HOW Pmax misleads advertisers

HOW Pmax misleads advertisers

Let’s assume your shopping ads are getting you the following performance:

Your ROAS goal is a 5, so you bid to a 5 on the non-brand shopping campaign. You’re maxing what you can spend on brand demand at a profitable ROAS. Here’s how that’s contributing to your profit:

Your Google rep suggests you test Pmax against your current shopping campaigns.

So, you run a test and spend $100k to drive $500k in sales using your 5 ROAS goal.

Hey, that’s better than your shopping campaigns! Right?

Let me show you how you’re being misled.

Pmax doesn’t just bid on shopping ads. It also bids on text ads, retargeting and other display ad inventory. Here’s an example of the Pmax results, along with detail of the inventory that comprised the campaign. Note that Google doesn’t show this detail, it can only be obtained by using advanced scripts.

There’s a wide variety of inventory in this Pmax campaign. With a 5.0 ROAS goal, it’s apparent you are investing a significant sum in ads that are below your profitability threshold.

But there are two bigger problems at hand.

Incrementality

Different ad types offer different levels of incremental benefit.

For example, the ad report shows brand ads driving $204k of sales. But if you stop running them, you don’t lose all of those sales, many of the prospects will still find your site. So, the incremental gain of a brand ad is much less than the sales reported after someone clicks on the ad. As an attribution-intensive agency, we’ve tested every channel imaginable to learn about it’s incremental revenue contribution. Below we have applied reasonable incrementality adjustments to the channels that exist in the Pmax campaign:

Incremental sales from the Pmax campaign are only $289k, at a 2.89 ROAS, well under goal. So you are way overspending. Google took your margin.

Here’s the calculation of incrementality on the shopping campaigns you were running before Pmax:

Incremental sales from the shopping campaigns were $293k with a 4.9 ROAS. Spending appropriately.

So, which is better?

While your measurement system (which does not account for incrementality) shows Pmax campaigns driving higher sales and slightly higher profit from increased spend, it resulted in you losing $42k of profit, all of which flowed into Google’s bank account.

But wait, there’s more!

Now go take a look at your brand text ads and retargeting ads. You’ll probably see a decrease in performance from where Pmax cannibalized them. And sometimes it’s significant.

About Conversion Path

Conversion Path is a digital advertising agency and measurement service that helps ecommerce brands invest the right amount in the right channels to break through the predictable sales and profitability plateaus that arise when using click-based channel measurement.

One of our key innovations is our GS+ Google Shopping algorithm that routinely beats Pmax performance while protecting data visibility and control over incrementality to protect advertiser margin. Here’s a case study on how we beat Pmax by a wide margin.

https://conversionpath.com/2024/03/04/how-we-beat-pmax/