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The brief was simple: double revenue. And be consistent. We needed to get store-wide gross revenue from $18,000-$20,000 per month to $36,000-$38,000 per month without big swings between spend and revenue.
We certainly got started well. This is an image of Cost and Conversion Value (Gross Sales) in Google Ads. You can see we increased revenue by a lot. AND, we were so consistent in the last two months that you can see a straight line at the revenue results rather than a peak.
The pesky problem is that costs went up as well. I know this is Business 101, but I don’t want the Return on Ad Spend to increase too much.
There are two metrics I care most about; Gross Profit From Advertising ( Conversion Value – Advertising Cost ) and ROAS ( Conversion Value / Advertising Cost ). There’s not much point in looking at just one without the other. If you only look at Gross Profit then you can focus on making more and more money but your costs as a percentage of your income can erode your profit margins and you essentially become a charity. If you only focus on ROAS then you can get amazing return from what you spend on your advertising, but if you don’t reach your revenue targets then your business overhead engulfs your business.
It’s better to go for a middle-of-the-road approach and give away some efficiency for higher levels of revenue.
BUT, you don’t want to just become wasteful either and spend money on campaigns just because. If some campaigns are not working well, its good to trim the fat and cut down on those, while doubling down on the campaigns that are working really great.
For this particular client, some of the Google Ads Search campaigns are a bit flat on ROAS to the point of being wasteful. I cringe when I see some campaigns returning revenue of only 2X advertising spend. Campaigns like these are essentially loss leaders because the product margins + advertising costs don’t leave enough money left over to run the business. A retailer really needs to set minimum ROAS targets, and these are normally somewhere between 4X and 8X ad spend depending on purchase volume and gross profit margin for the products being sold.
I recommend slowly reducing budget on campaigns that are not delivering, and slowly increasing budget on campaigns that are delivering well. Too rapid and you create swings, but if you don’t do it at all your costs can chip away at your results. If you really really want to sell certain products and their campaigns are the ones with the budget being reduced, then it should give you the impetus to focus on getting the results better there.
For this client, I have set up an automated campaign bid adjustment rule that reduces budget for campaigns that are not performing well, and increases budget for campaigns that are. I’ve limited it to just search for now because this client has 13 different search campaigns and their ROAS is quite a bit lower than the shopping campaign. If I was going to apply it to the shopping campaign I would up the ROAS setting so that the budget didn’t just keep increasing budget into perpetuity.
These automated rules are triggered weekly, so if a campaign did really well their campaign budget would be increased to close to 3X current budget after a year and if they continue to flail with a ROAS less than 3 then their budget will be cut to a third of current budget.
This is what the automated rule for increasing campaign budgets looks like:
And this is the corresponding decrease:
Ultimately I would like the ROAS for search to be much higher than 4X, and when that is the case I will adjust these values in line with the new “normal” but for the time being the average ROAS over the long-term for Search campaigns has only been 2.7X which is pretty poor in my opinion.
My next plan is to work on increasing the ROAS without decreasing the revenue. In the meantime, shopping campaigns are proving to be a good bet.