Quick Answer
Target ROAS on Shopify Google Ads is calculated from contribution margin, LTV-to-first-order ratio, and acceptable payback period. Default industry numbers (4x, 5x) are rarely correct for specific stores; run the calculation.
The calculation
Target ROAS = (1 / contribution margin) × (1 / LTV multiplier) × payback adjustment. Example: 25 percent contribution margin, 2x LTV, 90-day payback = Target ROAS around 2.0x, not the 4x default. Before setting any Target ROAS, confirm the campaign has the conversion volume to support automated bidding at all; the 20-minute bid-strategy audit walks the per-campaign threshold check (Target ROAS needs at least 50 conversions per month, ideally 100+).
Common mistakes
Using gross margin (overstates ROAS target). Assuming LTV equals first-order revenue (understates target). Ignoring payback period (common in VC-funded stores).
Common Questions
On record.
What contribution margin should I use?
Contribution = gross margin minus variable costs (payment processing, shipping, returns reserve).
What LTV multiplier is typical?
1.5-3x first-order revenue over 12 months. Vertical-dependent.
Should I set Target ROAS lower to scale?
Temporarily, yes. Scale-phase Target ROAS is lower than profit-optimized Target ROAS.
Does this apply to Performance Max?
Yes. PMax uses the same Target ROAS input.
How often should I recalculate?
Quarterly. Margins shift, LTV extends with cohort maturity, payback expectations change.
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