The ROAS Deception
Every ecommerce brand tracks ROAS. It is the universal language of paid advertising. And it is systematically misleading you.
The Fundamental Problem
ROAS measures revenue per pound of ad spend. It does not measure profit. This distinction is not academic — it is the difference between growing profitably and growing broke.
Consider two products:
| Product | Revenue | COGS | Margin | Ad Spend | ROAS |
|---|---|---|---|---|---|
| Product A | £100 | £40 | £60 | £25 | 4.0x |
| Product B | £100 | £85 | £15 | £25 | 4.0x |
Same ROAS. Radically different commercial outcomes. Product A generates £35 contribution after ad spend. Product B generates -£10. You lost money on every sale of Product B.
Why Smart Bidding Amplifies the Problem
When you give Google a tROAS target of 4.0x, it treats Product A and Product B identically. It will happily spend £25 to sell either one. The algorithm has no concept of margin — it optimises for revenue.
Smart Bidding is not smart about your business. It is smart about achieving the target you give it. If the target is wrong, the optimisation is perfect — perfectly destructive.
Contribution Margin Bidding: How It Works
Contribution margin bidding replaces revenue-based targets with profit-based targets:
- Inject COGS into your product feed via custom labels or supplemental feeds
- Segment products by margin band (e.g., >50%, 30-50%, 15-30%, <15%)
- Set POAS targets per segment that reflect the actual profit each band can support
- Exclude or cap spend on margin-negative products — no amount of volume makes a loss-maker profitable
The Results We See
Across our client portfolio, switching from ROAS to contribution margin bidding typically delivers:
- 15-40% improvement in contribution margin within 60 days
- 10-25% reduction in wasted spend on low-margin products
- Stable or improved revenue — you are not sacrificing growth, you are removing waste
Implementation Checklist
- Export your full product catalogue with landed COGS
- Calculate contribution margin per SKU (revenue minus COGS, shipping, returns)
- Create margin band custom labels in your feed
- Restructure campaigns by margin band
- Set margin-appropriate POAS targets per campaign
- Review weekly for the first 30 days, then monthly
The Strategic Imperative
Every month you run on ROAS alone, you are funding Google's revenue targets, not yours. Contribution margin bidding is not a nice-to-have optimisation — it is the minimum viable standard for commercially honest ecommerce advertising.