What is Return On Ad Spend (ROAS) Bidding?

Return on ad spend (ROAS) bidding in Google Ads is a smart bidding strategy that aims to hit the target return on the set budget for ads. Return on ad spend bidding uses a machine learning algorithm to automatically set bids for each click on ads with the aim of maximizing return on each click. It ensures that your ads hit the right audience, and your ad spend goes only on the clicks that are likely to cause a return on the ad spend.

How does return on Ad spend (ROAS) bidding work?

Before we learn how return on Ad spend bidding works, it is important to know what is return on ad spend is. It is the conversion value you receive in return for the money you spend on ads.

Return on Ad spend bidding begins with data collection of the key metrics such as clicks, conversions, and revenue of your previous ads. The advertiser then sets the target return on ad spend according to your business goal. Then, by using AI and machine learning, google tracks your conversion history via a conversion tracking tool and uses it and your target ROAS to predict future conversions on your ad and adjust bids accordingly in real-time. Then, Google ads will set maximum cost-per-click bids to maximize conversion value while aiming to achieve an average return on ad spend that is equal to your set target.

When to use return on Ad spend bidding?

There are various bidding strategies, and not every strategy may be beneficial for your ad, including return on ad spend bidding. So, before you implement this strategy, it is important to know if it is beneficial for your business.

  • An established E-commerce business

The return on ad spend bidding would be effective if you have an established business with enough sales and conversion history that can be used to make the algorithm run more effectively to achieve your target return on ad spend. It is best used when your campaign has at least 15 to 20 conversions in the past 30 days.

  • Clear revenue-focused goals

This bidding is also best used when your business has clear financial goals, which are to maximize revenue rather than the clicks or leads. This may not be the best fit if your goal is to create awareness of the brand or increase traffic to your website, as you may not be concerned about the revenue or sales.

  • Seasonal campaigns

During peak seasons such as black Friday sales or holiday sales, the return on ad spend bidding is the right strategy to implement. During these seasonal campaigns, this automatic bidding strategy adjusts bids according to the market and user behavior fluctuations to maximize conversions and revenue.

  • Products with varying profit margins

The return on ad spend bidding is also best implemented when your business offers various products with varying profit margins. This bidding strategy effectively allocates your budget in the right places and on products that generate the most revenue.

Return on Ad spend (ROAS) bidding strategy is a powerful Google Ads strategy to achieve your target revenue goals. By automatically adjusting bids on ads to align with your target return on ad spend, the ROAS strategy allows you to maximize conversions by effectively spending on ads that generate the most revenue.  

 

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