Today's video is all about return on ad spend. What should be an ideal value that you should
be setting for target return on adspend for your Google Shopping campaign? If you're new
to this terminology, return on adspend, or if you have heard something about it,
but you're not quite sure how it works or what happens if you set a higher return on adspend,
or if you set a lower return on adspend? What does this all mean to you? And how does this affect the
profitability of your shopping campaign? Then this video is just for you. I'm going to cover
a couple of things. What are the pros and cons of choosing this bidding strategy? And what are
the advantages and how it can help your store to grow and scale using his bidding strategy,
especially if you're new to the world of Google Shopping, you have just started running your
ads and you want to scale up to become more profitable, you're not quite sure how to do it,
then sit tight, take out your notebook, take some notes so you know what to do next. Hi,
I'm Clarice Lin, The ROI Doctor who helps online store owners to double store traffic and sales by
running and scaling up profitable Google Shopping ads. If you're new to my channel, then you might
want to check out my free resource, which is the Shopify marketing guide that I go into the pros
and cons of different ways to drive free and paid traffic to your store. So you don't put all your
eggs into one basket by relying just on Google, the link to download the free guide is in the
description and pinned comments. So do check that out. And if you're keen to learn all the ins and
outs of marketing your Shopify store, I have an entire playlist all about that. So do remember to
check that playlist out after this video. In this video, there will be four main parts, I'm going
to teach you how to select the best target return on adspend best suited for your store growth. I'm
going to explain why that's the value that will work best for your store. And I'm going to also
cover the pros and cons of this bidding strategy. What are the limitations of this bidding strategy
for shopping campaign and what you can do to get around it? Let's dive in to make sure we're on
the same page, I'm going to go through some of the terminology, explain what it actually means.
First things first, return on adspend. What is it exactly? If you've set up
your Google Shopping campaign correctly, each conversion will be set up as a sale.
And the value of each conversion will be defined as a sales order value. And the
return on adspend basically means all the sales order that has been generated from your Google
Shopping campaign divided by the total ad spend. So that's the return on adspend.
And target return on adspend, which is one of the bidding strategy for Google
Shopping. That's the third bidding strategy, you set a particular target return on adspend
meaning that's the value that you expect to be getting, how much sale value you're expecting
to be getting upon each advertising dollar that you put into your campaign. What it means is,
what is the target profitability that you want to get in return for every advertising dollar.
And why is setting target return on adspend important for you. By setting a target return
on adspend Your goal here is to at least break even with the ad spend. So that means you're not
wasting any money that you're putting in as your ad budget. And hopefully on top of that you're
going to get some profit back. And that's how you're going to be running a profitable Google
Shopping campaign. Keeping that in mind, you want to be aware of target return on adspend is
one of three bidding strategy options that you can select for your Google Shopping campaign.
Typically, when you're starting your campaign, you might be selecting the enhanced cost per
click bidding option, which means that you want to target your campaign. So Google will be bidding
or showing your ad to people who are most likely going to turn into a customer. And when you have
at least 15 conversions over 30 days, and you want to have a guaranteed profitability on your
shopping campaign, you can choose this option three, which is the target return on adspend.
In order to effectively select this option and be running profitable Google Shopping ads, you want
to make sure you have at least 15 conversions. Now you're clear about target return on adspend.
And when you can choose this bidding strategy for your shopping campaign. The next thing we want to
talk about is the magic number that you're wanting to be setting for your target return on adspend.
