Why ROAS Is Lying to You: How to Optimise Google Ads for Profit Instead of Revenue (Target POAS Explained)

ROAS looks great on paper, but if Google can't see your margins, it's quietly pushing your least profitable products and costing you money. 

In this episode of the Google Ads Unleashed Podcast, host Jeremy breaks down exactly why ROAS is a flawed optimisation signal for most ecommerce businesses, how to feed profit data directly into the Google Ads algorithm using conversion value rules, server-side tracking via Stape, or Profit Metrics, and why switching to target POAS can completely change which products Google chooses to prioritise.

One client went from hovering at break-even despite a 20x on-platform ROAS to their most profitable week in the agency's entire collaboration, in under seven days of switching to profit-based conversion values. If you're scaling spend but profits aren't following, this episode will show you exactly why and what to do about it.

Get your free 30 minute strategy session with Jeremy here: https://www.younganddigital.marketing/

Scale your store with 1:1 coaching: https://www.younganddigital.marketing/1-2-1-coaching

Transcript

But the thing is rorowass is a revenue metric. It's not a profit metric and it does not actually allow you to optimize properly for revenue or actually for profit without accounting for the margin of your products. So you leave sometimes a lot of money on the table without realizing it. This episode addresses exactly this. Welcome back to Google Ads Unleash guys. Hope everyone is doing fabulous. ly this uh wonderful Monday and today I want to talk about something which I'm absolutely flabbergasted. I haven't done a separate episode on it. I think I've covered it in so many aspects already. Um I have had for instance Frederick Bison from Profit Metrics on the channel. I've talked about it in um uh in in rorowas target episodes uh why rorowass lies um seal the TLV CAC episode, but I've actually never talked about what actual target pas is, how to use it, how to feed it into the Google Ads uh algorithm, and why it is often times the better solution than tracking your return on ad spend. So, what am I actually talking about? So, for people who may have not heard this before, so the issue is most people who set up Google Ads tracking do the following. They connect the Google and YouTube app. They connect some process. They have a clever Google Tag Manager setup. Someone clicks an ad, uh, gets to the checkout, hits the purchase button. It fires a conversion back into the Google Ads account, and it, for instance, shoots the revenue of that order, including shipping, including everything uh, or sometimes not. Sometimes it's just the net margin, sometimes it's the the total gross margin of the order back into the Google Ads. account. So for instance, let's say someone p makes a purchase of £100, okay, to Google, this doesn't really mean anything because fundamentally what is that you're tracking in Google ads? It's the conversion value, right? Very objectively spoken, this is not revenue, this is not ne revenue, this is nothing. It is an arbitrary number value that you associate with a conversion. That's That's why you never see the word revenue in in Google ads or you never see turnover or something like that. You see a conversion value that is associated with a conversion. So conversion value and let's say someone makes a£100 order and it pumps 100 back into the Google Ads account. The thing is that you have a fundamental challenge with is that you don't actually know what this means for the business and Google has no idea what to actually optimize towards because a £100 sale, right, let's say with a product or products that have 60% margin and a £100 sale with only one product that has a 10% margin look absolutely identical to Google Ads bidding algorithm. And it'll happily send the same number of people clicking on various ads chasing both conversions, although the first one is worth with six times more to the business than the other one. And this creates a whole set of problems especially this is affecting uh businesses that have usually products um or product range with a lot of products. So for instance resellers with thousands and thousands of SKUs on the site or even if you have a few dozen SKUs, this may already cause issues. It may cause issues when you have bundle sales, right? Because in bundles you usually have the same sort of cost of goods sold. Let's say you sell a bundle with two products that you discount at a certain price, then you still have a completely different margin uh because you have two SKUs and then offer 20% off in the bundle. So that doesn't dictate the same return on ad spend target. Um it also uh affects businesses often who are very complex cards, right? So very often we have businesses that we deal with who um have relatively complex cards. So where people for instance might buy five or something here, one of this and so on which creates a mix of varying uh sort of basket sizes where you have to pose the question what is the return on ad spend that you need to hit for those orders in order to create let's say an average profit margin of 20%. It is absolutely impossible to do this within Google ads which is why I've got nothing against um normal conver vision tracking and tracking rows. But typically, it's only a very good metric when all of your price or your product range is priced exactly similar or the same. Uh let's say the cost of goods are always, I don't know, 20% of of your total turnover roughly across all orders, then it's