This document provides an overview of setting smart targets for paid search campaigns to maximize profitability. It discusses moving from fixed budget mindsets to focusing on return on ad spend (ROAS) or cost per acquisition (CPA) targets based on relevant business inputs. These inputs include profit margin, percentage of margin willing to invest in acquisition, and lead-to-sale conversion rates. The document also provides guidance on calculating smart targets, health checking targets and CPCs, integrating advertising data with CRM systems, and using smart bidding to explore efficiency and volume tradeoffs. The goal is to set targets grounded in an understanding of actual business metrics and profitability.

1. @wijnandmeijer
Introducing Smart Targets
To make sure Smart Bidding is Profitable

2. @wijnandmeijer
Today’s Topics
• Goal-setting maturity stages
• ROI vs ROAS
• Business inputs for Smart Targets
• How to calculate Smart Targets
• How to health check your targets and CPC’s
• Next steps

3. @wijnandmeijer
Goal-setting maturity stages (mindsets): 1.0
1.0 Fixed budget
2.0 Fixed efficiency
target (CPA/ROAS)
3.0 Maximize profit
Still working with a fixed budget? Please (let your client
or manager) read OverthrowTheTyranny Of Paid
Search Budgets
• “The decision to treat the ad spend as a cost of
revenue instead of part of the media budget is simply
an accounting choice.”
• Do you have a fixed budget for credit card fees? No?
Then don’t have a fixed budget for efficient paid
search.
Exceptions: branding campaigns and experiments
“The more divorced the goals are from profits the more
budgets make sense.”

4. @wijnandmeijer
Goal-setting maturity stages (mindsets): 2.0
1.0 Fixed budget
2.0 Fixed efficiency
target (CPA/ROAS)
3.0 Maximize profit
This is better than a fixed budget, so please don’t
combine it with a fixed budget target. Anyone who
does should read some more George Michie.
But how do you know the CPA or ROAS you’re trying
to achieve is the one that will maximize your profits?
A ROAS of 800% may sound nice, but you don’t put
percentages in the bank (or pay invoices with low
CPA’s).
In the end it’s about the real $, € or £ that you gain
from advertising.

5. @wijnandmeijer
Goal-setting maturity stages (mindsets): 3.0
1.0 Fixed budget
2.0 Fixed efficiency
target (CPA/ROAS)
3.0 Maximize profit
This is where you want to be.This where you test
which combination of efficiency (CPA/ROAS) and
volume (leads or revenue) maximizes your profit.
This may change over time because of market
conditions such as search volume and competition
and/or because of business reasons (e.g. better
margins thanks so efficiencies of scale).
This mindset starts with making sure your (starting)
CPA or ROAS is based on the right business inputs.
This presentation aims to help you with that.

6. @wijnandmeijer
ROI ROAS
Gain from investment − cost of investment
Cost of investment
x 100%
• Or even better: use annualized ROI to make it comparable
with other investments on a yearly basis.
• So whenever ROI > 0%, your investment is profitable.
• In the context of PPC, the question is: what goes into the
“cost of investment”? Ad spend and CoGS for sure, but
maybe more? Agency fees? Software fees? These are human
choices.
• This makes ROI hard to use on a daily basis for optimization
and bidding purposes.
ROI vs ROAS, it’s not the same thing
Revenue from advertising
Cost of advertising
x 100%
• With ROAS we only look at the ad spend and how much
revenue that ad spend generated. This makes it easy to track
and use and that’s why it’s also a column in Google Ads:
Conv. value / Cost
• A ROAS of > 0% (or even > 100%) however, does not mean
it’s a profitable campaign! Usually ROAS needs to be
significantly higher for profitability, depending on the
margin.

7. @wijnandmeijer
A profitable ROAS target is based on just two inputs:
A. Profit margin as a percentage of revenue
Don't include costs that don't change (much) when selling additional products.
B. Percentage of that margin you're willing to invest in acquisition
Between 50% and 70% is usually the profit-maximizing range. 100% means breaking even.
Based on these inputs, your ROAS target will be
𝟏
𝐀 × 𝐁
so with a margin of 40% and an acquisition
percentage of 60%, your ROAS target will be
1
40% × 60%
=
1
24%
= 4.17 or 417%
Business inputs for Smart Targets - ROAS

