Often marketers refer to product margin bidding as if they are conducting profit bidding, but this is not the case and it could even harm the overall volume and profitability of the Google Ads account.
What is product margin bidding?
⛔ It is adding custom labels to the feed based on the product margin (sales price minus cost price). Most often, there are labels like High_Margin, Med_Margin, and Low_Margin. Afterward, the products are divided into different campaigns where tROAS is applied based on the margin of the products in each campaign.
In theory, this is a great way to bid more on high-margin products and less on low-margin ones.
⛔ The problem arises when because customers do not always purchase only the product they initially clicked on. They might buy a combination of products with different margins or choose a different product than the one they initially clicked on.
If you’ve set a more aggressive tROAS on the High margin campaign and the customer ends up buying a low-margin product, you could be losing money without even realizing it because you can’t see what was purchased.
✅ This is why POAS (Profit on Ad Spend) is the real profit bidding strategy, as it takes into account the entire order profit attributed from the product click, considering all the product cost prices, shipping costs, discounts, free shipping, payment and handling fees.
You could essentially have products that lead to very profitable orders, but the products that were initially clicked on were rarely the ones bought in the orders.
✅ In the image, you can see an illustration of how users searching for Airpods are attributed to three orders and how they differ in profitability based on the actual products that were purchased.
With margin bidding/grouping, all would have a break-even ROAS of 5X. But as you can see, orders 2 and 3 have a higher order margin, and the break-even ROAS is as low as 3X on one order.
With POAS, the full attributed order gross profit would be attributed to the item “Airpods.”
If you would like to learn more about POAS bidding and how to set it up – check out: https://profitmetrics.io
Please note that the margins mentioned in this illustration are hypothetical and not the actual margins of Airpods.
