Target ROAS vs. Target CPA: What's the difference?

Most ad platforms, such as Google Ads and Facebook Ads, allow you to use advanced tools to handle the behind-the-scenes ad bids to maximize your budget. Two popular options are target Return on Ad Spend (ROAS) and target cost-per-action (CPA). 

Both options effectively maximize your budget but go about it differently. Learn the difference between them and how to choose the best option today.

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What is Target ROAS?

Target Return-on-ad-Spend (ROAS) is a popular Automated Smart Bidding strategy that lets you set a target goal for the revenue generated from the money you spend on the campaign. Google’s platform will optimize for conversions at every step to help your campaign become profitable.

ROAS by itself is a significant metric for any marketing campaign that’s a more focused take on the common Return-on-Investment (ROI) formula. So let’s briefly explore how ROAS is calculated, aside from paid ads, to understand better how target ROAS works.

The ROAS Calculation

The ROAS is similar to the ROI formula. The difference is your focus specifically on the cost of ads, whereas ROI considers the overall investment.

The ROAS formula is:

ROAS = (Revenue / Ad Costs)

The result describes what was gained or lost throughout the campaign. A number above 1 means you made more than it cost. 

So Google’s target ROAS bidding option tries to meet your stated percentage goal with every bid. 

You can see below how Varos displays your own results alongside your competitors’ results to help you understand the full context of your results.

What is Target CPA?

Cost-per-action (CPA) is a maximized conversion bid strategy, with “action” being a broader term for any desired action, including conversions that directly generate revenue. First, however, you determine the specific action, which might not always be making a purchase. 

Actions might include subscribing to an email list, filling out a lead capture form, or following a social account.

The CPA Calculation

CPA uses the following formula, and the result is a dollar amount indicating what you paid for every conversion, regardless of how much revenue that conversion generated. The formula is:

CPA = (Ad costs / Number of Conversions)

Below, you can see how Varos shows your own cost-per-conversion right next to your competitors, so you always know how you stack up.

Target ROAS vs Target CPA: What’s Right for You?

Ultimately, both types of campaigns strive to maximize your ad spend but go about it differently. As a result, your option will affect your total Google Ads costs and the results you get from your campaigns.

The core difference between these two options is revenue (target ROAS) vs. sales volume (target CPA). CPA is ideal for acquiring more customers but doesn’t consider how much they buy, while ROAS focuses on generating the most revenue possible.

So what’s the best option: google ads target CPA vs target ROAS? You’ll likely use both throughout the life of your business, but your current choice depends on your business objectives.

Step back from Google Ads and consider your overall goals. For example, do you need more customers, or do you need more revenue? These goals are undoubtedly similar, but the difference between them is crucial regarding Google Ads.

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Best Practices for Both Target ROAS and Target CPA

How can you use these automated bid strategies to drive growth for your business? Let’s explore some of the best ways to use these options to meet your business objectives.

Set up Proper Conversion Tracking 

Google Analytics must know what you’re trying to maximize for both bidding strategies. For CPA, the target action should be configured within Analytics. Similarly, Analytics must record “Purchases” on your site for target ROAS.

Don’t make the mistake of indicating other actions, like ‘add to cart,’ are revenue generating or conversion actions. Instead, set these options up carefully, as they’ll determine how Google Ads makes future decisions.

Of course, you’ll need to integrate Google Analytics with Google Ads for these campaigns to work, which you may have already set up.

Don’t Start with Targeted Bidding Strategies

Your first campaign shouldn't target ROAS or CPA — Google doesn’t know enough about your business to optimize your bids. 

These options work best after you’ve operated other campaigns and generated enough data for Google’s platform to make the right decisions. If you launch your business with CPA, the platform will primarily be guessing about what’s going to drive quality leads to your site.

Start with more traditional options, then as you generate more data, start using either targeted option.

Set Realistic Targets

It’s tempting to set your target ROAS to 10x your ad spend or CPA to bring in a new wave of customers for $1 each, but those are not easily achievable goals. So instead, start with a lower target and slowly increase it as the campaigns evolve. 

Google's automated bidding platform will become better at reaching higher targets as you go because it will learn how to target the right audiences and make the right bids.

Slowly incrementing your goal is more effective than shooting from the moon immediately. On the other hand, if you aim too high from the beginning, you might get worse results than setting an achievable target ROAS or target CPA.

Leverage Varos for Real-Time Bencharmaking to Gain a Competitive Edge

So which option is the right choice for you? For most businesses, the answer is both at different stages in their business cycles. And having a wealth of available data will help you make these decisions.

Varos enables real-time competitor benchmarking for your paid ad campaigns and eCommerce platforms. We give you the entire context of your results to help you identify industry trends if you’re overspending or have a worse conversion rate than expected. 

Below, you can see how Varos shows your results right next to your peers, allowing you to see what you're doing well and what needs work.

Are you ready to gain a competitive edge with real-time benchmarking to better maximize your ad spend? Sign up today or contact us for a demo to learn more.

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About the Author

Yarden Shaked

Co-founder & CEO at Varos

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