8. @wijnandmeijer
A profitable CPA target is based on three inputs:
A. Profit per customer in $, € or £ based on lifetime value
Especially if you're a B2B advertiser or if you sell subscriptions or financial products, you want to use the
total profit you make on a customer during their lifetime.
B. Percentage of that profit you're willing to invest in acquisition
Between 50% and 70% is usually the profit-maximizing range. 100% means breaking even.
C. Lead to sale conversion rate
This is the percentage of the leads from your website (the conversions you track) that become paying
customers. This can vary greatly by traffic source, so you need to import advertising data into your CRM.
Based on these inputs, your CPA target will be A × B × C
For example: £10,000 × 60% × 15% = £900
Business inputs for Smart Targets - CPA

9. @wijnandmeijer
Free and ungated Google Sheets for you to copy, adjust and share with your
clients, manager and colleagues!
go.trueclicks.com/smart-targets-dollars
go.trueclicks.com/smart-targets-eur
go.trueclicks.com/smart-targets-gbp
It contains two sheets: one for Ecommerce
(ROAS) and one for Lead-gen (CPA).
Smart Target Calculators & Health Checks

10. @wijnandmeijer
Ecommerce (ROAS)
• Your CPC should be
𝐶𝑜𝑛𝑣. 𝑣𝑎𝑙𝑢𝑒 / 𝑐𝑙𝑖𝑐𝑘
𝑇𝑎𝑟𝑔𝑒𝑡 𝑅𝑂𝐴𝑆
• If you know (or estimate) your conversion rate, average CPC and average order value, you
can calculate the corresponding ROAS. This would be the outside-in approach to health-check
the inside-out approach:
ROAS =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑟𝑑𝑒𝑟 𝑣𝑎𝑙𝑢𝑒
1
𝑐𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑟𝑎𝑡𝑒
× 𝐴𝑣𝑔. 𝐶𝑃𝐶
But you can also use the shared Google sheets that will do these calculations for you.
How to health check your targets and CPC’s

11. @wijnandmeijer
Lead-gen (CPA)
• Your CPC should be “Conversion rate × Target CPA”
• If you know (or estimate) your conversion rate and average CPC, you can calculate the
corresponding CPA. This would be the outside-in approach to health-check the inside-out
approach:
CPA =
1
𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑟𝑎𝑡𝑒
× Avg. CPC
But you can also use the shared Google sheets that will do these calculations for you.
How to health check your targets and CPC’s

12. @wijnandmeijer
• Ask your client or manager for the inputs needed for a Smart Target as shared in this
presentation and discuss these:
• Is the margin healthy?
• Do you only include costs in your margin that grow (almost) linearly with the amount of products sold or the number
of customers?
• Are you making sure you’re focusing on incremental sales?
• Should advertising be very profitable or focused on increasing market share?
• For lead-gen: is the lead-to-sale conversion rate high enough to support ambitious acquisition goals?
• Does this discussion lead to a different CPA/ROAS target than you currently have? Great!
• Repeat this exercise at least once a year, as your target shouldn’t be fixed forever. But it also shouldn’t
change every month, as it’s hard to hit a moving target.
Next steps

13. @wijnandmeijer
If you’re using Smart Bidding, be sure to explore the Smart Bidding simulators.
Provided there’s enough historical data, this will give you a feel for the different
efficiency and volume combinations.
Discuss these scenarios, by asking questions like: would you rather have 100 conversions for a CPA
of £50 or 150 conversions for a CPA of £60?
Next steps

14. @wijnandmeijer
• For lead-gen accounts, you really want to make sure you import as much advertising data as possible into your
CRM, as the ‘lead-to-sale’ conversion rate can vary enormously by keyword, location, campaign type, etc. (and
so should their target CPA!).
Salesforce is built-in, for other CRM’s this can be more work to set up, but definitely worth it.
• For ecommerce accounts, set up profit tracking as described by Andrew Lolk, to enable steering on actual
profit.
• Bonus tip: you can use Target CPA Smart Bidding for ecommerce as well. Sometimes this works better,
especially with lower conversion volumes. This means the ‘machines’ will assume each conversion is equally
valuable, which may not be perfect, but it also won’t be thrown off by transactions with extreme order values.
Target CPA based on ROAS:
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑂𝑟𝑑𝑒𝑟 𝑉𝑎𝑙𝑢𝑒
𝑇𝑎𝑟𝑔𝑒𝑡 𝑅𝑂𝐴𝑆
Next steps

15. @wijnandmeijer
SEE YOU AT THE NEXT SMX!
THANK YOU