Growing Ecommerce – The Retail Growth Podcast

Google's Smart Bidding Change: Why Your ROAS Is About to Drop

• Smarter Ecommerce • Season 4 • Episode 44

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0:00 | 26:13

Starting August 17th, Google is quietly rewriting how Smart Bidding treats campaigns that are limited by budget — and if your account is currently over-delivering on Roas, this affects you directly.

In this episode, Mike Ryan and Chris break down Google's upcoming change to budget-limited campaigns, why "over-delivering" Roas is being treated as money left on the table, and the carrot-and-stick logic behind Google's new Bid Target Adjustment tool.

Whether you're comfortable with your current Roas buffer or actively trying to scale, this episode explains exactly what will shift under the hood — and what to do before the change hits.

What you'll learn:

  1. What changes on August 17th for budget-limited campaigns
  2. Why campaigns over-delivering Roas are Google's real target
  3. The two mechanical levers Google can pull to force Roas down (worse clicks vs. higher CPCs)
  4. Why smart bidding is structurally conservative — and why ~25% of campaigns always over-deliver
  5. The new Bid Target Adjustment tool and what it's really nudging you toward
  6. How this connects to Google's broader push (Demand Gen budget pacing, flight-based budgeting, Smart Bidding Exploration)
  7. The workaround: smarter product segmentation and campaign structure

About Smarter Ecommerce (smec):

Smarter Ecommerce (smec) empowers e-commerce brands with AI-driven PPC automation that optimizes for profit and business outcomes while maintaining strategic control.

The platform activates first-party data - profit margins, customer lifetime value, and key business metrics - to automate campaign optimization toward goals like profitability and efficient growth, while detailed campaign insights provide full transparency and enable PPC teams to focus on strategic oversight rather than manual execution.

As a Google Premier Partner and three-time Microsoft Retail Partner of the Year, smec manages over €500 million in ad spend and drives €5B+ in annual e-commerce revenue for 350+ global retail clients including THG, Snipes, REWE, and Intersport.

Make sure to follow smec - Smarter Ecommerce for more performance marketing insights:

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Welcome And A World Cup Aside

SPEAKER_00

Welcome to another episode of Growing E-Commerce. I'm one of your hosts, Mike Ryan, and with me as always. Chris, good to be back by the most as always. You weren't with us last year.

SPEAKER_01

But you did a fantastic job.

SPEAKER_00

Thanks, mate. Even without me. Somehow. What a surprise. So today we have um a very exciting episode for you. So first off, we're it's a time of recording, July 3rd. We're in the middle of the World Cup as well. So Chris is combining these and wearing his U.S. jersey. You see, you see it, right? Yeah. We'll make sure to cut to cut to you on the camera there. And uh what could possibly be more American than the raw capitalistic energy of Google bidding?

SPEAKER_01

Nothing. Nothing. So and coincidentally, we're talking about a topic which will probably bring even more cash into the bank of Google. Yes. Yes, indeed.

SPEAKER_00

I think let's start, right? Let's start, yes.

Google Announces Smart Bidding Changes

SPEAKER_00

So a couple weeks back, Google um wrote a uh a blog post talking about some changes coming to smart bidding. Um and they talked about a new feature called Smart Bidding Exploration, which we could probably maybe we'll talk touch on that this episode as well. Um, and uh and a couple other things. But what sounded like a very dry administrative topic was this thing changes to smart bidding beginning August 17th. Some changes can can't be can't be a lot. I I'm sure it was the least read part of that article. And they were great at hiding it, huh? Yeah. Just just just be very defensive about it. Well, in there, I mean, they do have a tool coming out, so they will be a bit more proactive here. But that tool I think is gonna have a very specific purpose. Um and yeah, I haven't seen a lot of I don't know, deep discussion yet about these changes or what they mean.

