Show HIDE the summary
The changing digital landscape has given rise to numerous opportunities for e-commerce entrepreneurs. Among these opportunities, Google Ads stands out as one of the most powerful platforms for attracting, engaging and converting customers.
However, navigating this universe requires more than just skill; it takes a solid strategy, a deep understanding of metrics, and the ability to scale quickly.
The (relative) importance of ROI in Google Ads campaigns
A revealing story of the complexity of ROI
ROI, or return on investment, is often considered the Holy Grail advertising metrics. But is this really the only indicator you should focus on? To tell the truth, the topic is more complex than it seems…
Take the example of Marc, a passionate entrepreneur who launched his own online store. Like many, he quickly integrated Google Ads into his marketing strategy. At first it seemed that everything was fine. The clicks poured in, the sales increased, but something was bugging him: ROI.
Marc was proud to report an ROI of 5. However, digging deeper revealed a more nuanced reality. Focusing solely on ROI, other crucial aspects of his campaign were overlooked.
The dilemma between profitability and volume
Every advertiser faces this dilemma: should I be looking to maximize my profitability or increase my sales volume? Ideally, we both would. But actually there are often a balance to find.
Marc’s story illustrates this point perfectly. While trying to increase ROI, he cut back on ad spend, which led to a decline in sales volume. This is a common trap many advertisers fall into.
They sacrifice volume for the sake of profitability, which can ultimately hurt their overall growth.
How poorly adjusted ROI can impact your business
ROI obsession can lead to bad decisions. For Marc, this meant spending less on advertising, which reduced his visibility in the market. In the long run, this has affected brand awareness, customer loyalty and market position.
Pis, clinging to its profitability meant losing a lot of money :
- If this advertiser aims for an ROI greater than 7.5, he is doomed to capture “only” 23% of the margin that his campaigns could generate.
- By agreeing to scale back their ambitions, the advertiser is effectively pocketing more margin: an ROI of 5 instead of 7.5 earns them €65,000 in additional margin per year.
- And if his ROI drops to 2.5, that’s an increase of €114,000 per year (2.2x more than the initial ROI target of 7 to 8).
The key metrics to monitor in SEA for optimal ecommerce performance
While ROI is important, as we just saw, it’s not the only indicator of success. Marc learned this the hard way. Focusing on a single KPI, such as ROI, can provide a narrow view of performance. It’s essential to take a step back and consider all the metrics to get the big picture.
In the complex world of e-commerce, several metrics need to be accounted for to get a complete picture of performance.
The Importance of Ecommerce Conversion Rate
Every click is a promise. A promise of interest, commitment and hopefully conversion. However, not all clicks lead to a sale. Conversion volume provides a valuable indication of how effective your ads are at converting a simple click into a paying customer.
A high conversion rate is often a sign of a successful advertising campaign. This means that your ads not only get seen, but also inspire users to take action. Of course, the conversion rate of an online store depends on the sector in which it operates:
To improve your conversion rates, you need to test different calls-to-actions, adjust your landing pages, and understand customer behavior.
Return on Ad Spend (ROAS)
Return on ad spend is an acquisition standard e-commerce. Measures the relationship between the revenue generated by an acquisition campaign/channel and the budget invested in that campaign/channel.
It is an indicator that allows you to monitor the profitability of your campaigns, but it has limitations.
- It doesn’t take into account the total cost of the sale, nor the long-term value of a customer.
- It is also influenced by various factors such as product prices, profit margins, the specific objectives of each campaign and the attribution of each advertising platform.
The cost per acquisition (CPA)
In addition to ROI, CPA is an essential metric to monitor. Provides an indication of the actual cost associated with acquiring a customer. For Marc, this meant understanding how much he actually spent on each new sale generated by Google Ads.
He is even more interesting to know your nCPA, that is, its cost for acquiring a new customer. In fact, if we ignore the churn rate (the % of customers who stop buying a particular brand), it is the new customers that fuel the growth of an online store.
The Average Efficiency Ratio (MER)
MER is the ratio of all your revenue (all channels combined) to all your media investment (again, all channels combined). This indicator has the advantage to offer an overview of its performanceacross the advertiser’s media mix.
However, it lacks action:
- the MER does not provide context on the acquisition cost per transaction or the long-term value of those transactions.
- The MER also doesn’t tell you where to invest your money. If you’re running multiple campaigns for different products, how do you decide where you need to invest the most?
The best ecommerce report for Google Ads
While ROAS and MER are helpful, they don’t provide all the information you need to optimize your ad spend. In particular, they don’t factor in the long-term value to your business.
Against this backdrop, I suggest you focus on one key metric: nCPA (cost of new customer acquisition) plus COGS (cost of goods sold), all divided by LTV (customer lifetime value).
This ratio is the true indicator of how profitable your ads are: currency how much total expense you have to spend to get $1 from your customers, in the long run. By focusing on CPA, COGS, and LTV, you’ll get a clearer picture of how your ads are performing and how profitable your acquisition really is.
Common Google Ads ecommerce performance measurement mistakes and how to avoid them
Never reconsider your profitability goals
The market is constantly evolving. What worked yesterday may not work today. That’s why it’s essential to regularly reevaluate your ROI goals. Especially since, as we have seen, this has a direct impact on the volume of profits you can make, in cash!
You can adjust your expectations based on trends of the market, of seasonality and behaviors of clients.
Never test different campaign types and ad formats
On Google Ads as in e-commerce, this is “Test & learn”. Don’t limit yourself to just one campaign type or ad format. To experiment. Test. Adapt.
Consider exploring Display campaigns, Video ads, and even Shopping or Performance Max campaigns to diversify your traffic sources and reach different segments of your target customers.
Measure your performance without segmenting
Each client is unique. However, they often share common characteristics or behaviors, but it is clear that not all customers are the same. Also, 20% of customers generate 80% of the profits. Knowing how to distinguish the most profitable customers in the medium/long term is therefore the holy grail in terms of acquisition.
Segmenting its customers and knowing the audience that presents the best Lifetime valueyou will be able improve the relevance of your messages et perfect learning smartbidding, improve your overall performance.
Neglecting the customer journey as a whole
The customer journey is more than a click on an ad. It is a journey, a series of interactions that lead to conversion. Not taking into account the next steps that lead a buyer to withdraw their credit card on your online store, you risk misallocating your advertising budget and losing valuable customers along the way.
Analyze in detail the buying journey of your customers thanks to attribution reports in Google Ads or Google Analytics. This information will be invaluable for understanding how your campaigns gradually bring the audience closer to them when making a purchase.
Underestimating the importance of an optimized landing page and a site with poor conversions
Sometimes, e-merchants spend a lot of time perfecting their campaigns but neglect the landing page and conversion rate on their online store. This is a very costly mistake. Because an optimized site is essential to transform interest into action.
You have to consider it half of your SEA performance is optimized outside the Google Ads platform. As we have seen for Performance Max, one of the undeniable key success factors for your acquisition is the continuous improvement of your conversion rate. The latter mechanically improves the profitability, effectiveness and efficiency of your campaigns.
Conclusion
Like any tool, Google Ads is only as effective as the strategy behind it. Getting the most out of this platform requires a thoughtful and methodical approach, and most importantly, accurately evaluating business performance.
The journey to e-commerce success is fraught with challenges. But with a solid strategy, a deep understanding of metrics, and a willingness to learn and adapt, success is within your reach.
