How to know if your ROAS target makes sense
A ROAS target that sounds aspirational is usually just a constraint that prevents your campaign from delivering volume. Getting this setting right is more important than most advertisers realise.
ROAS - Return on Ad Spend - is revenue generated divided by advertising cost. A 500% ROAS means for every £1 you spend, you generate £5 in revenue. Target ROAS smart bidding asks Google to optimise your campaigns to achieve that ratio. The logic is sound. The execution is often not.
Gross ROAS vs net ROAS
Most ROAS targets are set against revenue, not profit. If your revenue ROAS target is 400% but your gross margin is 30%, your actual profit ROAS is much lower once you account for the cost of goods. Before setting a Target ROAS, understand whether you are targeting revenue ROAS or profit ROAS, and ensure the target reflects what actually makes the business money.
Example: if your product margin is 40% and you need a 15% return on marketing spend after costs, your minimum viable ROAS is 1 divided by 0.15 = approximately 670%. At 400% ROAS with 40% margins, your ad spend exceeds what you are earning in gross profit. Many ecommerce businesses running "profitable" ROAS targets are actually not profitable when margins are properly accounted for.
Setting the initial target
Use your actual historical ROAS as your starting point. If your campaigns have delivered 380% ROAS over the last 90 days, setting a 380% target is reasonable. Setting 600% as an aspirational target when history suggests 380% is achievable will severely restrict volume. The algorithm cannot perform above what the market will bear for your specific products and audience.
The ROAS / volume trade-off
Higher ROAS targets mean the algorithm is more selective - it only bids aggressively for conversions it predicts will be high value. That means less volume at better efficiency. Lower ROAS targets mean more volume but potentially lower margins. There is no right answer - the optimal setting depends on your growth objectives. Businesses in growth mode tolerate lower ROAS to capture more customers. Businesses optimising for profitability push ROAS targets higher and accept lower volume.
Seasonal adjustments
If you are running seasonal promotions where your average order value changes significantly - sale events, bundle offers, clearance - adjust your ROAS target to reflect the new economics during that period. A 400% ROAS on full-price products might be viable but a 400% ROAS on products at 40% discount may not be. Adjust the target before the promotion starts, not after you see the data.
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