SPEAKER_01

No, not nothing, nothing on the client side either. Um but but I I think, I think, uh without being too bullish on this on this feature or bearish, I think it's a question of perspective. Yes. Um there there will be discussions uh going on very, very soon. Yeah. Mate, can you, before we jump in into what it actually means and what positives but also negatives can be talked about, can you explain it shortly how what it what it is? Sure.

SPEAKER_00

Let's let's break it down quick. So um Google is, by the way, framing this very much around campaigns that are limited by budget. Um, and as we go on, I think I think that it's much broader broader than that. My understanding is that this is a systemic change that's going to affect a lot more campaigns than that. But their initial framing here is about limited by budget campaigns. Chris, does Google like when a campaign is limited by budget? In your experience. I have to think about that.

SPEAKER_01

No, of course not. Yeah. Of course not. I mean, we're talking about uh a company which is rather on the capitalistic approach to do business, I would say, right? Sure, sure. So limited by budget is by design not good.

SPEAKER_00

Yeah. And what what's gonna happen here is they're saying that it is often the case that campaigns that are limited by budget, they'll have, let's say they'll have a target ROWS of five. Yes, but the campaign is actually delivering a ROS of ten. Yeah. And um they have the feeling, and I think there's some truth to this, that you know, some people are just comfortable in that situation and they're maybe even using cost as a control and they're happy with that buffer. And if they would try to scale that campaign, they know their rows is gonna go down, they know there's gonna be volatility and there's an uncertain upside potential. Are they leaving revenue on the table? Yeah. But there's there's they're very comfortable in this position. Also, I think if we take Google's perspective, because we are in our bubble within our clients and how they tend to spend and stuff like that. But I'm willing to bet when Google looks at the entire landscape, there's probably so many campaigns, particularly in the SMB segment, that are in this exact situation.

SPEAKER_01

I think you you did uh an analysis, right? Uh over I think all of our MCC, uh, where you basically analyzed how many of the campaigns are over or under-delivering. Yes. In terms of RUAS. Yes. And there is quite a substantial part of the existing campaigns we have we can have a look at, and we're talking about thousands of campaigns, yes, which are over-delivering. Uh so basically delivering at RUAS above the actual RUAS target. Definitely. But that that's true, but I just want to table that for right now.

SPEAKER_00

All right. Okay, go ahead. We'll come back to that.

August 17 Shift Toward Target ROAS

SPEAKER_00

Yes. Because because I think first uh just want to mention here like what Google says is going to happen starting August 17th is that those campaigns that are limited by budget and are over-delivering efficiency, um, that behavior is going to change and they'll start to trend toward the target ROAS. So remember, you have a target ROS of five, you're actually getting 10. Um, beginning August 17th, that campaign's gonna look more like a ROAS of five. And so yeah.

SPEAKER_01

On paper, I would say Google is just doing their job, right? Uh ROAS adherence. I mean, that could could be even a positive thing.

SPEAKER_00

Yeah, I mean, yeah. Google has no obligation to give you a ROAS of ten if you're asking for a race. Oh you shit.

SPEAKER_01

If I want my ROAS at five, which is the ROA ROAS target I put on my campaign and I get a 10, uh, they're over delivering, yeah, as a matter of fact. Yeah, but Mike, there's a huge butt. Yes. What? I mean, we're talking about campaigns which are limited by budget.

SPEAKER_02

Yeah.

SPEAKER_01

So let's say I'm a retailer now, I have uh one of my most successful campaigns. I have my ROAS target at 5, it's delivering a constant 8 to 10. I got accustomed to it, I love it, it's running. Yeah, but the campaign is limited by budget.

SPEAKER_02

Yeah.

SPEAKER_01

What you're telling now to me and the audience is that Google will revert back to what I actually set with regards to my ROAS target. Yeah, so from 10, it will go down to 5. And the budget still remains limited. Yes, that's a fixed in it. It's fixed, right? I I want my limited budget.

SPEAKER_00

Yeah, this means, for example, maybe it's at 90% of the of the available budget. So this becomes a fixed constant.

