Should You Optimize Based On ROAS or CPA in Google Ads?

When it comes to eCommerce, there are 2 major KPI’s (key performance indicator) that will determine how well you are doing, or how poorly you are doing. When it comes to these key KPI’s, each of them has some weight. This is true especially when it involves Ecommerce and optimization of advertising campaigns within the Google Ads platform. However, there are some crucial factors to keep in mind as you optimize, and for both ROAS and CPA, there may be a much different scale you will want to follow to make the best outcome possible.

Even though they both come with different outcomes, they are big factors when you look at the overall picture of how well or poor your efforts of optimization are doing. So, in this write up we will look at some of the questions of whether you optimize based on ROAS or CPA in Google Ads when it comes to eCommerce campaigns.

Optimizing Your Google Ads Campaigns By CPA

CPA (cost per acquisition) is a metric in Google Ads that can not only be used in eCommerce campaigns, but it can also be used when running a lead generation campaign as well. When running a lead generation campaign, the CPA is probably the most important metric being tracked and optimized. It is a sure sign of the performance of the campaign. The value of the lead will determine your CPA target. This will guide your campaign toward success.

The CPA is a direct result of the cost per each conversion (or lead) generated by your Google Ads campaign. Traditionally, a lower CPA is always the best. We try to get the best bang for our hard-earned dollars spent with Google advertising. In some businesses or industries, there is more wiggle room when it comes to CPA. It is not unusual for the value of leads to vary from industry to industry. But normally we can just say that, the lower cost of the CPA the better for your campaign.

ROAS or CPA Regarding eCommerce vs Lead Generation

What about when it comes to eCommerce vs lead generation? When it comes to CPA, there is a significant difference. We are now talking about products that cost various amounts in profit, value, revenue, and money. Same as lead generation though. Typically, the lower cost per acquisition should be your goal when all is said and done. But for eCommerce, it is just that much more important. After all, there is revenue likely attached to that CPA.

Much depends on how much the actual eCommerce sale is and what the cost of the product is. What is the COGS (cost of goods sold) and how many products were sold at the time? When it comes to eCommerce, revenue, transactions, and COGS are important. This is true when or if you use CPA as your determining optimization factor. But you must be careful if you are using CPA in your eCommerce campaigns as an optimization metric.

CPA Dangers in eCommerce

For one, if you have products that have far different price points, that will all but alter the amount that you have made during that sale. So, the CPA would almost be a non-factor if you have products with an exceedingly high price point. With a high price point product, you maintain more wiggle room in how much you can spend on the sale.

The opposite of this is the determining factor if you have smaller priced products or price points than someone who does have a higher price point inventory. Because as the price of the product sold goes down, then your CPA is that much more critical of a factor and usually must be exceptionally low to make at least a profit on the sale. Now we will look at the other side of the spectrum, and look at the contrast when it comes to optimizing your Google Ads campaigns using the ROAS or inside of Google Ads is referred to as Conv Value/Cost (or All Conv Value/Cost).

Optimizing Your Google Ads Campaigns By ROAS

In contrast to optimizing your Google Ads campaigns using the CPA KPI, you also have the ROAS (Conv Value/Cost or All Conv Value/Cost). This metric differs quite a bit. It is rarely used when it comes to lead generation. The exception is if the actual revenue or value of the lead is always identical. An example would be if a sale or service is $100 each time. This is not often the case in lead generation however, so this ROAS metric is not widely used when it comes to lead generation.

On the other hand, when you are talking about eCommerce, you have a wide variety of price points for typically a wide variety of products. This means that you cannot have a target CPA due to varying sale amounts. For instance, let’s say you are thinking about sticking to a CPA of $20 per sale as your max. In this scenario, let’s say that you spend $15 to get a sale on a $25 product that was sold. Yes, you stayed within your $20 CPA target. However, by spending $15 on a $25 product you are very unlikely to have made any money on that sale. You must factor in the COGS of that product, which will all but wipe out any profit of that sale.

Keeping an Eye on Profit

At the same time, let’s say you spent $15 to get a sale on a $200 product that was sold. Now you have a whole different outlook on the profit margin to where the CPA is now a non-factor. In this example, your actual ROAS is 1333% on the $200 sale. On the $25 sale, the actual ROAS ends up being only 166%. In other words, you did not make a profit. We typically think of just breaking even being somewhere between a 260%-300% ROAS on a sale. Those are not concrete numbers, however, but benchmarks some of us try to go by when it comes to ROAS. You will also have to factor in the COGS on the ROAS metric as well just the same, but you should very well see the difference by these two examples.

Summary: Knowing When ROAS or CPA is Right

In closing, I hope we could shine a little bit of light on whether Optimizing Based on ROAS or CPA in Google Ads is right for your business or industry. Of course, every industry is different when it comes right down to it, so you will need to play it according to your business or industry. But the examples above should give you a better idea of how each metric would differ in the optimization process as you move through your day to day optimization. Whether it is lead generation or eCommerce, using either the CPA or the ROAS will need to be tested within your own Google Ads account to see which gives you the best results for your budget.