not bad. Or it is also good when you just have a one product store where it's very easy to understand what is going on. Or if you're optimizing for lifetime value and the conversion value is relatively irrelevant. Let's say for instance um in the lead gen sphere that's often the case or in the subscription business where you want to generate one new customer and then you optimize for the lifetime value. But yeah, this is um actually uh it's it's a very sort of um common failure mode for most businesses because what happens then over time is that let's say you have 100 different products with 100 different margins and you're trying to raise budget. Google will only favor when you have uh con like your your turnover as conversion value instead of profit. It'll only favor the products that hit that certain parameter that have this arbitrary conversion value rule to which you um uh to to to which you achieve your your your bid strategy. Right? So often what happens is the following. People raise budgets in the Google Ads account because the rorowass is good but very quickly, even if everything is set up correctly within the ad account, profit actually goes down as spend goes up because Google is just prioritizing the products that basically uh pass the the bid strategy, right? That that go for the bid strategy. Um, and this happens all the time. Here's a concrete example. For instance, a product selling at let's say 80 quid with a 15% margin means 12 quid actual profit. But if the CPA is £10, let's say then the rorowass looks acceptable but the real return on ad spend is almost nothing we only have two pound of actual profit right in the in this uh in this example at a 4x rowass on a 20% margin a product is far more valuable than a 6x rowass on an 8% margin but Google's algorithm has absolutely no way of knowing that unless you tell it and that's why conversion value is actually so elegant and I think that's why Google has gone with it because the reality is you can tell Google anything you want what a conversion is worth as long as it makes sense for your business and you understand what the data actually means. Okay. And there's three solutions that I uh usually sort of recommend here. And the first one is sort of the lowest value one I would I would say and that is to make a conversion value rule. So how does that work? So um first of all the first thing that you can do um is you can actually create a custom conversion value for instance or or or similar um and all you need to do is that or you can even go within um the Google ads manager to do so and you can set a multiply or fixed amount based on certain conditions for your uh conversion right for your purchase conversion. This is quite simple. because you're working with averages and broad categories rather than per product margin data. But this is already one of the first um sort of things that you can do to get closer to this. This is maybe a good idea if you have quite few products and this is something that you want to then optimize towards. The second thing that you can do is to get us on board, right? We have a way through um Google Tag manager and Stape with our external tracking specialist to actually pass all of the margin data such as cost of goods sold, shipping, transaction costs, etc. via Stape uh as as a conversion into into the Google Ads interface and we can actually pump profit directly as conversion value, profit per order back into the Google Ads account. So in the previous example where I said, hey, in uh if a product sells at 80 quid, it wouldn't pump 80 as a conversion value back into Google Ads, but rather the 12 actual profit of the 15% margin. So, it'll pump 12 as a conversion value back into Google Ads. Okay, so this is actually quite um quite sophisticated because it requires um the GTM solution to calculate margin at the po uh at the point of purchase and pass it as a custom value. Um our our uh tracking guy is really good at doing so. Um it usually yields a little bit more data as well but this is uh um a custom solution as well which is probably one of the most accurate ones. And the route number three which is the easiest one um is to simply use a software which can do so and our clear clear winner here and partner are our friends at profitmetrics.io. Okay. So profitmmetrics io um if you message me you can also get 3 months off at 50%. Um, just uh message me and I can provide you with a referral link. By the way, I'm not sponsored. It's just I am believe in so much in in the product. I believe it's uh one of the best uh solutions out there. Does this by simply pushing a few uh buttons and it connects you uh in natively with Magento, WooCommerce, any kind, Shopify, all the common platforms. and installs all the conversion actions with maybe 15 to half an hour's work. All you need to do is put in the cost of goods sold within Shopify and have all them prices in there, your transaction data. You have to put in uh your your shipping costs, your uh costs per uh order, for instance, fulfillment costs, etc., etc. Um, and it'll set up the conversion actions with serverside tracking automatically within your Google Ads account, which you can then use to track profit and profit metrics is generally the best one and um it is the the software that I would go for. Um I think I would abstain from route one unless you really have no means at all. Um route two is for really high volume accounts because profit metrics can get quite expensive further down the line. So custom solution in the long run sometimes is a bit cheaper. But generally speaking, it is