Hi there,
Thanks for reaching out! It sounds like you're caught in a really common, but super frustrating spot with target ROAS. A lot of people hit this wall where they're trying to balance spend and profitability, and it feels like pulling one lever just messes up the other. I'm happy to give you some of my thoughts on how to break out of this cycle and start scaling properly.
The short answer is you're probably focusing a bit too much on tROAS as a direct control, when it's more of a suggestion you give to the ad platform. The real path to scaling isn't about finding the perfect tROAS number, but about understanding your business's real profitability on a per-customer basis. Once you know that, you can make much more informed decisions about how much you can truly afford to pay for a customer, which frees you up from this day-to-day bidding battle.
TLDR;
- Stop treating Target ROAS (tROAS) as a precise lever. It's a guide for the algorithm, not a command. Pushing it too high throttles spend, setting it too low can burn cash.
- The most important piece of advice is to shift your focus from ROAS to your Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratio. This tells you what you can actually afford to spend to get a customer.
- It's completely normal for actual ROAS to be higher than your tROAS setting. The algorithm is just finding cheaper conversions than the minimum you set. Don't chase this by aggressively raising your tROAS.
- Adopt a portfolio approach. Your prospecting campaigns might run at breakeven (or a slight loss) to acquire new customers, while your retargeting campaigns will deliver a much higher ROAS, balancing the account overall.
- This letter includes an interactive calculator to help you figure out your LTV and what you can afford to pay for leads, which is probably the most useful thing you can do right now.
We'll need to look at the tROAS trap...
First off, let's just get this out of the way. What you're experiencing is perfectly normal. The way the tROAS bidding strategy works is a bit counter-intuitive. You're telling Google or Meta, "Don't enter any auction for me unless you think you can get me at least X% return".
So when you set your tROAS to 220% and it underspends, the algorithm is basically saying, "Alright, I'm looking, but I can't find enough auctions where I'm confident I can hit that 220% floor, so I'm holding back your money." When you push it up to 270-300%, you're making that floor even higher and giving the algorithm even fewer opportunities to spend. It gets scared to waste your money, so it just doesn't spend it. That's why you feel like the spend will just dry up, because it probably will.
On the flip side, when you see some campaigns with a tROAS of 220% actually deliver 280%, that's the algorithm doing its job well. It found a bunch of auctions it could win that were much cheaper than your 220% floor, so the average return ends up higher. It's a good thing, but it's not a signal to immediately crank up your tROAS to 280%. If you did that, you'd be cutting out all those slightly-less-profitable-but-still-good conversions that are currently bringing your average up.
And your feeling that campaigns with no tROAS just burn money is also spot on. That's usually a 'Maximise Conversions' bid strategy with no safety net. It's designed to spend your entire budget to get as many conversions as possible, regardless of the cost. It can work for launching and gathering data, but it's not a sustainable way to run a profitable account.
So you're stuck in this loop. Too high, no spend. Too low, maybe unprofitable. No target, you burn cash. This is the tROAS trap. The way out isn't to find the magic number, but to change the entire game you're playing.
I'd say you need to redefine your breakeven point...
Your breakeven of 240% ROAS is based on a single transaction. But is that how your business really makes money? Most succesful eCommerce businesses rely on repeat custom. A customer might buy today, but what about next month? And the year after that? The real question isn't "How low can my acquisition cost go?" but "How high a cost can I afford to acquire a truly great customer who will buy from me again and again?"
This is where understanding your Customer Lifetime Value (LTV) becomes the most powerful tool in your arsenal. It completely changes how you view ad spend. Instead of a cost, it becomes an investment in a future revenue stream.
The calculation is pretty straightforward. You need three numbers:
- Average Revenue Per Account (ARPA): How much revenue you get from a customer each month on average.
- Gross Margin %: Your profit margin after the cost of goods sold. If you sell a product for £100 and it costs you £30 to make, your gross margin is 70%.
- Monthly Churn Rate %: The percentage of customers you lose each month.
The formula is: LTV = (ARPA * Gross Margin %) / Monthly Churn Rate
Let's imagine you run a subscription box service. Your box is £50 a month (ARPA), your gross margin is 60%, and you lose about 5% of your customers each month (churn).
LTV = (£50 * 0.60) / 0.05
LTV = £30 / 0.05 = £600
Suddenly, each customer isn't worth a single £50 sale, they're worth £600 in gross margin over their lifetime. A healthy business model often aims for a 3:1 LTV to Customer Acquisition Cost (CAC) ratio. In this case, you could afford to spend up to £200 to acquire a single customer and still have a very healthy, profitable business. A £200 acquisition cost on a £50 sale looks like a terrible 125% ROAS on the first purchase, but when you factor in the LTV, it's an incredible investment.
This is the maths that unlocks aggressive, intelligent growth and frees you from the tyranny of only looking at first-purchase ROAS.
