The Target ROAS Trap: When Optimising for the Wrong Number Kills Growth
Target ROAS is the default setting most agencies never question. Set it, forget it, let the algorithm do the work. Except the algorithm is optimising for a number that might have nothing to do with your actual profitability.
The Problem with Target ROAS as a North Star
ROAS measures revenue relative to ad spend. It tells you nothing about:
- Gross margin variance across products. A 4x ROAS on a 20% margin product is worse than 2.5x on a 60% margin product. The algorithm cannot see this.
- Blended vs incremental value. Target ROAS optimises for conversions Google can claim credit for. Many of those conversions would have happened anyway.
- Working capital implications. High ROAS at scale can mask cash flow problems. You might be "profitable" on paper while bleeding operating cash.
This is why we focus on contribution margin, not vanity metrics.
When Target ROAS Becomes Destructive
We see this pattern constantly: brands hitting their ROAS targets while feeling increasingly uncomfortable about the business underneath.
The algorithm is doing exactly what you asked. The problem is you asked for the wrong thing.
Target ROAS creates a ceiling. The algorithm learns to protect the target by reducing reach to only the safest, most predictable conversions. You hit your number, but you stop growing.
Worse, you stop learning. The algorithm avoids the experiments that would reveal new profitable segments because experiments risk the target. This is especially problematic in Performance Max campaigns where visibility is already limited.
What to Optimise Instead
The shift is conceptually simple but operationally difficult: move from ROAS to contribution margin, or at minimum, POAS (Profit on Ad Spend).
This requires:
- Feeding margin data into your bidding signals
- Accepting that headline ROAS will look worse
- Trusting the commercial logic over the vanity metric
Most agencies resist this because it makes their reports look worse. The client sees a lower ROAS number and panics. Nobody wants that conversation.
But the conversation is necessary. If your agency is optimising for a number that does not reflect your actual business health, you are paying them to make you feel good while your margins erode.
The Question to Ask
Look at your target ROAS setting. Now ask: where did this number come from?
If the answer is "it seemed reasonable" or "that is what we have always used," you might be optimising for a target that has no relationship to your actual commercial goals.
This is exactly what we look for in our audit process: the gap between what you are optimising for and what actually matters to your P&L.
If this sounds familiar, book a 30-minute review and we will show you what your account is actually optimising for.