SPEAKER_01

Yes, yeah. And hold on now, because this is this is this is now we are we're we're jumping right into yeah. What does that mean? What does

How ROAS Drops With Fixed Budget

SPEAKER_01

that mean? Because it means how can Google uh force my rowers down to five from ten without increasing the volume? Yeah, there are just two ways to achieve that. I do I I I I explain uh way one, which is basically focus on clicks with less expected value. Yes, or lower conversion rate, or lower conversion rate. Yeah. Holy shit. So they are deliberately looking for the less efficient conversion.

SPEAKER_00

Yeah. Alternately, the other side of the equation, they can go into more competitive auctions with higher CPCs. Higher CPCs. Yes.

SPEAKER_01

Which I think is the preferred one for no, no, no, no, no. You can't even say because the budget isn't. Because your budget is fixed, and then you'll get less you'll get less than. What they actually want is they want to, I mean, let's face it, they want to force from let's say they come from a positive place, but they want to motivate people. They want to exactly. They want yeah, but that's correct. They want to motivate people to increase or open the budget limits. Yeah. But that that that's fine for me. But going back to to these two ways, how they can achieve basically this this this forcing function to lower the ROAS. Honestly, this is crazy, mate. I I know they don't owe me shit if I put the ROAS target of five, but still, it's crazy. They are deliberately looking for less efficient confer conversions.

SPEAKER_00

I yeah, I mean, it does come down to this idea of they don't

The Carrot Stick Scaling Promise

SPEAKER_00

owe you. Because so to break down what they are offering you here, first off, I think this this is a carrot and stick approach. If in case you don't know that expression, if you want a horse to do something, you can either offer it a nice crunchy carrot or you can hit it with a stick.

SPEAKER_01

And by the way, Chris is a huge Yes, um uh yes, animal rights forever.

SPEAKER_00

So it's it should be the carrot.

SPEAKER_01

Is this a carrot here when we're talking about this?

SPEAKER_00

Well, the carrot. So so what Google says will happen because they know that people are in this comfortable situation of a limited budget and over-delivering ROAS, and they're uncertain about the upside. So their offer to you is that they'll deliver smoother scaling if you do open your budget. And so that way you can, I mean, I I've seen slides where they explain this and they show someone 5xing from 200 to 1,000, and the ROAS remains come perfectly constant at 10. And so I think these kind of explanations are very unhelpful because that to me is not really not credible. There's this little thing called the law of diminishing risk returns, but notwithstanding that, they're offering you smoother scaling. So that's the carrot. The stick is that your performance will not be as good. So, and there, you know, there is a way out because if you're asking for five, they don't owe you 10. So they're saying if you want the 10, put the 10 in it, then start asking for 10. Um, and fair enough. Yeah. Fair enough. Because because otherwise, there's someone out there who's trying to scale, um, who's to be honest, in that sense, a more attractive customer for Google. And they would they need what you have.

SPEAKER_01

What you have, yeah. Uh and what I maybe didn't even want in the first place. Yeah. Potentially. Potentially, potentially. Look, I mean, I I get so from the perspective of Google, um it's it's it's it's a a bold, smart move. Yeah. Because it it will, I I guess so, it will probably motivate people to really open the budget.

SPEAKER_02

Yes.

SPEAKER_01

Because let's face it, if they they it push my ROAS down from 10 to 5 and I got accustomed to eight. You know, I probably need the eight for my overall uh ROAS on account level. I mean, I I got accustomed to it. Then I probably will do something about it.

SPEAKER_02

Yeah. Yes.

SPEAKER_01

Either I increase the ROAS, like you said, yes, or I I accept the lower ROAS, but then I try the scaling thing, which is the big promise behind this feature. So I think it's a smartest move on on Google's side.

SPEAKER_00

It's it's very shrewd and not shrewd. Well, it's shrewd. And advertisers might not like it, but um, from a business standpoint, and makes a lot of and sorry, sorry, my god. Well, I was gonna say say we can look now at the bigger picture with other campaigns, but what what did you want to say?