If you do a quick Google on the internet, you might see that there are people who are saying,
right you should set the target return on adspend to be 200% or 400% or even as high as 800%. But
the fact is, this might not be suitable for your business or might not be suitable for your online
store. In reality, there is no magic number of perfect number for every single store. The
target ROAS might be different for every single store. For your store to be running a profitable
Google Shopping campaign, the number could be 250%, compared to another store, which might be
running 300% target ROAs for the campaign to make it profitable. We want to keep in mind,
as I mentioned, right at the start of the video is that setting this value means you want to at
least break even for this campaign. So you don't want to follow other people's numbers blindly. You
want to set this value that's most suitable for yourself, and what value should you set that's
most suited for your growth, there is a formula. First of all, you want to calculate what is the
profitability of your store. So in order for your store to breakeven, you need to know what's your
average order value. And this is how you calculate your average order value, if you have not done
that before, which is all your revenue divided by the total number of sales. So that will be
the average order value. And this average order value is like your gross sales. This is not your
net profit because you have not deducted the costs of goods, or costs of shipping costs,
as well as the transaction costs, if someone's using a card payment; all of this, you need
to minus them off, you want to know what's the profit margin for your average order value. Once
you know your profit margin for your average order value, to calculate the ideal return on adspend,
for your campaign to breakeven, you will do one divided by your profit margin. And this number,
this percentage would be the number you want to set for your campaign to break even. So if you
want to be running a profit for your online store, then what you need to do is to add some percent,
maybe another 20% on top of it, if you want to get an additional 20% return on your spend
after you have broken even. So that's the number you want to set for yourself don't follow other
stores blindly, other store owners' costs of goods and their cost of running the store could
be different from yours. So you don't want to follow the numbers blindly, without understanding
how they are running the store. What's their business model? How often their customers buy
from them again? And what are the other products that their customers would buy? Use this formula
to go back and do your calculation. And then use that as a baseline to set for your Google Shopping
campaign as your target return on adspend. Got it? Awesome. Now that you know what you should
be setting for your target return on adspend, I want to go into the pros and cons of using this
bidding strategy. So one of the main pros of using these bidding strategies, you have a guaranteed
return on your advertising dollar. So at least you know you're getting some money back on top
of it. Or at least you're breaking even, which is awesome. What happens is, after you select this
bidding strategy, or each time around when Google is showing your ad, Google will try to show your
ad to the people who most likely click on your ad and is going to make a purchase to be as close as
to the number that you have set. So you know that every time someone clicks to your store,
you're going to break even or at least get a profit. In this case, if this customer chooses
to buy again from you at a later date two to three times more after that first purchase, which has
already given you a profit, then you're going to get maybe even two times two, three times of the
original profit that you spent on this advertising dollar, you're getting a customer who's going to
spend much more with you again, and again, that is the advantage. The disadvantage is because Google
is so focused on finding those customers who are going to spend as much as possible with you,
you are reducing the opportunity to increase the number of potential customers, because Google is
trying to find those people who are going to spend more, they are neglecting to show your
ads to other people who might become your customer and might not buy as much from you from that first
time. But might potentially buy more from you in the future. There is this balance that you
want to achieve, when you're setting your target return on adspend. There are people who say yes,
let's set a really high return on adspend, maybe 800%, or 600%, which is really high. But the
thing is you have to keep in mind, what's your average order value, it'll be unrealistic to set
a really high target return on adspend like 800%, or 900%. Because then Google tries really hard to
find those minimal number of people who are going to spend that much with you on the first order,
neglecting the number of people who might buy less from you on that first order but might become a
lifetime customer who's going to bring much more profit to you at a later date. That means you're
neglecting the midterm and long term growth of your store. When you set this target return on
adspend, make sure that you are not sacrificing the middle term and long term growth of the
store by only finding people who are willing to spend the most on that first order, neglecting
the potential sales of a customer who might bring you more sales at a much later date. The downside
of selling a higher return on adspend will be much more obvious during the peak holiday season, where
your competitors might be reducing their costs so their average order of each customer might be
going down in some cases. But the thing is, you want to acquire as many customers as possible
because any of these customers could return at a much later date and buy more from you in the long
term. So you don't want to miss out on expanding the size of your customer base that could bring
you much more revenue in the long term. Going to try to sum it up here. What are the considerations
when setting your target return on adspend for your Google Shopping campaign? Firstly, you want
to think about your business model. How do your customers spend with you? Like if they buy one
product? Do they buy other products as well? Do they buy other products at a later date? Are they
with you on a subscription model, so they might pay slightly less, but your cost of acquiring
this customer could benefit you in the long term. So you might break even or you could get two to
three times more with their second or third order, if they're signing up on a subscription model with
your store? Do you want to focus on getting as many customers as possible? Who will become long
term customers over a longer period of time? Or do you want to focus on selecting a smaller
subset of customers who are going to spend most with you during their first order? You don't want
to follow other stores blindly. You want to think about how it works for your business? And how will
it be profitable for you as you are growing your market share for your store, as you are scaling
and growing compared to other competitors. One last thought to leave with you is that, some
of these customers, you don't know what you're missing on, they could be actually advocates,
they could be this type of customers who would share with their friends who are going to share
with their family, they might be posting on social media, too, you don't really have a full grasp of
the impact of each of these customers, when they first buy from your store. To keep that
in mind when you are deciding on your target return on adspend, how can you maximize the
impact not just for the short term to get quick profits during that first order, but as well as
how do you think this customer might be returning and buying with you, recommending people to buy
from you in the long run, helping you to market your products if they really enjoy your products,
they might be promoting on social media, not just one time, maybe even multiple times,
writing a review for your store that's going to help you to generate more sales over the long
term. This are the unmeasurable impacts that you can't measure when setting your target return on
adspend. Do keep that in mind when you're looking at this number, so there are other impacts when
you're getting different customers to your store. Each of these customers are valued differently,
they could bring different impact, positive impacts that could be magnified over the middle
and long term strategy. Over the years. If you have heard about the news on cookie collection,
privacy, Google is collecting less and less data from customers as people choose to delete their
cookies or reject cookies when they're arriving on your store. For those customers that Google
is unable to track, let's say if someone sees your ad the first time they click on your ad,
and then they're using their desktop computer, and then they're using their mobile phone. Sometimes
you might not be able to attribute each of those click back to the campaign, the number that you
see, which is the target return on adspend is actually the minimum target return on adspend.
