Google Ads Audiences Guide: Observation vs Targeting Settings

There is a radio button buried in the Ad Group settings that has destroyed more campaigns than bad creative or low budgets combined.

It is the choice between Targeting (formerly "Target & Bid") and Observation (formerly "Bid Only").

If you select "Targeting" by mistake, you tell Google: "Only show my ads to people who search for my keywords AND are in this audience." If you select "Observation," you tell Google: "Show my ads to everyone who searches for my keywords, but report on how these audiences perform so I can bid differently on them."

For 95% of Search campaigns, "Targeting" is a death sentence for volume. Yet, we see it selected in audit after audit.

In this guide, we will implement the Audience Layering Onion strategy, showing you how to supercharge your broad match keywords with audience data without restricting your reach.

The Financial Impact of Audience Data

Why bother with audiences if you are running Search Ads? Because not all clicks are equal.

A user searching for "CRM software" is worth $X. A user searching for "CRM software" WHO ALSO visited your pricing page yesterday is worth $5X.

If you don't use audiences, you bid the same amount for both. You overpay for the cold prospect and underbid for the hot one.

The Bid Adjustment Formula:

$$ \text{Bid Adj \%} = \left( \frac{\text{Average Account CPA}}{\text{Audience CPA}} - 1 \right) \times 100 $$

If your Average CPA is $100, but your "Cart Abandoners" audience has a CPA of $50: $$ \text{Adj} = (100 / 50) - 1 = 1 (or +100\%) $$

You should be bidding +100% on that audience. But you can't do that if you haven't added it as an Observation.

Theory: The Logic of Restrictions

Understanding the Boolean logic is critical.

Targeting (AND Logic)

• Condition: Keywords + Audience.
• Result: Ad shows ONLY if both are true.
• Use Case: Retargeting Only campaigns (RLSA), or niche "Sniper" campaigns (e.g., selling "Denture Cream" only to existing "Seniors" demographic).

Observation (OR Logic for Impressions, Reporting Overlay)

• Condition: Keywords.
• Result: Ad shows if keyword matches. Audience data is simply recorded next to the impression.
• Use Case: Every standard Search Campaign. You want to see if "IT Decision Makers" convert better than "General Population," but you don't want to exclude the general population yet.

(Reference: https://support.google.com/google-ads/answer/7365594)

Framework: The Audience Layering Onion

You should never launch a search campaign without audiences. We use the Audience Layering Onion to ensure we capture all valuable data signals.

Layer 1: The Core (Remarketing)

• All Visitors (540 Days)
• Cart Abandoners
• Pricing Page Visitors
• Past Purchasers
• YouTube Viewers

Layer 2: The Adjacent (In-Market & Life Events)

• In-Market for [Your Category]
• In-Market for [Competitor Category]
• Business Creation (Life Event)
• Moving (Life Event)

Layer 3: The Broad (Affinity & Demographics)

• Technophiles
• Luxury Shoppers
• Detailed Demographics: Homeowners, Education Level, Parental Status.

Action: Add ALL of these to your Search Campaigns as Observation. It costs nothing. It provides free data.

Execution: The "Broad Match + Audience" Safety Net

Broad match keywords are dangerous because they match to irrelevant queries. But Broad Match combined with Smart Bidding and Audience signals is powerful (Google Guide: https://support.google.com/google-ads/answer/2497703).

When you add audiences as Observation, Smart Bidding (tCPA, tROAS) uses that data to predict conversion probability.

Step-by-Step Implementation:

1. Navigate to Audiences: Click Campaigns → Audiences, keywords, and content → Audiences.
2. Add Audience Segments: Click "Edit Audience Segments."
3. Select Level: Choose "Campaign" (easier management than Ad Group).
4. The Critical Step: Verify "Observation" is checked. Do not check "Targeting."
5. Browse & Search:
   • Search: Type your product name. Add relevant In-Market segments.
   • Browse: Go to "Your Data" and add all remarketing lists.
   • Browse: Go to "Detailed Demographics" → Employment. Add "Company Size" and "Industry" (if B2B).
6. Save.

Now, wait 30 days. You will see a table showing exactly how "In-Market for Enterprise Software" performs vs "All Visitors."

Advanced Strategy: Combined Audiences (The "AND" Operator)

What if you want to reach people who are "In-Market for SUVs" AND "Parents"? Google's standard picker uses OR logic (In-Market OR Parents).

To get granular, you need Combined Audiences.

1. Go to Tools → Audience Manager → Combined Segments.
2. Click New Combined Segment.
3. Group 1: "In-Market for SUVs"
4. AND (Click "Narrow your segment")
5. Group 2: "Parental Status: Parents"
6. Name it: "Parents Shopping for SUVs".

The Sniper Strategy: Now, create a separate campaign. Use high-volume broad match keywords like best cars. Set your Audience setting to Targeting. Add your "Parents Shopping for SUVs" combined segment.

Now you are bidding on broad keywords (cheap loops), but ONLY showing to this specific hyper-qualified persona. This is how you scale safely.

Case Study: Financial Services Unlock Broad Match

Client: Private Wealth Management Firm Challenge: CPCs for "financial advisor" were $80+. They couldn't afford volume.

The Fix:

1. We created a Combined Audience:
   • "High Net Worth" (Detailed Demographics: Top 10% Household Income)
   • AND
   • "In-Market for Investment Services"
2. We launched a campaign with generic, cheaper broad match keywords: money management, investing help.
3. Setting: Targeting (Not Observation).

Result:

• They showed up for generic terms (CPCs around $12) but ONLY to rich people looking to invest.
• CPA: Dropped by 65%.
• Lead Quality: 100% qualified (verified by asset minimums).

Pitfalls to Avoid

1. The "Zero Traffic" Panic

If you launch a campaign and get 0 impressions, check your Audience settings. 95% of the time, you accidentally ticked "Targeting" on a small remarketing list (e.g., "Checkout 1 Day" which has 5 people in it).

2. Over-Segmentation

Do not create a separate campaign for every audience. Smart Bidding works best with consolidated data. Use Observation in your main campaign rather than splitting "Remarketing" into its own tiny campaign, unless you have a simplified budget reason.

3. Ignoring "Unknown"

When looking at demographics (Age/Gender), you will see an "Unknown" category. This is usually 20-30% of traffic (users with privacy settings on). Do not exclude Unknown. If you exclude "Unknown," you cut off a massive chunk of valuable inventory. Only exclude specific ages (e.g., 18-24) if they strictly cannot buy your product (e.g., alcohol, B2B enterprise).

Summary

Data is the fuel for the Google Ads algorithm. By defaulting to Targeting, you cut the fuel line. By using Observation, you inject high-octane additives.

Your Checklist:

1. Audit all Search Campaigns: Ensure Observation is selected, not Targeting.
2. Implement the Audience Layering Onion: Add Remarketing, In-Market, and Demographics to every campaign.
3. Wait 30 days and analyze the Bid Adjustment Formula opportunities.
4. Test Combined Audiences with "Targeting" setting for a high-risk expansion test.

Stop treating all searchers as anonymous text strings. They are people with histories, jobs, and intent. Use that data.