SPEAKER_01

Yeah, because that's what I wanted to do, because you you you referred to how much slack Google has here. Yeah. Um that's why I think that this diminishing curve of return, they have a lot of bending room here.

SPEAKER_00

Yeah. I I agree. I mean, so and it might sound like so so hold on to back up because there let's get into this topic of smoother scaling. Yes. How the F should this possibly work? Um again, I think they've given some very some of their marketing materials are not realistic and not helpful here. But I do believe it's possible for them to offer smoother scaling. Um the question is like, how do they there's the law of diminishing returns, right? That's a that's that's a universal law, actually. Yeah. But what's not like it's universal that returns will diminish. Or in in in marketing, we talk about the saturation. So yeah, you know, there will be a saturation point. But the way there is uncertain and flexible. You know, you can bend that curve, you can shape it. Of course. And this there's things you as an advertiser can do. If you improve your on-site conversion rate, you're gonna change that curve. But there's also things that Google can do at a system level.

Why Smart Bidding Stays Conservative

SPEAKER_00

And so as you mentioned earlier, Chris, um, what we've observed time and again, every time, every way we slice this data is that um smart bidding is fundamentally conservative. I'll put a slide on screen for people who are watching. Um, I think it's a great way of demonstrating this. But basically, we find that in campaigns that don't have a lot of monthly conversions, there's a huge amount of volatility uh between whether you're going to be on target or above or below target. And most of the time you might be below target. But as you start to pack on monthly conversions and the algorithm has more data, um the amount the percentage of campaigns that are underperforming the row's target diminishes and eventually goes, you know, close towards zero. And the amount of campaigns that are on target increases. But what's truly fascinating is that what never changes is the percentage of campaigns that over-deliver or overperform the row's target. It's about one in four.

SPEAKER_01

Yes, roughly 20 to 25 percent. Yeah. So this is significant. Yes, and I think that's what we're talking about. That's what we were talking about. And this is the slack Google is looking at and probably says, hold on. Yeah, this is this is money left on the table. That's what it is. And that's why the bending, the wiggle room they have in this diminishing uh uh uh uh return curve, I think it's it's serious.

SPEAKER_00

Yes, that's why this feature might work. It it it really might. I mean, Google says it will, and by the way, they actually they didn't, I don't think they ever announced this, but it was already rolled out for display campaigns. I think they used that as a guinea pick because they're killing display campaigns anyway. But um, but uh yeah, so you know, and and the reason although they're focused with their messaging on limited by budget, I think that's probably the largest population of campaigns that this that this affects, and it's from a sales perspective that they want to uncap those budgets. Um but when you think about it logically, they talk about smooth scaling. And so the technology that they're describing, it doesn't stop working as soon as your campaign's not limited by budget. They're saying that you can keep spending more, spending more, and you can manage the the curve of diminishing returns. You're going to get this smoother scaling, and that means um that it's just gonna have better overall ROAS or target ROWs fidelity or target CPA if you set. Uh so yeah, again, I I or we contend that this will probably result in, you know, we see that one in four campaigns over deliver. That percentage is probably gonna trick. Yes. And the percentage of campaigns that are on target is going to grow. Um but what this means from a bidding standpoint, like in principle, these campaigns, these limited by budget campaigns, they're gonna start facing higher CPCs or lower order values or whatever. But to a certain extent, we'll see similar effects across the ecosystem. What it ultimately motivates you to do is to spend as much as possible.

