Target ROAS in Google Ads: Function, How It Works, & Strategy

In the world of digital marketing, target ROAS is key to ensuring that every budget you spend on advertising campaigns delivers the best results.

By understanding this concept, you can assess how efficient your advertising strategy is and how much revenue is generated from each cost incurred. 

Without accurate target and ROAS calculations, digital campaigns can lose direction and profit potential. Therefore, if you are a business owner, you need to understand how ROAS targets work, the formula, and strategies for optimizing them through this article.

What Is Target ROAS?

ROAS (Return on Ad Spend) is an important metric in digital marketing. This metric is useful for calculating revenue from advertising costs incurred. The goal is to see whether advertising campaigns are generating commensurate profits.

In digital marketing, ROAS is one of the main indicators for assessing the campaign’s success. It also goes hand in hand with other metrics such as conversion rate, impressions, cost per acquisition (CPA), and click-through rate (CTR).

Every ad run can be analyzed to determine whether it is profitable or not. Thus, ROAS can help business owners determine how efficiently their advertising budget is being used.

The results of the analysis serve as a basis for making subsequent decisions. A high ROAS value indicates the ad is performing well. However, if the results are low, it means the business needs to evaluate to ensure future strategies are more effective in generating greater results.

The Function of ROAS in Digital Marketing

In general, ROAS plays an important role in evaluating the effectiveness of digital campaigns. This is because, through this calculation, business owners can see how much profit they have made compared to the advertising costs they have incurred.

In addition, Google Ads ROAS is also used for the following purposes:

• Improving advertising campaign efficiency: By understanding the performance of each ad, businesses can adjust their strategies so their spending is not wasted.
• Forming the basis for marketing strategy development: ROAS data helps determine the direction of future campaigns to make them more effective and on target.
• Supporting sales growth: Achieving ROAS targets indicates that ads have successfully attracted new consumers and strengthened brand awareness.
• Preventing advertising cost losses: ROAS analysis enables advertisers to stop or adjust campaigns that are not profitable.

 

Read also: Target CPA vs. Target ROAS: Which Strategy Is Best?

How ROAS Works

According to the official Google Ads guide, the target ROAS bidding system uses machine learning to predict the conversion value of each ad click. 

Google Ads then automatically adjusts bids so that campaigns achieve the desired ROAS target.

The results of each conversion may vary. Some may exceed the ROAS target, while others may fall short. However, the system will try to maintain the average value to stay within your target.

For example, if the ROAS target is 500%, Google will use AI technology to adjust ad bids in real time. Adjustments are made based on various signals such as device, location, time, browser type, and user history.

Additionally, the system will provide ROAS target recommendations when you create a new strategy. This figure is calculated based on campaign performance over the past few weeks. You can follow these recommendations or set your own target value according to your business strategy.

ROAS Formula and How to Calculate It

Basically, the ROAS formula is quite simple. You only need to divide the gross revenue from the ad campaign by the total advertising costs incurred. The formula is as follows:

ROAS = Advertising Revenue ፥ Advertising Costs

For example, you spend IDR1,000,000 on Facebook Ads and get IDR5,000,000 in sales. Then, the ROAS value is 5:1. This means that every IDR1 you spend generates IDR5 in revenue.

A good ROAS figure varies for each business. The value depends on the campaign objectives, business size, platform used, and profit margin.

If the goal of the ad is only to increase followers or brand awareness, a low ROAS value is not a problem. However, if the goal is to increase sales, the ROAS must be high enough to keep the business profitable.

In general, an ROAS of 2 or more is considered quite good. This means that the revenue is at least double the advertising costs. But for businesses with large margins, the ROAS target can reach 3, 4, or even 5 times the initial capital.

