There has been growing discussion in the Ecommerce PPC space as to how beneficial ROAS is as a target KPI. I happen to fall into the camp that prefers MER to ROAS... of which I will have to wax eloquently (or clumsily) on another time.

For now, you (like us) likely have clients who prefer to give channel specific ROAS goals for their Google or Microsoft Ad campaigns. While these are often reflective of various margin and profitability calculations, I have found that they can sometimes be based more on what someone would like to achieve, rather than actual business and vertical numbers.

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How do we respond in this light? I thought I would share an email I sent to a prospect once as we were dealing with this exact situation, and my hope is it is beneficial to you. They gave us their goals, we got access to the account, and I immediately realized their targets for their future PPC company, would be unattainable. I think it's right and fair to point this out immediately to avoid starting a relationship with misaligned objectives, so here is the reply I sent (note some specific details have been changed to maintain client privacy).

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The gist of the below letter covers 3 key points: 

👉 ROAS goals have limitations on what is possible

👉 New campaigns require time (at least 60-90 days) to get to profitability

👉 If your current account is targeting lower funnel, then adding upper funnel will naturally lower ROAS targets

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Quick Sidenote: are you a client or point of contact in a brand? I appreciate you reading this, as it likely means you desire to avoid the trap we are discussing here (and also gives insight into how we need to think about ROAS in an account). In that case, I hope the following will be beneficial for you to contemplate as we all strive for doing PPC better together!

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Hi {prospect}, thanks for the additional information as it helps to understand where you are coming from.

That being said, I have to admit, I am concerned about your ROAS expectations. This is because:

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(1) What we see in nearly all ecommerce merchants would make your desired 8x ROAS goal difficult in Google Ads for nearly anyone, if not impossible in your specific vertical combined with any sort of growth goals. Based on what we see in your account, as well as what we know about the important role that prospecting such as Video, Display, and upper funnel Shopping and Search campaigns manage, we would expect more of a 3-4 blended ROAS with the Branded and Remarketing hitting closer to a 6-7 and the Prospecting campaigns hitting a 1-2 return.

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(2) If we target new audiences, keywords, or markets, then we would be building new campaigns and setting new targets in the Google Ads account, and any new Marketing initiative will always perform at lower efficiency in the beginning since it is building its audiences and datasets. This means I don't think we (nor anyone else) can hit your immediately desired 8 ROAS and I would at least ask detailed questions of any other agency who claims they can, as to how they are going to enact these changes while growing ROAS at the same time. Typically immediate ROAS growth in an account comes from trimming "the fat" (initially unprofitable aspects of an account) or by building bottom funnel campaigns. Since you desire to add upper funnel because you have the bottom funnel already targeted well (we agree that is the next logical step in your account), we also think it would be a mistake to aim for increasing ROAS.

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(3) Your current account is primarily remarketing and brand which will always naturally have a higher ROAS. This is because lower funnel traffic has already been advertised to. You've literally spent money (or time, which equals money) marketing to them already, somehow, which requires a higher ROAS target to keep them efficient as you are targeting them again. Yet, even being lower funnel, your account is only at a 6 over the past 30 days. This means your new ROAS goal (an 8) for us is higher after adding upper funnel campaigns to the account. As I noted above, this will naturally get lower when additional upper funnel campaigns are going to be built out which tend to start user searches.  This should be considered a healthy marketing mix as it is the objective, to use lower efficiency upper funnel prospecting to drive traffic who will later convert through bottom funnel efforts such as brand and remarketing.

It sounds like these ROAS goals are firm for you, and if that's the case then I unfortunately don't think we're the right agency for you and hope you are able to find an agency who can make your goals a reality in building out Google Ads. As I noted before, I would at least leave you with the caution to ensure you understand a clear plan from any agency who disagrees with the above.

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Thank you for your time,

Kirk

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A final note before ending this shorter blogpost, I have written elsewhere about the conflicting nature of Revenue and ROAS and you may find it helpful to read that next as you consider these aspects of PPC management.

📖 The PPC Ascending Seesaw of Scaling Awesomeness

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