Instructor: The next bidding strategy
we're going to discuss is target ROAS
which stands for return on ad spend.
So, this is nearly the same as target CPA
but with the return on ad spend instead.
So, with this strategy,
Google will predict future conversions
and conversion value performance
based on your historical data to enter auctions.
As it's based on historical data,
you can't use this straight away on a brand new account.
When using this strategy,
Google will adjust bids in real time
to maximize conversion value
while trying to achieve the target return on ad spend goal
you've set at the ad group campaign or the portfolio level.
So, let's look at the objectives.
So, if you're tracking more than one conversion action,
so maybe you're tracking sales and phone calls
both from your website
and each conversion action has a different value
to your company.
Now, this is quite likely
as a sale is probably going to be worth a lot more to you
than an actual phone call.
So, targeting in return on ad spend
will aim to bid based on how much return you make
on your main advertising dollars
as opposed to targeting a cost per conversion.
So, return on ad spend equals total conversion value
divided by the cost.
So, you can see your conversion value
in your Google Ads account
if you have conversion tracking set up.
So, as you can imagine,
this bidding strategy is not best used
on brand new Google Ads account,
it's best use on Google ads accounts
that actually have a bit of data behind them.
So, how does it all work?
So, Google will predict which clicks will convert
and how much of those conversions will be worth to you.
So, you can actually tell Google
what a conversion is worth to you
when you set up your conversion tracking.
Now, don't worry as I'm going to show you exactly
how to set up conversion tracking later on in the course.
And like I just said,
you must have conversion values configured in your account
to be able to use target return on ad spend.
It's good to note as well
that campaigns using targeting return on ad spend
needs to have at least 15 conversions in the last 30 days
and this needs to be consistent as well.
Which means you must have conversions
over a consistent time period
and not just a bunch of conversions on one day
and then none for a week, another 10, none for a week,
they need to be consistent.
If you don't have data that showed consistent conversions,
then Google is not going to be able to optimize your account
to the best of their ability.
So, let's look at a scenario of this.
Let's imagine your company primarily sells insurance
but you also have a free ebook on your website
available to download.
Now, you know from your historical data
that our conversion rate from a sales form is 10%
and the conversion rate on your ebook is 0.05%,
so less than 1%
and the average client is worth $850 to you.
Based on what Google knows about the cost of your clicks
and your Google ads conversion rate
for each conversion action,
so that could be a sell or a phone call,
they will try to hit your target return on ad spend.
So, we can very easily work out how much
each conversion is worth to our business.
We would simply have to multiply $850 by 0.10
as that's our sales conversion rate
and we would be left with $85.
So, each form submission is worth $85 to us
as we convert one in 10 of them
and the average client is worth $850.
So, we could use exactly the same calculation
to figure out what a conversion is worth to us via an ebook.
So, now we know how to determine what a conversion is worth,
you're probably thinking "Great, that's good
but what should my return on ad spent be?"
Well, these all depends on your profit margins.
When you determine your return on ad spend,
you actually do it by inserting a percentage
into your Google ads account,
which I'll show you just how to do in a second.
But to give you an idea how it works,
a 6000% return on ad spend means that for every $1 I spend,
I'm getting $60 back in revenue.
Instead of just sitting there
and trying to figure out all the math
to determine what your return on ad spend should be,
you could just use the calculator
that I showed you earlier on in the course,
which was this one right here.
So, you can see we actually have a section on here
which has determined your break even return on ad spend.
So, to determine your return on ad spend,
you need to determine your profit margin first.
In order to know what your return on ad spend has to be,
you need to know what your average profit margin is.
So, if you have a 10% profit margin,
so for every $10 in sale, you own your own $1.
I need a 1000% return on ad spend.
That means at 10X ROAS.
If my profit margin is 25%,
then my return on ad spend would be 400%.
Now, do bear in mind, this is break even.
So, you need this return on ad spend
just to get the money you're spending back in revenue.
So, we can use this calculator
to determine what our return on ad spend should be.
So, let's head over to our Google account
and I'll show you exactly how you can enter this percentage
into your account, which Google can then use
to optimize your account further.
So, to update our bidding strategy,
we need to go to campaigns, select our campaign
and then go to settings and then go to bidding,
cancel on that.
There we go, and then change bid strategy,
and then we'll go for target return on ad spend.
So as you can see, it says to use this bid strategy,
set up conversion tracking.
So, as we don't have conversion tracking set up,
I can't actually do this on this account.
However, what I'm going to do is I'm going to head
over to a live account,
and I'm going to show you exactly how you can insert
your target return on ad spend percentage.
So, I'm now here logged into a live Google ads account
and I'm going to select target return on ad spend.
And as you can see, we now have an opportunity
to enter in a percentage.
So, let's just imagine for the purpose of this video
that my average profit margin is 25%.
So, as a result, I need a break even return on ad spend
of at least 400%.
So, what I'm going to do is go back to my Google ads account
and I'm simply going to make sure any number
I enter in here is going to be at least 400%.
So, I can type in 500%.
The number you're going to enter here all depends
on how much revenue you're looking to achieve
and the amount of money you're spending.
Now, you can see from below
that Google was actually recommended me
that my target return on ad spend should be 175.5%.
So, they noticed because I've already entered
in how much each conversion is worth
to my client for this account.
So, they can very easily tell me
what my target return on ad spend should be.
So, in this case, it's nowhere near 500%,
it's actually just under 200%.
That's it for this bidding strategy,
and I'll see you in the next video
where I'm going to cover the next strategy
which is maximized clicks.