You probably should calculate your own numbers...
To make this more practical for you, I've built a little calculator. Play around with the sliders using your own business's numbers (or your best estimates). See how small changes in churn or margin can dramatically affect how much you can afford to spend to get a new customer. This will give you your real "breakeven" point, not just the one for the first sale.
You'll need a portfolio approach to your campaigns...
Once you know your affordable CAC, you can stop trying to make every single campaign hit the same ROAS target. This is the biggest mistake I see. You should think about your ad account like a financial portfolio. Some investments are safe and deliver steady returns (your retargeting campaigns), while others are higher risk but have the potential for massive growth (your prospecting campaigns).
You need to structure your account to reflect the different stages of the customer journey. You can't expect someone who has never heard of you before (cold traffic) to convert at the same rate as someone who has added a product to their cart three times (hot traffic). So why would you give them the same ROAS target?
A much more effective structure looks something like this:
Top of Funnel (ToFu)
Goal: New Customer Aquisition
Audience: Lookalikes, Interests
Middle of Funnel (MoFu)
Goal: Re-engage Visitors
Audience: Site Visitors, Video Viewers
Bottom of Funnel (BoFu)
Goal: Convert Hot Leads
Audience: Add to Carts, Checkouts
Blended Account ROAS: 280%+ (Profitable & Scaling)
With this approach, you intentionally run your prospecting (ToFu) campaigns at a lower ROAS, maybe even slightly below your single-purchase breakeven point. This is your investment in growth. These campaigns feed new potential customers into your funnel. Then, your retargeting campaigns for website visitors (MoFu) and cart abandoners (BoFu) are set with much higher tROAS goals. These are your profit drivers.
The magic is in the blended ROAS across the entire account. You might have one campaign at 180% and another at 600%, but if the average is 280%, you're hitting your goals and, more importantly, you're constantly bringing in new customers to scale the entire operation. This stops you from choking your own growth by setting a single, restrictive tROAS for everyone.
This is the main advice I have for you:
Getting this right isn't just a switch you flip; it's a strategic shift. It involves restructuring your account, getting crystal clear on your numbers, and being patient as you test. I've broken down the main steps into a table for you to make it a bit clearer.
| Actionable Step | Why It Matters | How To Implement It |
|---|---|---|
| Calculate Your LTV | This is your north star. It defines your true breakeven and how much you can afford to pay for a customer, freeing you from single-purchase ROAS constraints. | Use the formula and calculator provided. Gather data on your average monthly revenue, gross margin, and customer churn rate. Be honest with your numbers. |
| Restructure Campaigns | Separating campaigns by funnel stage (ToFu, MoFu, BoFu) allows you to set different goals and bids for different audience temperatures. | Create separate campaigns for prospecting (new audiences) and retargeting. You can further segment retargeting into "light" (visitors) and "heavy" (cart abandoners). |
| Set Tiered tROAS Bids | This lets you invest in new customer aquisition at a lower initial return, knowing that your high-intent retargeting campaigns will ensure overall account profitability. | Set a lower tROAS (e.g., 200-250%) for your ToFu campaigns. Set a higher tROAS (e.g., 400%+) for your BoFu campaigns. Monitor the blended account ROAS, not individual campaigns. |
| Systematic Creative Testing | Your ads will eventually fatigue. You need a constant stream of new creative and messaging to find the next "winner" to scale and feed into your main campaigns. | Dedicate a small portion of your budget (10-15%) to a separate testing campaign. Test one variable at a time (e.g., one new headline, one new image) against your current best-performer. |
We've seen this portfolio approach work wonders for our clients. I remember we worked on a campaign for a cleaning products company, and by separating their prospecting and retargeting efforts, we managed a 633% overall return and increased their revenue by 190%. Similarly, for a women's apparel brand, this exact structure helped us drive a 691% return. These massive numbers don't come from setting one high tROAS; they come from a balanced account where high-profit retargeting more than makes up for the initial cost of acquiring new customers.
So, what comes next?
I know this is a lot to take in. Moving from simple bid management to a full LTV-based portfolio strategy is a big step. It requires a deep dive into your business metrics, a complete re-think of your account structure, and ongoing, disciplined testing and analysis. It's not easy, but it is the correct path to sustainable, profitable scale.
This is where expert help can often make a huge difference. An experienced eye can help you accurately calculate your LTV, identify the right audiences for each stage of your funnel, and implement the testing frameworks needed to keep performance high, saving you from a lot of costly trial and error along the way.
If you'd like to chat through your specific situation in more detail, we offer a completely free, no-obligation initial consultation. We can take a look at your account together and map out what a strategy like this would look like for your business specifically. It's often really helpful just to get a second opinion.
Hope this helps!
Regards,
Team @ Lukas Holschuh
