What’s the Deal with Target ROAS?

Shopping campaigns have become a more recent hot topic as the likes of Shopify and many others capture more market share and launch more eCommerce businesses. This market growth has drove the important of target ROAS to a new level as platforms like Google Ads and Facebook capture more demand.

It isn’t a surprise that Google has continued to try and maximize their push for businesses to leverage shopping campaigns in the hopes to grow their sales exponentially.

Do shopping campaigns work? Yes

Do shopping campaigns grow your business faster than many other channels? Yes

Are the current target ROAS bidding strategies in Google Ads the most effective in driving the best cost-per-aquisition? Maybe

So what is the deal with target roas?

Target ROAS in Google Ads
Example of setting a target roas bid strategy in Google Ads

In Google’s definition target ROAS is a bid strategy that takes your average cost per acquisition and bids to acquire the consumer at the target conversion value or revenue target you set.

The flaw with this methodology is that Google calculates target ROAS as the “total reported value divided by the total cost. For example if you spend $1 on your shopping campaign and get a revenue of $5, your return on ad spend is 500%”

This inherently is flawed because the reality is that your “true” ROAS is actually 400% given that you invested the $1 and need to deduct that from the actual return.

So is target ROAS the best bidding methodology for shopping campaigns?

The opinions I’ve heard so far have varied from discussions around account structure to feed set up. However, one real methodology stays the same. You need to be optimizing for CPA based on the profitability of your product. Not the conversion value set in Google Ads.

This is a very specific point as the true margin and profitability of your product will require a separate analysis outside of the reporting and bidding strategy set in Google.

This point validates that the Target ROAS bid strategy may in fact be hurting the long term profitability of your business and driving CPA artificially higher than where you actually need to be bidding at auction.

My recommendation is to roll back to a manual bid strategy and analyzing keyword performance by brand and product. This will provide more control of the overall bidding strategy and conversion value.

If you are in need of further brainstorming the methodology and account structure needed to achieve more control of your shopping campaigns we are here to help.

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