PPC | PAID SEARCH PPC | Audience Strategy: Targeting Vs. Observation (With Examples)

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Aug 4
3 min read

Article by Brooke Osmundson

Understanding how "Targeting" and "Observation" work in Google and Microsoft Ads is essential if you want your campaigns to perform at scale.

If you’ve layered audiences into your Google Ads campaign and weren’t sure if you should select “targeting” or “observation,” you’re not alone.

While the Google and Microsoft platforms give decent explanations of the two modes, picking the wrong option can quietly sabotage performance.

This setting controls how your audience selections influence who sees your ads and how campaign data gets segmented. It’s a critical lever in your targeting strategy, not just a checkbox to breeze past.

This article will walk you through what each mode actually does, when to use one over the other, and how to avoid costly mistakes that many advertisers don’t catch until it’s too late.

Table of Contents

Targeting Vs. Observation: What’s The Difference?
When To Use Each Setting
Where To Find This Setting
Performance Examples
The ‘Optimized Targeting’ Mistake You Don’t Want To Make
Audience Targeting Isn’t Just A Checkbox

Targeting Vs. Observation: What’s The Difference?

At its core, this setting determines how Google and Microsoft Ads use the audience data you apply to a campaign or ad group.

The “targeting” setting narrows your audience reach. Only people in the audience you’ve selected are eligible to see your ads.

The “observation” setting keeps your audience reach broad. Your ads are eligible to show to everyone, but the platforms track how the audience you’ve selected performs within that broader reach.

In a simpler approach: Targeting restricts your audience; observation observes it.

This setting is available for all Search, Display, and YouTube campaigns when utilizing audiences.

Demand Gen campaigns also utilize audiences, and while they don’t have “targeting” and “observation” modes, it allows you to choose your audience target, and turn on “Optimized targeting” as an option. That essentially expands your reach outside of your chosen audience.

When To Use Each Setting

The targeting and observation settings are vastly different. Each one can provide benefits to your PPC campaigns if you use them the right way.

When To Use The Targeting Setting

When you want to restrict your targeting to only the audience of your choice.

Examples Of Targeting-Only Strategies

Remarketing Campaigns: Only show ads to users who’ve already visited your site.

Customer Match Lists: Reach high-value customers or email subscribers with tailored messaging.

Search + Broad Keywords: This is common in B2B niche companies where they struggle to find volume. By utilizing a broad match + targeted audience strategy, you can end up with more qualified visitors.

YouTube or Display: Combine audience signals with creatives that speak directly to a group’s intent or behavior.

In these cases, limiting the audience is the goal. You’re willing to sacrifice scale to improve relevance and performance.

When To Use The Observation Setting

Observation is more passive, but still powerful. When you want to monitor the performance of a certain audience, without narrowing campaign reach.

Examples Of Observation-Only Strategies

Search campaigns using intent-based keywords: See how in-market audiences or affinity groups perform without shrinking your eligible reach.

Testing new audience segments: Add them in Observation mode to gather data before committing budget.

Using Smart Bidding: Observation mode allows Google to factor audience signals into its automated bidding models without you needing to manually adjust bids.

Once you see how certain audiences perform, you can layer in bid adjustments or even break them into dedicated campaigns or ad groups later.

As a general rule of thumb, I typically do not recommend Observation on any Display or YouTube campaign. This is because those campaigns are more awareness-focused, and targeting a proper audience is key.

There are many other use cases for using one setting or another, but this gives a good starting point if you’re just getting started.