Raising tROAS to 600% Before Black Friday
An online furniture retailer runs one Search campaign on a target ROAS of 400% with an $8,000 daily budget. Last Black Friday week, revenue tripled, ROAS fell to 310%, and the campaign was limited by budget for six days. This year the CMO wants tROAS raised to 600% for all of November to "protect margin", with the budget held flat because "the algorithm will spend what it needs". Gross margin is 35% on most SKUs, but 52% on the flagship sofa line, which is 40% of Search revenue. Impression share lost to budget runs 35% in November and 6% in January.
1. Evaluate the 600% tROAS instruction using the margin numbers and the historical November data.
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The instruction misreads both margin and the constraint.
- Breakeven is not 600%. At 35% gross margin, breakeven ROAS is roughly 1/0.35 ≈ 286%; at 52% margin on sofas it is about 192%. A 400% target already sits comfortably above breakeven. Pushing to 600% in peak demand does not protect margin - it prices you out of auctions where you would still profit.
- The real constraint is budget, not target. Last November the campaign was limited by budget six days and delivered 310% ROAS while revenue tripled. Raising the target to 600% keeps that budget clamping down harder and forfeits profitable peak volume.
- The correct move is the opposite in direction: accept a lower ROAS during peak because volume and lifetime value rise, and raise budget to capture the demand you are structurally missing (35% impression share lost to budget).
Margin protection comes from product mix and offer, not from starving peak auctions.
2. How would you handle the Black Friday demand spike inside the bid strategy, and what would you change about the budget?
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Smart Bidding forecasts from history; a spike it has never seen is exactly where it will underdeliver.
- Apply seasonality adjustments for the promotional window so the strategy expects higher conversion rates and does not throttle spend. This is designed for short, predictable periods and reverts automatically.
- Use a data exclusion for any one-off anomaly (a site outage, a flash sale that will not repeat) so it does not distort the baseline forecast.
- Raise budget ahead of the event, not on the day. A campaign limited by budget cannot grow into demand, and budget changes also reset learning for a period. Set the peak budget based on last year's lost impression share plus the planned offer.
- Check whether margin varies enough to warrant separate targets. With sofas at 52% margin and 40% of revenue, a single blended tROAS is a blunt instrument; a separate campaign or value-based conversion values can reflect that the same ROAS means different profit by SKU.
Decide the exit: return to the normal target and budget on a defined date, with the January baseline (6% lost to budget) as the sanity check.
3. What would convince you the flat budget is wrong, and how would you make the case?
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The argument for a flat budget rests on "the algorithm will spend what it needs" - but a target-based strategy spends up to the target, and stops at the budget regardless of how profitable the next click is.
Evidence to build the case:
- Impression share lost to budget at 35% in November versus 6% in January. That gap is demand you are declining precisely when it is highest.
- Marginal ROAS, not average. Compare last November's 310% against breakeven (~286% blended, ~192% on sofas). If average ROAS is above breakeven while the campaign is budget-capped, the marginal spend was likely still profitable.
- Contribution, not revenue. Convert to gross profit: peak ROAS at higher volume can beat a leaner month at higher ROAS.
Present a short scenario table - budget flat, +40%, +80% - with expected ROAS, gross profit and the point where marginal ROAS drops below breakeven. Ask for a decision against profit, not a ROAS headline.