When you're running this campaign, some of this customers who have clicked on your store,
and you might not have seen the conversion return reflected in your Google Ads report,
they might have been using other devices, or they have chosen not to share their cookie
information with Google, so Google is unable to attribute that click from your Google Shopping
campaign to the sales. So in this case, Google has no information to tell you that hey, actually,
when you're running a Google Shopping campaign, they didn't just generate five sales, there was
a sixth and seventh sale that was not recorded in your campaign. In this particular scenario, Google
is unable to tell you what is the actual return on adspend, because that's not being recorded. So
you want to keep that in mind as you're monitoring this value return on adspend. Because this is only
the minimal value. There could be other benefits of running Google Shopping, but you're just unable
to track it. There are different ways where a potential customer can assess your store. And this
customer journey might not be recorded in your Google Ads report. If you are seeing like a lower
target return on adspend which I have seen with some of my clients. This does not necessarily mean
that your campaign is becoming less profitable, so to speak, but if you're getting a larger customer
base, people on your email list, they might buy from you again, even if the first time
they have not bought from you, they go onto your email list and then they buy from you like six
months later. So this click that originally came from this Google Shopping campaign will not be
recorded in the campaign. I hope that gives you a really clear in depth ideas of what's really seen
on your Google Ads report, how to attribute that click to your Google Shopping campaign,
what is the best target return on adspend that's most suited for your store to be profitable,
and if you decide that you want to increase your ad spend to make it even more profitable,
then you might want to check out one of my videos where I talk about "limited by ad budget",
when's the best time to increase your ad budget, you can check out my video link in the top right
hand corner of the screen. And if you also want to learn of other metrics, that's going to help
your campaign to become more profitable. You can also check out my video where I talk about
the cost per conversion versus the target return on adspend, how it works together, so you get a
better idea of how to work out the best strategy for driving more traffic and sales for your store,
link in the top right hand corner of the screen, check that out. And of course, if you want to get
more clicks on your Google Shopping campaign to get more eyeballs on your store product,
do check out my other video where I talk about the 13 ways to drive more clicks via Google Shopping
ads, link in the top right hand corner of the screen, that hopefully should help you to get
more traffic to your store that will turn into a higher conversion rate for your Google Shopping
campaign. And if you found that all of this is getting too much for you, you want to really
scale up your store and remain profitable, you can choose to also work with me. I help Shopify store
owners to run and scale up profitable shopping ad campaign, so my contact details in the description
and pinned comment. And don't forget to download my free resource, my Shopify marketing guide where
I help you to identify different ways that you can drive free and paid traffic to your store,
so you don't totally rely on Google. And if Google breaks down or something happens to Google,
you don't want to 100% rely on Google. So do check out that resource so you can identify other ways
to drive down your marketing costs in the middle and long term. And if you found this video useful,
do remember to give me a like, do subscribe to my channel and turn on the notification bell so you
don't miss future videos on doubling your store traffic and sales by scaling up profitable Google
Shopping ads. I'm Clarice Lin ROI, The ROI Doctor signing off. I'll see you in the next video. Bye!