Read also: Programmatic Advertising: Types, Examples & Strategies

Tips for Setting Target ROAS

The target ROAS indicates the average conversion value you want to achieve per rupiah spent on advertising. The higher the target you set, the more selective the system will be in displaying ads. As a result, conversion volume may decrease if the target is too high. To maintain a balance, consider the following tips:

• Use previous performance data. Before switching to a value-based bidding strategy, make sure you have already run a campaign with a tCPA strategy and have stable conversion data for the last 4 weeks.
• Set targets based on historical data. Your target ROAS should not be too different from the average ROAS of your previous campaigns. This helps the system adjust bids more accurately.
• Use the “Conv. value/cost” column in the report. You can add this column to your Google Ads dashboard to calculate the conversion value per cost. Then, multiply the result by 100 to find out your target ROAS percentage.
• Avoid including recent data that is not yet stable. When evaluating performance, ignore the pending conversion period for more accurate analysis results.
• Use recommendations from the Google Ads system. Google provides target ROAS suggestions in the Recommendations or Bid Simulator menu. You can use these as a starting point before setting your own targets.

 

How to Optimize Target ROAS

For your ad campaigns to generate maximum profits, target ROAS management needs to be done with the right strategy. Here are the steps you can take:

1. Determine the Right Audience

The first step is to understand who you want to reach. Segment your audience based on their behavior and interactions with your brand. 

For example, new users require a different approach than customers who have already made a purchase. With this segmentation, your advertising message can be more relevant and your conversion rate can be higher.

2. Tailor Your Message and Ads to Your Audience

Each audience group requires a different type of ad. For example:

• New visitors: Use ads that introduce your brand and products.
• Prospective buyers: Showcase product features and value.
• Users who abandon their cart: Use dynamic ads that display products they have viewed.
• Existing customers: Offer complementary products or special promotions to maintain their loyalty.

 

3. Choose Relevant Advertising Channels

Each platform has different audience characteristics. For example, ads on Google Search are suitable for people actively looking for products. 

Meanwhile, ads on social media platforms are more effective for building brand awareness. To determine the most suitable platform, it is better to test ad messages and formats on various channels, then focus on the channels with the best performance.

4. Set a Realistic Budget

Budget plays a big role in determining ROAS success. Use a ROAS calculator or previous performance data to estimate the ideal investment. 

If the budgets are limited, focus on the most promising audience segments, such as visitors who have already shown interest in purchasing. Ensure the budget allocation is not too thin so that ad performance remains optimal.

5. Conduct Regular Testing and Evaluation

Use A/B testing to compare ad performance. Based on the results, deactivate ineffective ads to make your budget more efficient. Also, pay attention to factors outside the campaign, such as product price, CTA, and landing page quality, as they can affect ROAS results.

6. Collaborate with Experts

If campaign management feels complicated, you can work with a team of professionals. At cmlabs, SEM (Search Engine Marketing) services are available to help businesses optimize their advertising strategies on Google Ads. 

The cmlabs team will help determine the appropriate bidding targets for your business sector, audience, and campaign objectives to maximize ROAS results.

Manage Target ROAS Effectively with cmlabs

Through SEM Services by cmlabs, our expert team will help you set and optimize target ROAS with a data-driven approach, in-depth customer analysis, and relevant keyword research. 

Every SEM strategy at cmlabs is designed to make your bidding strategy more efficient and increase conversion rates. In addition to focusing on strategy, cmlabs also ensures that every ad displayed has engaging content and links to a landing page that is fast, responsive, and relevant to the product. 

This way, every click can turn into a transaction. During the campaign, our team will continuously monitor ad performance, run tests, and adjust strategies to keep your ROAS at an optimal level. 

Several major brands, including JEC Eye Hospitals and Clinic, have seen results through comprehensive ad management, from visuals and copywriting to SEM strategies executed directly by the cmlabs expert team.

Now, it is your turn to achieve maximum results for your business. Contact cmlabs now to get more information about our SEM Services and create a measurable, effective SEM campaign focused on real results for your business!

Read also: Search Engine Advertising: Definition and How It Works