Intro
Some products from your inventory are shown a lot and spend your budget, but bring very few sales from ads. Sometimes these products are simply popular because ad platforms show them a lot and they bring traffic to the website. However, these usually just spend advertising budgets which you can limit, and benefit from allocating money elsewhere.
Setup
There might be multiple ways to identify poor performers, but the most popular one includes:
Set a threshold of minimal spend (focus on products that spend the money already). Ask yourself, what is "enough money" to be spent per product to give it a chance to shine?
Set the Product ROAS threshold: The bigger "spend" space you give to the products (mentioned above), the stricter to be when setting up the ROAS threshold. In other words, the more money you let products spend without any revenue, the higher the "debt".
How to Segment (Meta)
Best Practice Tips
In the example shown below, more than quarter of Meta spend goes only to a small fraction of products. This batch of products only contributes to only 4% of the Product Revenue (all sources) with a tiny ROAS (0.49). A business like this is clearly wasting their budget on items that don’t sell well.
Note: If you would have been scared that the revenue (€35,000) might have been negatively influenced if you had excluded these products from (e.g.) Meta promotion, don't worry - Product ROAS (Meta) says that they contributed only 0.49% on the revenue (so make just ~$3,000).
The context is important; some of the Poor Performers could be doing badly in Meta DPAs or Google Shopping ads, but when looking from the perspective of all sources they can otherwise be a good revenue stream.
Start slow! Limiting or removing too many poor-performing products from promotion at once can have a negative impact on your overall ad account performance. The recovery can take some time, so begin gradually by tweaking Spend and Product ROAS thresholds (resulting in 5-10% of Total spend).
Success Stories
Evaluation
Popular questions about Poor Performers:
What are my bad products?
Where is my margin leaking?
Which products are not worth promoting?
How do I increase my ad spend efficiency?
Poor Performers are the polar opposite to the top-selling products. For various reasons, the Meta or Google algorithms may keep pushing poorly performing products (researched with Fashion Days in this study). They might have good engagement and high CTR but ultimately negative returns. Not all Poor Performers have to be excluded from advertising but staying informed about their costs to your business is key.
Show Potential Savings
A useful conversation starter is to show how much there is to by saved. In times where every penny counts, this is highly relevant for all business models.
Looking at the example, it’s clear that excluding or limiting only a small fraction of the inventory (0.3% of All products) can have a massive savings effect. This is how much spend is allocated to products that have negative ROAS. The damage of not doing anything is time x spend that can be saved.
For example: 7,000 USD x 3 months of not doing anything = 21,000 USD.
This money is perhaps better off invested elsewhere (testing New Arrivals or scaling Bestsellers). This is a good time to plan the Stop Loss strategy.
Effect of Excluding
Sometimes, the performance of products is so harmful that you might want to exclude them from promotion altogether. To find the culprits, look at the product data.
Often these are obscure products (adult toys, Christmas advent calendars, random vouchers, cheap accessories, etc.) that are trending among ad algorithms.
You may not wish to advertise them as it could harm their brand image. These products may also not be the core of their product offering. See the example below of an accessory Krewetka Sheldon among high-end products:
While the amount of promoted products may fluctuate over time, it is possible to observe the effect of removed Poor Performers on Promoted Products in overall better results:
Why do I still see spend in Poor Performers after their exclusion?
The success of Poor Performers is a continuous process of disproportionately reducing spend for the products that are performing poorly as of the last 24h update, not a single change of removing all Poor Performers defined from a certain time period.
Excluding the poorly performing products themselves is not technically possible (nor ideal), given that a segment will always have a certain amount of products qualifying for the segment definition.
Using the default Poor Performers segment definition of Top 20% Spend and Bottom 20% ROAS, spend can be directly changed but ROAS can be indirectly influenced.
For example, if products previously qualifying as Poor Performers receive less spend but their revenue stays the same, then their ROAS may improve enough to disqualify them
Additionally, new products that previously were not Poor Performers may now qualify if their spend increases but revenue does not, thus decreasing ROAS
Therefore, the unique value of using ROIH to manage your Poor Performers is to verify that the spend going to Poor Performers is not proportionately scaled according to your overall spend. Compare spend distribution in two massive spend increases in the graph below, one before exclusion of Poor Performers and one after:
Effect of Limiting
Excluding products from promotion is not a one-size-fits-all solution. Even products with bad results can have some important meaning for your business or the brand. They can be a great traffic magnet at the top of the funnel. You may consider their importance of bringing customers to their sites who end up buying something else.
In this case, it is a good strategy to limit Poor Performers. This means that they will still have their promotion but under a strict budget and ROAS conditions.
See the example below of development over time; note the decreasing spend on Poor Performers and increasing ROAS overall.