SPEAKER_01

To capital look, I mean, um, I don't want to to say that we were right again, but no, look, this this is something we have been talking with our clients for years. That that Google is is just uh aiming at this average ROAS idea, right? Do you have this overdeliver delivers uh deliveries, uh you have this under deliveries, even if if you look at one campaign, products are over and undershooting all the time. And uh our our claim was always look, if you have a campaign which is over delivering in terms of ROAS, that that that that's not necessarily a good thing because you leave market on the table. Exactly. Uh so I think it's it's it's from that perspective, I think Google is is doing the right thing. They they motivate you to think about that. Do you want to capitalize on this market? Yeah, if you want to, you have to put money on the table. Well, that that's the game. From that perspective, honestly, Mike, um, I think it's rude, it's bold, it's crazy if you think about it what they will do. Yeah, but but it makes it make sense. It's bitter medicine, you know. It's bitter medicine, it's bitter medicine. But it might help. The one the one thing I'm not not certain about, and I I know our our beloved clients, um, sometimes there is just not budget available to scale, even if it's a smooth scaling. If I need more budget and I don't have it, it it it I think it might hurt not just our clients, a lot of players who are truly limited by budget, but still got accustomed to to this over over over-delivering rowers. Well, this might be a real real uh problem.

When Platform ROAS Breaks Profit Math

SPEAKER_00

Yeah, I've I've already been in my first client calls about this topic because it's you know, it's not waiting. This August 17th is not far. And one in one example, this again, we always talked about how Google doesn't know what they don't know. And I think that this is not an uncommon scenario. We've talked about this before, that plenty of marketers don't really care that much about the platform data. They're looking at, you know, their own back end or their own attribution model or marketing mix modeling, whatever. There's a sense where that's good. People are moving toward more advanced measurement. But in the case of this client, um, you know, they're using Adobe or a different system. I don't, you know, it doesn't matter, but they're using a different system. That's our real source of truth. And in Google, like the the that over-delivering ROAS that they're currently achieving actually in their back end corresponds to breakeven. And so what's gonna happen? Google will start trending that that uh like they've learned that they that they can ask for this ROAS target at this budget, and they'll get this actual ROS because that's the way it is, which will correspond to their back end rows. Uh that's another thing. It's tangled, it's complicated, but it's working for them and it's about to break. Absolutely.

SPEAKER_01

The the the the understanding of my ROAS targets in terms of what do I have to set in order to achieve a ROAS, which in the back end is meeting my profitability goals. That that might be broken. This this system might be broken. Because um and uh but the the what is the workaround, man? The workaround is that you have to be just way smarter with your with your with your product segmentations and campaign structures. Yeah. Because the campaigns will probably hit the raw as target you want you you're setting there.

SPEAKER_02

Yeah.

SPEAKER_01

I think so. I think we we think so. But this this these are two massive issues, mate, uh, for for for the online retailer. Yeah.

SPEAKER_00

I mean, and to to I I don't want to scare people with this overly. Google says the language they use, it they're not presenting this as a cliff. Like, yes, there's a date where the system will be activated, and then they say that your campaigns will trend toward this result. But over time, you know what that means. You yeah, you cannot guarantee or depend on this result that you've been getting. Um they're also, I mean, by the time this episode airs, uh, because on July 6th, they'll be offering a tool that they call the Bid Target Adjustment Tool. Well, yeah. I mean, I guess there's no AI in it. Yeah, it's not going to work. There's no MacLax. There's no Macs and there's no AI. Can we please call it the AI Bid Target Max Adjustment Max tool? Sorry, Google. Yeah. But I I mean, I guess that tool is gonna once again paint a certain picture that you should probably increase your budget. Yes.

SPEAKER_01

No, no, so a sure thing. So like I I would say from like a microeconomics perspective, this this makes sense. Curve of diminishing returns, you have market, spend it, they offer a tool. We both know that's not always the reality. A lot of clients don't have the budget. Yes. A. And B, they need this precise draw as what they actually get to meet the goals. Yeah. And they got accustomed to it. Totally.

SPEAKER_00

But I mean it and it's very broadly aligned with other activities that Google is taking.

