Manual conversion tracking

You can manually track conversions by assigning a conversion value to each conversion in Google Ads.

The platform allows you to easily set up and modify the settings without requiring any technical knowledge or third-party software.

This is a very imprecise method of tracking value, as static conversion values do not account for variations in the purchase value.

This is because it’s not the best conversion tracking method if your conversion values fluctuate.

Tag-based conversion tracking

Tag-based tracking of conversions relies on Google’s JavaScript code (the “tag”) that is embedded in your website.

The tag sends back the conversion value associated with a particular conversion action.

This tracking method is most common in ecommerce, as it allows businesses to adjust the conversion rate to the order value.

The tag will pull the amount of money the customer spent in a transaction.

Tag-based tracking is also possible, as long as you know and can access the profit value when the tag fires.

It may be necessary to integrate your inventory system and third-party software in order to accurately calculate profit for each sale.

It’s not practical for many businesses to track profits due to their complexity.

Tag-based conversion tracking is a complex process that requires technical expertise and can be difficult for businesses offering a variety of products or services.

Tag-based tracking relies on cookies for conversions to be attributed to an ad.

This can lead to data gaps and negatively affect your optimization.

This Google Ads Help documentation explains more about the tag-based conversion tracker.

Tracking offline conversion

Tracking offline conversion tracks the results of an offline conversion after a user interacts with your ad.

Google automatically adds the GCLID to all URLs that you specify.

You must store the GCLID along with the lead’s or customer’s information in your CRM database to use this tracking method.

Once a conversion value has been assigned, you can import the data back into the platform. Google will use the GCLID in order to link the conversion value to the right click.

You can manually import offline conversions inside the Google UI, or schedule a recurring download via Google Sheets or HTTPS.

You can also automate the process by using Google Ads API. This would require developer input.

You could save a lot of time by integrating your CRM with Google Ads.

Offline conversion tracking is a comprehensive and reliable way to track the conversion results.

You can also assign values to your company that align best with its objectives.

It also allows you to restate and retract values that you have already uploaded in order to reflect cancelled bookings, returned orders or failed deals.

You may need technical resources depending on how complex the system is.

This approach has a downside in that it relies on a direct link between the click of the ad and the conversion offline.

This is not always possible in practice due to the length or nature of the customer journey.

It’s vital that you comply with all local, national and international privacy and data protection laws.

Importing first-party conversions into the platform has the primary goal of guiding the AI’s bid decisions.

Google Ads reporting is enhanced when you can link the click to the conversion value.

You can track your profitability to the smallest detail, such as keywords, ads or placements.

How to assess your business’s readiness to achieve Target ROAS

The infrastructure required to support your marketing campaign and your data volume, accuracy, and variability are key factors in a successful value-based bid strategy.

• The degree of fluctuation in the value of your conversions is called variability.
• The volume is the number of conversions that you produce.
• Speed is the speed at which you can send data to AI.
• Accuracy is the degree to which the data you collect reflects your true economic value.
• Your infrastructure is the foundation that allows you to collect, store and import conversion data into the Google Ads platform.

AI thrives off data. But to maximize Target ROAS it is important to find the perfect balance between quantity and quality.

Google suggests optimizing your funnel for the conversion that is furthest along the funnel and meets the criteria. However, this may not be the best strategy.

You may get better results if you optimize for conversions higher in the funnel, which gives the AI more data.

It is possible to feed the AI more data than it needs.

A smaller pool of conversion values that are calculated accurately may also outperform one with a greater number of less accurate ones. You must adapt your strategy according to your business’s unique circumstances.

To ROAS or to ROAS, that is the question. Only you can answer this question.

A theoretical evaluation is the best place to begin. You’d need to test the value-based bid to find out how it works.

The post Google Ads Target ROAS: 5 Key Considerations appeared initially on Search Engineland.