Utilizing profit margin data to stay competitive

The challenge

Many online retailers opt for ROAS as their target metric – as it’s easy to calculate, broadly applicable and shows how efficient ads are. The problem is that it causes companies to overlook other metrics that might be harder to calculate or implement. ROAS, while being a crucial metric, is simply not the right KPI for every retailer – let alone for every business scenario.

Among the goals of CoolStuff, one of Scandinavia’s biggest gadget shops, was to scale up their performance in Germany and to outperform competitors in this market. This endeavour required them to radically rethink their marketing activities: brute-forcing through the competition wasn’t an option as the inevitably high CPCs driven by the financial power of the biggest player wouldn’t allow for that kind of approach.

Together with the client, we assessed different options and concluded that leaving behind ROAS as the main metric for measuring success would be the way to go. It was time to shift the focus to margin profits instead.

The solution

The key to success was identified early on: bidding on niche products which aren’t sold by competitors and those products with high profit margins. So, CoolStuff first needed to change their target metric from ROAS to profit margins.

To properly bid on margin data, it is necessary to segment products within the data feed from highest to lowest margin. Margin tags were added to each product and product clusters built for certain margin ranges. With proper tags in place, bid algorithms were put to work.

The satisfying outcome: the implemented adjustments allowed CoolStuff to bid on products with the highest profit margin in an efficient, sustainable and automated manner. There was no more need for the client to manually adjust bids of their products.

The results

Looking at Q4 2020, Coolstuff increased revenue by +26% YoY and gross profit by +42% YoY, while lowering cost by -10% YoY by focusing on margin-based advertising goals.

However, this only marks the beginning of CoolStuff’s profit success story: Now that their growth is more profitable and targeted, they’re in the fortunate position of being able to consider additional signals, such as seasonalities. We are looking forward to further optimization projects and a long-term partnership based on trust and success.