Finding Your Google Ads Campaign Sweet Spot
Google Ads has come a long way from its early days of purely manual bidding (the name of the platform was Google AdWords). Now with automation and machine learning, Google aims to help you hit your desired performance targets. But how do you even know what targets make sense for driving profit?
In this article, we'll walk through a simple framework to find your "sweet spot" - that optimal balance of spend and return that maximizes profit for your business.
The Law of Diminishing Returns
First, a quick econ lesson. The law of diminishing returns states that at a certain point, putting in more investment yields less and less return. Past that point, you get no additional gain - just wasted spend.
This is very true in Google Ads. As you increase spend, your performance metrics like ROAS (return on ad spend) worsen. The goal isn't to maximize revenue, but profit. So we need to find the "sweet spot" before diminishing returns kick in.
Using the Google Ads Performance Planner
The Google Ads Performance Planner provides spend and revenue estimates at different levels. While these are projections, it gives us a solid framework.
Here's how to use it:
- Select your campaign and enter your date range.
- Toggle the metric to ROAS.
- Hover over the graph to see the ROAS estimates at each spend point.
- Record each point's Spend, Revenue, and ROAS in a spreadsheet.
- Calculate "Cost of Sale" by dividing Spend by Revenue.
- Calculate "Gross Profit %" - your revenue minus costs, divided by revenue.
- Compare "Incremental Cost of Sale" to "Gross Profit %" at each spend level.
Your Cost of Sale can't exceed Gross Profit. If it does at a spend point, you'd lose money moving past that point.
Find the highest spend level where Incremental Cost of Sale is still under your Gross Profit %. That's your optimized sweet spot for profitability.
Set that target ROAS in Google Ads, monitor performance, and tweak as needed. With an optimized target driving automation, you can scale your campaigns profitably.
The Performance Planner gives insightful estimates, but diligent monitoring and incremental optimization is key to dial in true profitability. Use this process to find your profit sweet spot, then continue to refine it.
Keep in mind that this is just an estimation, but it can be a helpful guide as you optimize your Google Ads campaign!
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