Performance Max often accounts for 60–80% of total spend across large ecommerce accounts. Shopping and Search have consolidated into a single system, and growth is increasingly dependent on how Performance Max behaves.
Here’s the uncomfortable truth: in most cases, Performance Max isn’t the problem.
Your product economics are.
If your campaigns are generating conversions but your business isn’t generating profit, the issue is not optimisation. PMax is simply doing what it was designed to do: maximise conversions within the constraints you give it.
When performance shifts, the impact is felt across the entire business, not just within the channel. When results dip, the response is predictable. Teams move quickly inside the platform, looking for efficiency gains and control.
- Restructuring campaigns
- Adjusting tROAS targets
- Refreshing creative assets
- Layering in new audience signals
But these actions are solving the wrong problem. Because Performance Max isn’t underperforming. It’s doing exactly what it was built to do.
PMax Optimises For Conversions, Not Profit
At its core, Performance Max is a conversion engine. It looks for signals that indicate a user is likely to convert and then aggressively pursues those users across channels.
What it does not do by default is optimise for profitability. Performance Max optimises for probability.
It identifies what is most likely to convert and scales it aggressively. This includes products that convert easily, queries that close quickly, and audiences already showing intent. That’s why many accounts appear stable on the surface, with revenue growing, spend increasing, and ROAS holding within acceptable thresholds.
- High-conversion products are prioritised
- Short path-to-purchase queries dominate
- Existing demand is captured efficiently
But beneath that stability, performance often starts to degrade.
What PMax Actually Optimises
- Conversion volume
- Conversion value (if value-based bidding is used)
- Cost per acquisition (CPA)
What It Ignores
- Product-level margins
- Cost of goods sold (COGS)
- Return rates
- Operational costs (shipping, payment fees, etc.)
Even when you use a target ROAS strategy, PMax is optimising for revenue efficiency, not profitability.
This distinction is critical.
A campaign can deliver a strong ROAS while still driving unprofitable sales — especially if high-revenue products have low margins or high return rates.
Why “Good ROAS” Can Still Lose You Money
ROAS (Return on Ad Spend) is one of the most widely used metrics in performance marketing. But it is also one of the most misunderstood.
The Illusion of ROAS
ROAS is calculated as:
Revenue ÷ Ad Spend
It tells you how efficiently your ads generate revenue, not whether that revenue is profitable.
Let’s break this down with a simple example:
Product price: £100
Cost of goods: £70
Ad spend: £20
Revenue: £100
ROAS = 5x (100 ÷ 20)
Sounds great, right?
But your actual profit is:
£100 - £70 - £20 = £10
Now factor in returns, shipping, and overhead and that £10 can quickly disappear.
When High ROAS Is Misleading
High ROAS becomes dangerous when:
- Margins are thin
- Discounts are aggressive
- Return rates are high
- Average order value (AOV) is artificially inflated
In these cases, PMax can scale campaigns that look efficient on paper but are fundamentally unprofitable.
The Hidden Impact of Returns
Returns are one of the most overlooked factors in paid media performance.
Why Returns Break Your Economics
When a product is returned:
- Revenue is reversed
- Ad cost remains
- Additional costs are incurred (logistics, restocking, damage)
Yet most advertisers optimise campaigns using gross revenue, not net revenue.
Example Scenario
100 orders generated by PMax
Average order value: £80
Total revenue: £8,000
Ad spend: £2,000 → ROAS = 4x
Now introduce a 30% return rate:
Net revenue: £5,600
Effective ROAS: 2.8x
If your breakeven ROAS is 3x, you are now losing money — despite what the dashboard shows.
Margin Blindness: Treating All Revenue Equally
Not all revenue is created equal.
One of the biggest mistakes advertisers make is feeding PMax uniform conversion values without accounting for margin differences across products.
The root issue is that most businesses have not clearly defined what “good revenue” actually looks like. Not all conversions carry the same commercial value, yet they are treated equally within the platform. A £100 order is not just a £100 order.
- A low-margin, high-return, one-time purchase behaves very differently
- A high-margin, low-return, repeat-purchase product compounds value
Without this distinction, Performance Max optimises toward volume, not quality. And over time, that gap compounds.
Example
Product A: £100 revenue, 50% margin
Product B: £100 revenue, 10% margin
PMax sees both as equally valuable.
In reality, Product A contributes£50 in profit, while Product B contributes just £10.
If PMax leans into Product B because it converts more easily, your overall profitability declines, even if revenue grows.
The Result
Increased spend on low-margin products
Reduced overall profit
Misleading performance signals
AOV Distortion: Bigger Orders, Smaller Profits
Average Order Value (AOV) is often used as a lever to improve ROAS. Bundles, upsells, and discounts are introduced to increase basket size.
But higher AOV does not always mean higher profit.
How AOV Gets Distorted
- Heavy discounting to push bundles
- Including low-margin add-ons
- Offering free shipping thresholds
These tactics can inflate revenue while compressing margins.
Example
Original order: £50 with 40% margin → £20 profit
Bundled order: £80 with 20% margin → £16 profit
ROAS improves, but profit declines.
PMax will naturally favour the higher AOV scenario even though it is worse for your business.
The Core Problem: Misaligned Incentives
Performance Max is not broken. It is simply aligned to the wrong goal.
If you feed it revenue-based signals, it will optimise for revenue.
If your business depends on profit, then your signals must reflect profit.
Common Misalignments
- Optimising for ROAS instead of contribution margin
- Ignoring post-purchase metrics (returns, cancellations)
- Treating all products as equally valuable
- Scaling campaigns without unit economics clarity
Fixing the Real Issue: Bringing Economics Into Optimisation
To make PMax work for your business, you need to align its inputs with your actual business goals.
1. Move from Revenue to Profit Signals
Where possible, adjust conversion values to reflect:
- Gross margin
- Net revenue (after returns)
- Contribution margin
2. Segment Products by Economics
- Separate high-margin vs low-margin products
- Allocate budget intentionally
- Avoid letting PMax over-index on easy-to-sell, low-profit items
3. Account for Returns and Cancellations
- Use delayed conversion imports
- Adjust reported revenue
- Optimise for net performance, not gross
4. Rethink Your KPIs
Replace or supplement ROAS with:
- Profit per order
- Contribution margin
- Customer lifetime value (LTV)
5. Control AOV Strategies
- Evaluate the profitability of bundles
- Avoid margin-destroying discounts
- Focus on profitable growth, not just bigger carts
Conclusion: The Algorithm Reflects Your Inputs
The question for performance leaders has changed. It is no longer about how to optimise Performance Max within the platform. It is about defining what the platform should be optimising for in the first place.
- What products are we allowing to scale?
- What revenue are we prioritising?
- What are we excluding and why?
It does not understand your margins, your return rates, or your operational costs unless you explicitly tell it.
- If you optimise for revenue, you will get revenue.
- If you optimise for profit, you will get profit.
The difference lies not in the platform, but in the economics behind your products.
Before blaming PMax, take a closer look at your numbers.
In most cases, the campaign isn’t failing; your unit economics are.
The advantage of PMax lies with the businesses that understand their economics and operationalise them clearly.
- Clear inputs outperform clever tactics
- Product strategy outperforms campaign structure
- Commercial clarity outperforms platform optimisation
The winners won’t be those who optimise Performance Max the most. They’ll be the ones who define value the best.
Need a fresh perspective? Let’s talk.
At 360 OM, we specialise in helping businesses take their marketing efforts to the next level. Our team stays on top of industry trends, uses data-informed decisions to maximise your ROI, and provides full transparency through comprehensive reports.
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