Is Your Google Ads Campaign Generating A Healthy ROAS, But Your Actual Profit Is Tiny? 

Key Takeaways

• A healthy ROAS can still hide a loss. ROAS tells you revenue per ad dollar, not profit. If the products selling carry thin margins, you can hit your target and still lose money.
• Your blended ROAS is probably inflated. When shipping is counted in conversion value and brand campaigns are rolled in with everything else, the account looks healthier than it is. Pull both out to see what paid search is really earning.
• Group campaigns by profit margin. Splitting products into high, mid and low-margin campaigns shows you where the profit comes from, so you can put budget behind what grows the business rather than what just grows revenue.

The Google Ads platform has come a long way over the years. While the latest redesign is being hotly debated, one thing can be sure, it will continue to generate strong outcomes for advertisers looking to capture users with a high propensity to convert.

Smart bidding strategies, and more recently, Performance Max, have enabled advertisers to drive campaign performance towards specific objectives like Max Conversion Value or a Target ROAS goal greatly improving overall campaign performance. Ensuring the campaign foundations have been set up correctly, and the campaign has seen enough data (conversions) to allow it to optimise are both paramount in realising the performance improvement Performance Max can offer. 

As competition for clicks (and conversions) continues to increase across all verticals, costs also increase, and in a soft market, your profitability may take a hit. As we move into November, now the biggest month for online sales/ ecommerce globally with Black Friday/ Cyber Monday, ensuring your ad spend is driving healthy returns will be critical to sustained business success. Return on Ad Spend (ROAS) alone, is not the path forward. 

Firstly, ROAS in Google Ads (and other buying platforms) includes your shipping costs! If shipping is a decent percentage of the overall purchase value, your ROAS numbers are inflated and you are making investment decisions based on flawed data. 

Secondly, looking at the overall campaign ROAS can be deceptive, as it could be pulling in a brand campaign (known audiences searching your brand name) which will also inflate numbers. ROAS should be viewed at the individual campaign level to assess performance. Taking this one step further: rather than simply looking at the return from each campaign, look at the profit margins those products provide your business. 

This is sometimes a little manual – and there are ways to automate and speed up the process – but in essence, you simply want to identify if the products people are buying through your ad campaigns are profitable (and ideally, highly profitable). If you’re not, you need to make some changes quickly. Categorising products based on profit margins is the recommended approach and one we have had great success with, so you can allocate investment (resource/ time) to optimise towards areas that will have the most impact on your business. 

By setting up product category campaigns, you’ll get true insight into how each category/ product performs and be able to allocate investment as needed across the high/ mid/ low profit campaigns. Once each campaign has had enough time to learn (usually 50, but ideally 100 conversions) you can make more informed investment decisions and better allocate resources to continue to improve the profitability of your Google Ads investment. 

Frequently Asked Questions

What's a "good" ROAS for Google Ads?

There isn’t one number that suits everyone. A good ROAS is one that beats your break-even point after cost of goods, shipping and fulfilment. To find break-even, divide 1 by your gross margin. At a 25% margin you need a 4:1 ROAS just to cover costs, so a 3:1 ROAS that looks fine on paper loses money on every sale.

Why should shipping and brand campaigns be separated out?

Counting shipping in conversion value adds revenue you never keep, which pushes ROAS up. Brand campaigns bring in people already searching for your business, so their returns are naturally high and lift the account average. Separating both gives you an honest view of how your prospecting and non-brand campaigns are doing, and that’s where most wasted spend sits.

When should I restructure campaigns by product margin?

Plan on each campaign reaching about 50–100 conversions before you judge it or change bid strategies. That’s roughly what Google’s algorithm needs to optimise properly. If splitting by margin would leave a campaign well short of that, start with broader margin groups and break them down further as volume grows.