What is the Right ROAS for my PPC Campaigns?
You guessed it – it depends.
First, a primer: what is ROAS?
ROAS is Return on Ad Spend. It’s the metric that combines cost (Ad Spend) and revenue (Return) into the most common KPI used to measure SEM performance. With a healthy ROAS, budget shouldn’t matter. It’s like the fountain of youth for your PPC campaign and your bottom line.
So back to our original question, what should my ROAS target be?
It depends on the goals of the organization, marketing objectives, product margins and the website’s ability to convert. It also depends on the keywords that you are bidding on. Think brand vs. non-brand.
Let’s start low.
Companies that are working to build an audience or a brand will typically start out with lower ROAS targets. Sometimes, it’s necessary to start with a lower target just to get enough volume to understand how to optimize bidding. Plus, a newer website could potentially have issues with conversion rates, low domain equity, and a gap in consumer product knowledge. It also might be necessary to accept a lower ROAS to get enough volume to improve Conversion Rate and AOV. A website’s conversion rate and average order value play an essential role in how much traffic a site can expect at a given ROAS.
Whatever the reason, setting a lower ROAS will allow you to be more aggressive with CPC bids and will therefor drive more traffic. If maximizing traffic is your goal, lower your ROAS targets accordingly.
Are ROAS targets for all keywords equal?
Absolutely not. The most notable example of this will be branded vs. non-branded keywords. Search engines typically know a branded keyword when they see one. Brands are overwhelmingly favored in bid auctions, meaning the brand owner likely only needs to bid a fraction of what a competitor might to “win” the CPC auction and achieve top placement for their ad. Combine this low CPC with the higher conversion rate of a loyal customer returning to your site and you’ve got a recipe for outstanding brand ROAS. For example, our clients routinely achieve 50x to 100x ROAS on brand campaigns.
The implication of this is that all PPC campaigns should have separate bidding strategies and ROAS targets for brand and non-brand keywords. Brand keywords should be optimized to much, much higher ROAS targets than non-brand keywords.
So what ROAS is just right?
For most of our mature PPC clients, non-brand ROAS targets are typically in the 4-5 range, depending on how well the client’s site performs and their ultimate goals. Better sites can garner better returns, it’s just that simple (to understand why, read our post about the Three Most Important PPC Metrics). So take a hard look at your site before you set ROAS targets. Increases in Conversion Rate and Average Order value will be multipliers for your bottom line.
Improving these metrics will:
- Allow for higher bids, which mean more traffic, which means more revenue
- Increase revenue for all channels, including Organic, Direct, Email, etc.
- Increase profitability of paid search campaigns
So what do I do now?
If improving your ROAS is a key objective in your digital strategy, start first by looking at your site’s performance critically, especially Conversion Rate and Average Order Value.