Measuring Profit in Google Ads Campaigns is Crucial for Success

Measuring Profit in Google Ads Campaigns is Crucial for Success

TL;DR 😉

When evaluating the performance of a Google Ads campaign, many marketers traditionally focus on Return on Ad Spend (ROAS). While this metric has been a popular choice for gauging campaign effectiveness, it doesn’t provide the full picture. ROAS only tells part of the story—it indicates how much revenue is generated per dollar spent on ads, but it doesn’t factor in key business costs, such as the cost of goods sold (COGS), shipping fees, or operational expenses. To truly understand whether your campaigns are driving sustainable growth, businesses need to shift their focus from ROAS to a profit-focused approach, like Profit on Ad Spend (POAS).

ROAS Does Not Equal Profitability

Many businesses fall into the trap of equating a high ROAS with a successful campaign. However, the reality is more complex. A strong ROAS might look great on paper, but it doesn’t guarantee that the campaign is generating profit. As adQuadrant points out, “ROAS does not account for the various costs associated with producing and delivering a product.” Without considering these additional expenses, businesses can be misled into thinking they are running a profitable campaign, when in fact, they might be losing money.

Take the example from SavvyRevenue: pushing for a 375% ROAS might feel like a win, but you could be leaving potential profits on the table. By focusing solely on maximizing ROAS, businesses miss the opportunity to truly optimize for profit, which could lead to poor budget allocation and unprofitable sales.

Margin Custom Labels Are Flawed

Another common approach to managing Google Ads campaigns is using margin-based custom labels to guide bid strategies. The assumption is that assigning a margin to each product will help maximize profits. However, this method has significant limitations. As noted by SavvyRevenue, “as much as 60% of users buy a different product than the one they clicked on.” This means that using margins based on the initial click can be highly inaccurate. Customer behavior is unpredictable, and relying on such data to inform your bidding strategy can lead to suboptimal outcomes.

Profit Tracking Provides Accurate Insights

Shifting to Profit on Ad Spend (POAS) provides a more accurate and actionable understanding of your campaign’s performance. Unlike ROAS, POAS factors in all associated costs—such as COGS, shipping, and fees—allowing businesses to see exactly how much profit each campaign generates. This clearer picture of profitability enables better decision-making when it comes to budget allocation and campaign optimization.

As adQuadrant highlights, “POAS offers a clearer understanding of how much profit each ad campaign generates, enabling businesses to make more informed decisions.” By implementing POAS, businesses can fine-tune their bidding strategies, ensuring they are maximizing profit rather than merely revenue. This empowers companies to bid the exact amount they can afford based on real-time profit data, instead of relying on an average ROAS metric that might not fully account for fluctuating costs.

How to Implement Profit Tracking in Google Ads

Implementing profit tracking in Google Ads doesn’t have to be daunting. Here are some practical steps to get started:

1. Utilize Third-Party Tools: Tools like ProfitMetrics.io can automatically calculate and import your profit data directly into Google Ads. This allows you to track profits with accuracy and avoid the manual process of calculating COGS for every product.
2. Set Up a New Conversion Action: Create a new conversion action in Google Ads to track profit. You can then configure custom columns to display both POAS (Profit on Ad Spend) and ROAS (Return on Ad Spend) data side by side, making it easier to compare the two metrics.
3. Transition Gradually: SavvyRevenue recommends initially setting the profit conversion action as secondary for 30 days. This provides you with time to gather data and compare it against ROAS before fully switching to POAS as your primary performance metric.

Optimizing Campaigns for Profit

Once POAS tracking is set up, the next step is to optimize your campaigns for profitability. Here’s how:

1. Bidding Strategy: Start by using Google’s Maximize Conversion Value bidding strategy. This method allows you to get the most out of your ad spend by prioritizing campaigns that deliver higher value conversions. As you collect more data, you can transition to Target ROAS, which, when paired with profit tracking, becomes a powerful profit-maximization tool (essentially tPOAS).
2. A/B Testing: Continuously test ad copy, landing pages, and call-to-action elements. A/B testing helps identify the creative elements that are driving the most profit.
3. Audience Targeting: Refine your audience targeting based on profitability, not just clicks or conversion rates. Look for audiences that consistently generate high POAS and allocate more budget to them.
4. Keyword Refinement: Regularly review and adjust your keyword strategy to eliminate non-profitable searches. Focus on high-intent, high-conversion keywords that consistently deliver profits.
5. Monitor and Adjust: Continuously monitor your POAS data and make real-time adjustments to your campaigns based on the insights you gain. This ensures you are always optimizing for the highest possible profit.

The Future of Profit Optimization in Google Ads

Google is actively developing native solutions for profit optimization, which will be available for Performance Max and Standard Shopping campaigns. These new features will integrate cart-level conversion data and COGS into Google Ads’ bidding strategies, giving advertisers an easier way to optimize for profit. However, as adQuadrant notes, these solutions are still in pilot phase and may not be as advanced as third-party tools like ProfitMetrics.