Having a profitable Google Shopping Campaign is
one of the best things you can have for your ecommerce store.
Seeing the traffic coming in every day making you money,
and seeing your bank account grow, is a pretty good feeling. 🤑
In this video, we're going to learn all about profits and profitability for Google Shopping.
Overall, to make money with Google Shopping you need to spend less on your ad costs,
than the gross profit you generate from your campaigns.
Now, doing this requires a lot of work but we teach you everything in this free course.
In this video, we're going to learn the foundations of profits
and everything you need to get there.
So, in this video you're going to learn how to calculate the profits for your ecommerce store,
how to know if your ads are actually profitable or not, and then finally
what are the next steps to actually optimize your campaigns based on this profitability.
So, before we jump into calculating our profits - what is profitability?
I like to define profits simply
as the total amount remaining after you get your sales and pay for your expenses.
For example, if you sold your products and made $1,000 in sales,
but it cost you $600 for the products, and your other expenses your net profit would be $400.
We then divide $400 by our original $1,000 in sales, to get a net profit margin of 40%.
This is what we really care about here.
These net profits are the amount of money you would have
in your bank account at the end of the month.
Now, that we know what profits are it's important to know what ROAS is.
ROAS is your return on advertising: R-O-A-S.
ROAS = Total Sales Revenue/Ad Spend.
This tells you for every one dollar you put into your marketing, how much do you get back in sales.
For example, if I put $1 into my marketing, and I got $5 in sales back, my ROAS would be 5.
In the same way if you put $10K into your marketing this month,
and you got $50K in sales, your ROAS would still be 5.
Now, that's your actual ROAS.
Another important metric is your breakeven ROAS.
Your breakeven ROAS is the minimum ROAS you need
to break even or at least start making profits on your sales.
Basically, knowing that if you spend $1 on your ads,
how much in sales do you need to not be losing money.
We want to learn this so we can keep a close eye on our campaign's profitability.
For example, if I know that my breakeven ROAS is 3.4,
and then this month I get a ROAS of 3.1, this campaign is not profitable and we're losing money.
On the inverse, if I got a ROAS of 5.2,
then this campaign was profitable because 5.2 is higher than 3.4.
Knowing your breakeven ROAS informs how you actually optimize your Google Ads account,
all the way down to the single product ads.
It keeps you data-driven, always pointing towards profits as your ultimate goal.
So, how do you calculate your breakeven ROAS and your profit margin?
Well, I'm going to show you that right now.
You calculate your net profit margin by getting your total sales, taking
away the cost of your products, and the cost of your expenses.
If you have a new store, you're generally going to be making a few guesses here,
but if you have at least 6 months of data,
that's going to give you a good average net profit that we can use to inform our campaigns.
Here's what we're going to do together.
Go below this video, I've left a link to a special spreadsheet that we're going to use
to calculate our net profit margin as well as our break even ROAS.
Let's go right now, open this up, and fill this out together.
Once you have the sheet open, add in your sales in this first section here.
Let's say $100K over the last 12 months.
The next box is for what's called - Cost of Goods Sold (COGS).
This is how much your products cost from your supplier.
Say I have two different types of products here.
For the inventory of the first one, I spent $20K, the inventory of the second one, I spent $30K.
Now, this is important, the amounts I put in here directly relate to the sales above.
The $100K above should be the $100K in sales for the cost of the product you bought here.
This will then show us the total cost of goods sold, in our case $50K.
The next section calculates our Gross Profit.
This is our Total sales - Total cost of goods sold.
There we have our gross profit of 50% too.
Scrolling down we'll next enter in our expenses.
First, we have our fixed expenses.
These are expenses you need to pay for your store even if you sell zero products.
Things like Shopify App subscriptions or anything like that.
I've made it so that you can put the cost per month, the number of months,
and it calculates the total cost for that expense.
Make sure the number of months is the length of period for which you sold your products
in the first box.
For example, if it took you 3 months to sell that amount of products, then put 3 months.
Next, we have our variable expenses.
These are expenses that increase as we sell more products.
A good example is any payment processing fees.
We have to pay a fee on these for each credit card transaction, so these go up
with each sale, another one is shipping so they're in there too.
This then gives our total expenses at the bottom which then allows us to calculate
our net profit, net profit margin, and finally, our breakeven ROAS.
This is all done for you with the formulas in our sheet.
We now know that we need each $1 of advertising spend,
to make us at least $2.26 in sales for us to breakeven.
Anything above we make profits, anything below we lose money, and we make a loss.
So the next point is, how do we actually know that our Google Shopping campaigns are profitable?
With this breakeven ROAS right here, we know that we need to get above this breakeven row.
As for the actual ROAS for our campaigns in order to be profitable.
What I love about this, is it's an easy metric that we can check anytime we want.
Just open up your Google Ads account and show the column: Conv. value/cost.
You'll find this metric viewable through all of your Google Ads accounts.
You can see if certain campaigns,
certain ads, certain search queries are profitable for your store.
So, now that we know if we're profitable or not how do we actually make our account profitable?
This is where the optimizations and strategies come through.
There's a lot to cover which is why we have a lot of videos on the topic
in our free Google Shopping course.
So, if you're watching this video on YouTube, it's actually part of this free course and you
can access the course totally free, no sign-up required, by clicking the link down below.
The optimization process takes time.
This is how it works, imagine that we have a huge group of traffic that we're showing our ads to,
but only a small percentage of those would actually buy our products...
How do we carve away all this traffic
that's not converting and focus on these customers here that are profitable?
This is exactly what we learn in the optimization section of our free Google Shopping course.
We're also going to learn how to guide the algorithm so that we show
more to people just like these people here, that are more likely to buy from us.
It requires regular work collecting the data,
analyzing that data, and making smart profit-driven decisions.
That's it guys, that's how we calculate the breakeven ROAS and profitability
for our ecommerce store.
If this video was helpful, please hit the like button,
and let me know in the comments down below.
Let's now get into the next video.