Automation Trend And Segmentation Advice

SPEAKER_00

You can really read the theme here. You know, they've been talking about demand-led growth for a while. We've talked and they're productizing this. They announced the GML that there'll be um a new tool or feature called demand-led budget pacing. Um, they have this whole smart bidding exploration arm, which that was tested for search for a while, but now it's coming to more campaign types and they're building new features on it, like uh this cool one, I think, called promo. Coming this holiday season, I guess. Um, but the these are all going even they announced like the more what is it called? The but they call it the flight-based budgeting that is this is also in the direction of budget automation. So everything is pointed in one direction here. And in the past, we talked about p-maxification, automated bids, automated targeting, automated placements, automated creatives. The things that were left were your goal that you set and your your budget. And that pillar is increasingly coming into the platform.

SPEAKER_01

Yes. Um and I don't know if it's a coincidence, but I I think the fact that they were behind Meta uh the first time in basically in history with regards to ads budget. Um I think Google has to do something about it. Yeah. Uh I'm I'm just saying, look, again, it's in my world, I'm I'm a I'm a I'm a I'm a top opportunity seeker. I think if you have campaigns which overdeliver you have market there and think about how to activate it. That has always been my claim. Yes. Reality is it it won't it won't be a fit for all uh retailers, DTC brands, whatsoever. And this might cause friction.

SPEAKER_00

For sure. It it's it's easy to say, you know, spend more and just why don't you just take the market share? Yeah.

SPEAKER_01

Um but I think the more important it will be to really think about your your product segmentation strategy, about the how you want to structure it in in the campaign landscape. Yeah. Again, because these overshootings will pro the rules will matter even more. The rules you set will matter even more in the in the future.

SPEAKER_00

Because there is if if scaling is getting easier, that's in Google's platform. But ultimately, like how much can your business actually scale profitably? Where's the point on your break even?

SPEAKER_01

So uh And what is the global optimum across all these campaigns you want it to achieve on account level? Yeah, a couple of questions, but a hell of a is it a feature? Well, no one is a problem.

SPEAKER_00

I mean the feature is smart bidding, and this is an update to that feature, yeah.

SPEAKER_01

That's a hell of a thing, man. Yes. You know what? What is also a hell of a thing?

Soccer Predictions And Sign Off

SPEAKER_01

The US boys. I'm not kidding, man. 4th of July. I mean, uh you know I'm a big fan of the US, but the the the soccer team, sorry, I I call it the football team. They are playing amazing. They're amazing, playing amazing football. And I predict, and I might be completely wrong, but I predict they will beat Belgium. Well, you're we know when when this thing is aired, right?

SPEAKER_00

We'll know by then, right? Yeah, well, you're gonna have to school me on this because Chris, like uh the true American that I am, I I don't really care about soccer. By the way, why is it why is it called football?

SPEAKER_01

You play it with 90% of the time. Why is American football? It's not football, it's handball. It's a great.

SPEAKER_00

Yeah, there's like a couple of you know, there's very limited scenarios where the foot touches the ball. Very, very limited.

SPEAKER_01

Anyhow, US boys, great team, and Austria. Yeah, we we fought our butts off, but Spain was just too good.

SPEAKER_00

I knew I knew this moment would come in the episode, Chris, and I was gonna I was gonna take on my my watch and put 15 seconds on the clock and say, give me your pitch. But no, good. I don't want to be too mean. Life goes on.

SPEAKER_02

Yeah.

SPEAKER_00

Um so does the podcast, but not for today. Exactly. I think this is it, right? Yeah, we're there. We're there. So thank you, Chris. Uh enjoy the weekend. And uh likewise, likewise. I I try. And uh thanks to everyone for tuning in to another episode of Growing E-Commerce. Uh brought to you as always by Smarter Ecommerce. You can learn more at smarter e commerce.com. And as always, if you leave us comments on YouTube or Spotify, give us a shout on social media, leave us a review or rating. Every little bit helps. We really appreciate it. Thanks. We'll see you next time.

SPEAKER_01

Bye bye.