The Silent Killer of eCom PPC: Bad Margins

Right, let's have a proper chat about the elephant in the room that's slowly strangling your Google Ads campaigns. No, it's not click fraud, dodgy competitors, or even Google's latest "helpful" algorithm update. It's something far more insidious, and frankly, it's probably staring you right in the face every time you check your P&L.

Bad margins are the silent assassin of ecommerce PPC. They're lurking in your campaigns right now, making everything look rosy on the surface whilst quietly bleeding your business dry. And the worst part? Most founders don't even realise it's happening until they're wondering why their "successful" campaigns have left them skint.

The ROAS Delusion That's Fooling Everyone

Let's start with the metric that's got everyone fooled: ROAS (Return on Ad Spend). You know the drill - you fire up Google Ads, see that beautiful 4:1 ROAS, and think you're the next Jeff Bezos. But here's the thing: ROAS treats all revenue equally, and that's where it all goes tits up.

Picture this: You're selling two products. Product A costs you £20 to make and sells for £100 (80% margin), whilst Product B costs you £80 to make and also sells for £100 (20% margin). Your Google Ads absolutely love Product B - it's getting clicks, conversions, and pumping up that ROAS metric like nobody's business. Meanwhile, Product A is sitting there like a wallflower at a school disco.

Your dashboard screams success, but your bank account tells a different story. You're essentially paying Google to help you go broke, one "successful" conversion at a time. Brilliant stuff, really.

The Real Cost of Chasing Vanity Metrics

Here's where it gets properly mental. Most ecommerce brands are optimising their campaigns for metrics that have absolutely bugger all to do with profit. They're tracking:

• Revenue (doesn't account for costs)

• ROAS (ignores profit margins)

• Conversion rate (great, but profitable conversions?)

• Traffic volume (congratulations, you've bought expensive visitors)

Meanwhile, the one metric that actually matters - how much profit you're generating per pound spent - is nowhere to be seen. It's like judging a restaurant's success by how many plates they wash instead of how much money they make.

The problem compounds when you start scaling. As your campaigns grow and competition heats up, your cost-per-clicks rise whilst conversion rates often drop. If you're already working with razor-thin margins, scaling becomes a fast track to financial disaster. You're not growing your business; you're accelerating your march towards bankruptcy.

Why Your Competitors Are Laughing All the Way to the Bank

Want to know why some brands scale their Google Ads like wildfire whilst others burn through cash faster than a lottery winner? Margins, mate. Pure and simple.

A brand with 70% profit margins can afford to be aggressive, test new audiences, and outbid competitors because they've got cushion. They can acquire customers at higher costs because they're still profitable. Meanwhile, a brand with 10% margins is constantly walking a tightrope, one algorithm update away from disaster.

The high-margin brand can also reinvest profits back into better products, customer service, and yes, more advertising. It's a virtuous cycle. The low-margin brand? They're stuck in survival mode, constantly fighting for scraps whilst their better-margined competitors eat their lunch.

Enter POAS: The Metric That Actually Matters

Time for some tough love: if you're not tracking Profit on Ad Spend (POAS), you're flying blind. POAS shows you how much profit you're generating for every pound you spend on ads. It's the difference between looking successful and actually being successful.

Here's the maths that'll sort you right out:

POAS = (Revenue - Cost of Goods Sold - Fulfilment Costs) ÷ Ad Spend

For most ecommerce businesses, you want a POAS of at least 200% (£2 profit for every £1 spent on ads) to account for all the other costs that aren't directly attributed to your campaigns - staff, overheads, unexpected expenses, and that coffee machine that definitely wasn't a business expense but somehow ended up on the books.

Let's say you're selling widgets for £100. Amazon takes their 15% cut (£15), fulfilment costs another fiver, and your product costs £30 to make. Your actual margin is £50, not £100. If you set your target ACOS (Advertising Cost of Sales) equal to or below your margin percentage, you're breaking even or profitable on every attributed sale.

The Scaling Trap That Catches Everyone

"Right, our campaigns are profitable at £1,000 per month, so let's bump it up to £10,000 and watch the money roll in!" Famous last words.

Scaling isn't linear, and anyone who tells you different is either lying or hasn't actually scaled a campaign beyond their local market. As you increase spend, several things happen:

1. Cost-per-clicks rise (more competition for the same keywords)

2. Conversion rates often drop (you're reaching less qualified audiences)

3. Customer quality can decline (first to market versus late adopters)

Without healthy margins to absorb these efficiency losses, your "profitable" campaign quickly becomes a money pit. This is why brands with 20% margins hit a wall at relatively low spend levels, whilst their 60% margin competitors can scale to the moon.

The cruel irony? The businesses that need growth the most (those with tight margins) are the least equipped to achieve it through paid advertising. It's like needing money to make money, but for ecommerce.

What Smart Agencies Actually Guarantee

Here's what separates the wheat from the chaff in the agency world. Snake oil salesmen promise guaranteed ROAS improvements, more traffic, or higher conversion rates. They're selling you metrics that might not translate to profit.

Smart agencies, the ones worth your time and money, guarantee things like:

• Profit-led growth strategies (not just revenue pumping)

• Faster testing cycles (getting to profitable campaigns quicker)

• Margin-conscious optimisation (focusing on your most profitable products)

• True performance tracking (beyond platform vanity metrics)

At JudeLuxe, we've seen too many businesses get burned by agencies chasing the wrong metrics. The best agencies don't just manage your campaigns; they understand your business model and optimise for what actually matters: sustainable, profitable growth.

The Customer Lifetime Value Reality Check

Before you start panicking about your margins, there's another layer to consider: Customer Lifetime Value (CLV). Sometimes a customer acquisition cost that looks expensive on paper becomes highly profitable when you factor in repeat purchases.

Most customers start small and grow over time. That £85 customer acquisition cost might seem steep for a £70 first purchase, but if that customer averages £560 over eight months, you're laughing all the way to the bank.

The key is having systems in place to track this properly. Without CLV data, you might be cutting off profitable customer acquisition channels based on incomplete information. It's like judging a book by its first page.

How to Fix Your Margin Problem (Before It's Too Late)

Time for the action plan. If you've recognised your business in this rather uncomfortable mirror we've held up, here's how to sort it:

1. Calculate Your True Margins Get brutal about this. Factor in everything: cost of goods, shipping, returns, payment processing, platform fees, and any other costs directly attributable to each sale.

2. Implement POAS Tracking Whether through automated tools or a simple spreadsheet, start tracking profit per ad pound spent. This becomes your north star metric.

3. Restructure Your Campaigns Separate high-margin products from low-margin ones. Give your profitable products the attention and budget they deserve.

4. Review Your Product Mix Sometimes the answer isn't better PPC management; it's better products. If your margins are consistently thin, you might need to revisit your sourcing, pricing, or product strategy.

5. Consider the Full Funnel Look beyond first-click attribution. Use tools that track the complete customer journey and factor in lifetime value.

The bottom line? Bad margins don't just limit your PPC potential; they create a ceiling for your entire business. You can have the most beautifully optimised campaigns in the world, but if the underlying economics don't work, you're polishing a turd.

Fix your margins first, then let's talk about scaling your empire.