Target ROAS vs Target CPA

If you're advertising in Google Ads, you're probably not just giving Google your money out of the kindness of your heart. You likely have specific outcomes or results you aim to achieve for your ad spend. There are numerous strategies to achieve this, and we've covered many of them on this blog and my YouTube Channel. However, one consensus among experts is that if you're driving a significant number of conversions in Google Ads, you should try Google Smart Bidding options like Target Return On Ad Spend (ROAS) and Target Cost Per Acquisition (CPA).

What is Smart Bidding?

Before diving into the specifics, let's go ahead define what Smart Bidding is according to Google. Smart Bidding refers to bid strategies that use Google’s AI to optimize for conversions or conversion value in each and every auction, a feature known as “auction-time bidding.” Simply put, Smart Bidding automates the bid management process using Google’s data and machine learning capabilities. It is used in campaign types like Performance Max for you to get the most out of your budget.

Key Benefits of Smart Bidding

• Automation: Google’s algorithms handle bid adjustments in real-time.

• Efficiency: Optimizes for the best possible outcome based on historical and real-time data.

• Scalability: Easily applies to campaigns with numerous keywords and ad groups.

Breaking Down Target CPA

What is Target CPA?

Target CPA is an automated bid strategy designed to maximize the number of conversions while maintaining a specific average cost per acquisition. This strategy uses historical and real-time data to adjust bids accordingly.

How to Calculate Cost Per Acquisition (CPA)

To find your CPA, use the following formula:

cost per acquisition = ad spend / number of conversions

Example:

If you spent $100 on a campaign that generated 10 conversions, your CPA would be:

$100 / 10 = $10 per acquisition

Your target CPA is essentially the goal you'd like to achieve based on historical data. If $10 has been your average CPA and you're happy with that, you can set your target CPA to $10.

Adjusting Your Target CPA

If you're looking to improve campaign efficiency, you can decrease your target CPA:

current CPA = $10, new target CPA = $9 or $8

However, setting an unrealistically low target CPA (e.g., $5 instead of $10) could significantly reduce your ad spend, as Google may not confidently achieve that target.

Understanding Target ROAS

What is Target ROAS?

Target Return on Ad Spend (ROAS) helps advertisers maximize the conversion value received from their ad campaign. Unlike Target CPA, which focuses on maximizing conversion quantity, Target ROAS aims at a specific return on ad spend, typically expressed as a percentage.

How to Calculate Return on Ad Spend (ROAS)

To calculate your ROAS, use this formula:

return on ad spend = (total conversion value / ad spend) * 100%

Example:

If your total conversion value is $500 and your ad spend is $100, then your ROAS would be:

($500 / $100) * 100% = 500%

A common misconception is that Target ROAS is only for e-commerce businesses. Even if your primary goal is lead generation or phone call conversions, you can still use Target ROAS by assigning a value to each conversion type.

Assigning Conversion Values

For lead generation businesses, assign a value to each type of conversion. For example:

contact us form ($200) = 2x value of another form ($100)

By doing so, Target ROAS optimizes for conversion value rather than just the number of conversions.

Which One is Better?

Sorry for the politically correct answer, but it depends!

The choice between Target CPA and Target ROAS largely depends on the complexity and objectives of your campaign:

• Simple Campaigns: If you have one primary goal (e.g., contact us form submission), either bidding strategy works.

• Complex Campaigns: For e-commerce businesses or those with multiple conversion goals (forms, calls, etc.), Target ROAS is generally recommended.

Summary

Both Target ROAS and Target CPA offer powerful automation capabilities to optimize your Google Ads campaigns. If you have a complex setup with multiple goals, Target ROAS will likely provide better results. However, for simpler campaigns, either strategy can be effective.

IMPORTANT: Make sure to have proper conversion tracking set up to utilize these strategies effectively. Your choice will depend on your specific business goals and the value you place on different types of conversions. By leveraging Google's Smart Bidding options, you can typically drive better results than if you were drying to bid manually.