Picking the right bidding format when launching campaigns on Google Ads is an essential, yet often challenging task. When chosen wisely, automated bid strategies are a great way to save time while using complex algorithms to optimize an account.
Target ROAS (tROAS) is a particularly helpful smart bidding strategy for SaaS companies, as it brings the best of eCommerce Bidding to SaaS marketing.
As a subset of automated bidding, Google Ads smart bidding (like target ROAS and target CPA) uses AI-powered technology to optimize for conversions or conversion value.
Read on to learn how Google’s value-based bidding offers the perfect opportunity to move from target CPA to target ROAS bidding and how that benefits SaaS brands.
What Is Target CPA (Cost per Acquisition)?
If your campaign’s primary goal is to drive conversions, the target CPA bidding method (for non-eCommerce companies) will focus on converting prospects at a certain acquisition cost.
Essentially, this means that you are telling Google Ads that every single conversion has the same value to you and you are willing to spend a specific amount to get that type of conversion.
With this method, Google Ads will automatically set the campaign’s bids based on your cost per acquisition (CPA). Do note that individual conversions here may have CPAs above or below your target CPA, but Google will generally try to balance that out over time.
While target CPA can be a viable bidding strategy for SaaS, if you dig a little deeper, you will come to realize that – regardless of whether the conversion is the same – you can still segment leads in ways that they have different values.
How Does Value-Based Bidding Work?
Unlike target CPA, this method allows you to give unique values to different types of conversions so that Google can bid on a target return on ad spend. This is also known as target Return on Ad Spend (tROAS).
Shifting to target ROAS can be especially useful for SaaS companies with tiered, licenses- or usage-based pricing models. The reason is that once you assign unique values to each type of conversion, you can let Google’s AI take a portfolio bidding approach across an entire group of campaigns.
Target ROAS throws many marketers for a loop, mainly because it requires importing 3rd party offline conversion data into Google Ads in real-time. Once you manage that, however, target ROAS can work wonders for your SaaS business.
Here’s How to Transition to Target ROAS Bidding
The first thing you will need for successful value-based bidding is a good understanding – and approximation – of customer lifetime value (LTV) for all conversion types.
Similar to your gross profit on an eCommerce product sale, the customer lifetime value is what tROAS will be based on.
Your ability to import third-party offline conversion data into Google Ads in real-time also plays a big part in the success of your campaign. If you’re using Salesforce or Hubspot as your CRM, this connection is a simple checkbox in Google Ads settings. If not, you’ll have to connect via API.
To keep things simple, let’s consider the following example – $100 LTV, 40% trial churn, and a new customer signing up for a 14-day trial for 8-seats. Based on this, the value that should be pulled from the CRM into Google Ads would be:
100 x (1-40%) x 8 = 480
If the target ROAS is set at 100% (i.e. you want to generate $2 for each $1 spent), this will indicate to Google that it needs to auto-bid to deliver this conversion at a cost of $240.
How Value-Based Bidding Benefits SaaS Brands
For SaaS marketing campaigns, value-based bidding can transform your conversions into almost e-commerce products. It gives unique values to different types of conversions so that Google can bid on a target ROAS, as opposed to a fixed target cost per acquisition.
In an essence, with value-based bidding, you can “productize” your conversions with different values.
For example, you might have certain leads that come from California or New York, and they have a higher close rate. This also means that they have a higher value and you should be willing to bid a little bit more on those. But you don’t want to structure your campaigns and only target those particular states.
In this case, you would actually assign unique values to certain types of those conversions and then switch to value-based bidding.
SaaS companies whose pricing models are tiered will find the move to target ROAS especially useful. The benefits are clear – you stop optimizing for a blanket average conversion value and start optimizing for a specific required return on each individual conversion based on its expected value.
Getting Started With Value-Based Bidding
Google Ads automated bidding aims to take the guesswork out of bidding strategies to boost conversions, decrease cost-per-click, and make PPC campaigns as effective as ever.
If set up and used correctly, target ROAS can get you great value. When leveraging a bidding tactic for better sales, remember to set your goals based on historical conversion data and monitor your campaigns to ensure they’re still achieving your goals.
Ready to dive deeper into digital marketing? Check out our blog to discover the difference between performance and growth marketing.