Are you confused between the basic differences between Target cost-per-acquisition(CPA) vs Target return on ad spend(ROAS) bidding in Google Ads and which one is more beneficial in lead generation or sign-up campaigns? Read on!
Suppose you run an online store that sells designer handbags. You have two main objectives:
1. Collecting leads for future sales by getting people to sign up for your newsletter.
2. Selling handbags.
For the first objective, you might use a Target CPA bidding strategy, as you can assign a set value to each lead generated, based on its potential value to your business.
For example, if you've determined that, on average, each lead is worth $10 to your business, you might set a Target CPA of $5 to ensure you're acquiring leads at a profitable rate.
For the second objective, you might use a Target ROAS bidding strategy, as the value of each conversion (handbag sale) can vary significantly depending on the price of the handbag sold.
For example, if you sell a handbag for $300, you might aim for a ROAS of 400% to ensure you're making a good return on your advertising spend.
See the table to illustrate how these bidding strategies might play out over 100 conversions/sign-ups:
In the Target CPA scenario, you've spent $500 to acquire 100 leads, at $5 per lead, and these leads have a total potential value of $1,000 to your business.
In the Target ROAS scenario, you've spent $1,000 to acquire 20 handbag sales, at $50 per sale, and these sales have generated $6,000 in revenue for your business, resulting in a ROAS of 600%.
The table illustrates how Target CPA focuses on controlling the cost of acquiring conversions (in this case, leads). In contrast, Target ROAS focuses on maximizing the return on your advertising spend by optimizing for the value of conversions (in this case, handbag sales).
Hope this clarifies the difference between Target cost-per-acquisition(CPA) vs Target return on ad spend(ROAS). Let me know in the comment if you have any questions, suggestions, or clarifications on this post. Looking forward to your comments! :)
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