September 18, 2020
Holiday 2020: Seasonal Planning Calendar for Ecommerce & DTC Marketers
Shopping campaigns can be fairly simple when you first launch them, and a one-sized-fits-all approach is tempting: link to the feed, set bids based on your account goal, and voila!
But this approach is far from ideal if you have different margins for groups or categories of products. In this case, using a single goal can present some big problems, like selling low-margin products at a loss, despite keeping your campaign above goal. The solution is to structure your Shopping campaigns by product margin, allowing you to be much more confident that you’re driving sales profitably.
There are certain situations where it makes sense to segment your Shopping campaigns by product margin. First, you will want to have enough products that it makes sense to segment your feed. If you only have a relatively small selection of products, then there are likely more effective ways to manage your Shopping campaign without margin-based categories. Likewise, because this method involves segmenting your products into groupings with similar margins, you should only attempt this if your margins vary widely between products.
The most important determination you’ll need to make when setting up your Shopping campaigns is which margin metrics to use, and how many categories or groups you’ll need. Whether you use a margin percentage, a margin dollar amount, or a combination (see below) will vary based on your business.
Below are some guidelines on selecting your margin metric:
If your business has a number of products with similar price points but different margin percentages, you should use margin percentage as your metric. An advertiser selling candy, for example, might see higher margins on high-quality chocolates compared to lower-quality caramels and lollipops. In this case, you would bid the chocolates higher, because increased sales here will deliver more bottom-line revenue.
If your business has a wide variety of price points but similar margins, you should use margin dollar amount as your metric. A reseller of home and garden equipment, for example, might see similar margins on a premium BBQ grill and a garden hose, but the grill delivers much more revenue. In this case, you would increase bids to sell more of the high-revenue products.
Once you’ve determined your margin metric, you should sort your products into categories, such as a high, medium, and low margin percentage category, or categories for products that cost over $250, products between $100 – $250, and products under $100.
The toughest part about segmenting and creating categories is creating the ideal number of categories. If you create too many different margin categories, you will struggle to manage performance around multiple goals, not to mention the extra time required to label and audit your feed.
On the other hand, if you select too few margin categories, you might end up optimizing for a goal that’s unprofitable for a large chunk of the products within a given category.
Here are some suggestions on creating margin categories:
If you’ve elected a margin percentage range, create 3-5 different margin categories, such as 0 – 33%, 34 – 66%, and 66% – 90+% for a small feed, or 0 – 20%, 21 – 40%, 41 – 60%, and so on for a large feed.
If you’ve elected a margin dollar range, calculate the margin per dollar for each product sold, and look for clusters at certain price points, such as $500 – $1000, or $25 – $75. Ideally you should select 3-5 clusters that contain a sizable share of your products.
Once you’ve determined your metric and category groupings, you should assign a category label to each product in the feed. Create simple, easy to reference labels such as high margin/medium margin/low margin or below 25, 25 to 75, above 75. From there, you can create your ad groups around each of those labels and set bids and make adjustments with greater confidence that you’re driving profitable results for each product margin.
We discussed how to choose a metric earlier, but what if your business has widely different price points AND widely different margins? If you use just percentage-based categories, you won’t know which products to bid up to take advantage of their higher AOV, or which low-priced products to leave as-is. If you just use dollar amount, you won’t know which products are profitable and which are unprofitable.
The answer is to leverage both as separate labels. Start by separating ad groups based on product margin percentage. Then segment one level deeper based on your margin dollar custom labels, separating your high-sticker price products from low-AOV products. Doing so will allow you to account for both product percentage margin and AOV when optimizing your Shopping campaign. You can even use these columns in combination with other custom labels such as seasonality or clearance items to give you maximum control over the products you show.
Whether you employ margin percentage, margin dollar amount, or a combination of both, remember that optimizing towards product margin can be more effective than focusing on a singular ROI goal.