something that uh um sort of uh I would highly recommend if you need a quick solution just go for profit metrics. One of the core objections I get then is hey Jeremy how accurate is that then? Well the thing is um it's it's not about accuracy because I think revenue is just as inaccurate as is uh profit data within Google ads. But the issue is is that you don't need perfect margin data. You don't need the perfect data to make this work. Even a rough margin adjustment into your conversion values is better than no adjustment at all. You're just trying to get as close to reality as possible. Uh because it is then already a meaningful improvement um over treating all revenue as equal. And typically what then happens is is the following. So once you start pumping profit data into the Google ads account um you first of all have to of course operate towards different targets because in reality what this means Means for every pound you put in or every dollar or every what B whatever currency you use anything that is above a rorowass on platform uh because it still shows conversion value divided by cost um is in reality your pas profit on ad spend. So everything above one is direct profit for the business. Okay. So if you see a rorowass or conversion value divided by cost on platform of let's say 180% in reality this means every pound you put in, you get an 80 p of operating profit back into the Google Ads account. And that way you can completely change the game and optimize your ad account completely differently. Because what will happen is Google will stop actually treating all revenue as equal, but it'll actually uh associate much different and a varying conversion values with different products and thus bid and prioritize products completely differently. And we've had this recently play out with one of our clients who has switched over to Profit Metrics. They are based in South Germany. They are reseller of um uh a very famous sort of tent box and so on company in Germany and uh we make them stand out in the feed with various attributes so that uh they stand out compared to other um competitors. But whilst they were setting up profit metrics which took about a month because the guy I was very busy. We were working with uh with with rorowass in the ad account. So with the normal Google shop in ad purchase but what had happened was we couldn't push spend because we weren't exactly sure how profitable Google was. That was the first thing. The secondly although the rowass looked insane on platform sometimes up to 20 we were hovering at sort of plus minus profitability with a business. Okay. Because we were just pushing products or could only push products that Google was seeing as fulfilling. in the Google Ads algorithm target which was uh X return on ad spend target. Okay. The issue with that is it prioritized products which weren't as profitable for him. All right. That's just what what was going on. So when we flipped the switch with profit metrics which was uh beginning of last week at the time of the episode, this will be already two weeks ago. What had happened was is that it started prioritizing completely different products even within the catch all campaign. And as a result, not only average order value grew, so the value per conversion actually went up, but profits actually went up. And we were also able to see, holy s***, we were actually um uh on on quite a sub quite a big subset of products were completely under spending. All those those were our most profitable products. And now a week in, just a week in, it has actually already been the most profitable week of uh of since our collaboration because we have taught Google to push the products that we're actually pushing profit and this in less than a week. That's how quick it went. Okay. So, I'm really excited to see what um we can do with this going forward. So, is there sort of a place for ROAS? Yes, there is. I don't think it's a particularly bad metric. It's just very important that you know the distinction when to use it and when it's uh when it's useful. I think PAS is definitely a much better metric within Google because it brings so many advantages. It teaches the algorithm to favorite products that are actually profitable. It shows you actually how to um which which products are profitable. Um it lets you even group your campaigns by the profitability of products. For instance, unprofitable versus products which are not getting any ad spend. Uh versus products that are far surpassing our powerhouse targets and are very profitable to the business. So our cash cows and you can actually push more budget towards that and for us typically it has actually been the gamecher in a lot of ad accounts which allows us to confidently spend more to confidently push towards the products that are actually generating meaningful profit for the business. And if you want this set up for your business as well just reach out. We've got some uh free spots in the agency. Again, head out to our new website, younganddigital.marketing. You can book a one-to-one with me. You can reach out on LinkedIn, Jeremy on Google Ads. You can also send me an email, jeremyanddigital.marketing. I would love to hear from you and see if this is helpful, potentially something that we can set up for you as well. And if this episode has been helpful, please do leave a little review. It really helps uh pushing the content and helping you guys guys with free content. So, please like and subscribe. That always helps. Jeremy Young, your personal Google Ads expert, and I wish you a happy and productive week ahead.