What are the key differences between value-based bidding and target ROAS bidding strategies, and under what circumstances would you choose one over the other?

Value-based bidding and Target ROAS (Return on Ad Spend) are both automated bidding strategies in Google Ads designed to optimize campaign performance based on conversion values, but they differ in their approach and are suitable for different scenarios. The key difference lies in how they incorporate conversion value data to inform bidding decisions.

Target ROAS bidding is a strategy where you set a target return on ad spend, for example, a 300% ROAS. Google Ads then automatically sets bids to help you achieve this target. The system analyzes historical conversion data and real-time signals like device, location, and time of day to predict the likelihood of a conversion and the associated value. It then adjusts bids accordingly, aiming to generate the most conversion value possible while meeting your target ROAS. The primary focus is on maximizing revenue for every dollar spent on advertising, making it an ideal choice for businesses with clear revenue goals and reliable conversion value tracking.

Value-based bidding, on the other hand, is a broader concept that encompasses strategies which focus on maximizing total conversion value within a set budget or constraint. While Target ROAS is a type of value-based bidding, it's a specific one with a defined target. Other forms of value-based bidding can involve optimizing for total conversion value without necessarily aiming for a fixed ROAS percentage. This means the system tries to get the highest possible total revenue or profit, even if the ROAS fluctuates slightly, as long as the overall value is maximized. Value-based bidding also allows for the use of custom conversion values, going beyond simple revenue figures to incorporate other important factors like customer lifetime value or lead quality.

A practical example of using Target ROAS would be an e-commerce store selling clothing. They might have a good understanding of the revenue generated from each sale and want to achieve a consistent 400% return on their ad spend. By setting a Target ROAS of 400%, Google Ads will automatically adjust bids to try to ensure that for every $1 spent on ads, $4 of revenue is generated. This strategy is appropriate if the store has reliable conversion tracking, a stable product catalog, and consistent profit margins.

In contrast, a company selling software subscriptions with different pricing tiers and varying customer lifetime values might benefit more from a value-based bidding approach that goes beyond Target ROAS. They could assign different conversion values based on the subscription tier purchased. Subscriptions to the "Enterprise" tier, which yields significantly higher customer lifetime value, would be assigned a higher conversion value than subscriptions to the "Basic" tier. The Google Ads system would then optimize for the total value generated by all conversions, regardless of the specific ROAS for each tier. The aim is to acquire as many high-value customers as possible, even if some campaigns generate a lower ROAS initially.

Here's a summary of when to choose each strategy:

Choose Target ROAS when:

You have a clear understanding of the revenue generated from each conversion.
You want to achieve a specific return on ad spend.
You have a stable product catalog with consistent profit margins.
Reliable conversion tracking is in place.
Campaigns have ample conversion data to inform bidding decisions.

Choose value-based bidding (beyond Target ROAS) when:

You want to maximize total conversion value, rather than adhering to a fixed ROAS target.
You have different conversion types with varying values (e.g., lead quality, customer lifetime value).
You need to optimize for complex conversion values that go beyond simple revenue figures.
You want to prioritize high-value conversions, even if it means accepting a lower ROAS on some campaigns.
You can track customer lifetime value accurately.

In summary, Target ROAS is a focused strategy that aims for a specific return on ad spend, while value-based bidding is a broader approach that prioritizes maximizing overall conversion value, even if it means accepting some fluctuations in ROAS. The choice between the two depends on the specific goals, data availability, and complexity of the business.