Shopee: Our Strategy (GMV Max Ads)

Introduction

This document serves as a comprehensive guide for teaching Shopee sellers effective advertising strategies to optimize their ad campaigns. The approach focuses on identifying winning and losing ads to maximize Gross Merchandise Value (GMV) while minimizing losses. Sellers will learn to implement structured methodologies to refine their advertising strategies, ensuring sustainable growth on the Shopee platform.

• Duration: 1-2 hours

The Goal

The primary goal of this course is to equip fellow Shopee sellers with actionable insights and techniques for running profitable Shopee Ads. By the end of the training, participants should be able to confidently set up, monitor, and optimize their advertising campaigns to increase visibility and drive sales while minimizing losses when running Shopee ads.

Who is this for?

1. For you if you use auto bidding & use GMV Max ads for most of your ads.

2. For you if you want to figure out how to derive your ROAS Target.

📌 Camcorder - Video Tutorial

<Insert Video Tutorial Here>

📌 The Course - Our Ads Strategy

Advertising is a black hole that will suck up all of your marketing budget if you do not know what you are doing. This concept applies to Shopee ads as well.

Table of Contents

• Definitions -> Understand the terms we use as you read this guide.

• Purpose of buying ads -> Understand why we buy ads

• Types of ads -> How we classify ads as part of our ads playbook.

• The marketing funnel -> Where do shopee ads fit in our broader marketing funnel.

• Search ads (GMV Max) -> Understand the psychology of search ads from the buyer's POV

• Discovery ads (GMV Max) -> Understand the psychology of discovery ads from the buyer's POV

• Our strategy in a nutshell -> A summary screenshot of how to execute our strategy

• Ad Level vs Product Level -> Understanding the 2 levels of analysis

• CPC & CPI -> Understanding whether ads are overpriced/underpriced

• Win Conditions -> Definition of what a win condition is (in this context)

• Lose Conditions -> Definition of what a lose condition is (in this context)

• Deep Dive - Q1: Should I continue running ads? -> Detailed breakdown of methodology

• Deep Dive - Q2: When to adjust ad daily budgets?

• Setting target ROAS on Shopee ads

Definitions

1. Placements - In the context of advertising, this refers to the actual place that your ads show up in on the Shopee shopping platform

2. Search Ads - Any Shopee ad that shows up when you type keywords in the Shopee search bar

3. Discovery Ads - Any Shopee ad that does not shows up when you type keywords in the Shopee search bar, and appear everywhere else on the platform.

4. GMV Max Ads - Search + Discovery Ads combined into one product. (See FAQ for Explanation)

5. Offer - The product you are selling + anything else that makes your listing stand out. (interchangeable with product listing)

6. Positioning - Your marketing mix (4P) that determines how you sell your product on Shopee.

7. Marketing Mix (4P) - Price, Product, Promo, Placement.

8. Cost per click (CPC) - How much it costs per click. It's a measure on how relatively expensive or cheap your ads are.

9. Cost per 1,000 impression (CPM) - how much it cost to display your ad in general. It's a measure on how relatively expensive or cheap your ads are.

10. Bid Prices - The maximum amount you are willing to pay per click in an ad auction on Shopee ads.

11. GMV - Gross Merchandise Value (Sales)

Purpose of buying ads

To secure the best traffic on Shopee, invest in placements that boost your listings' visibility, increasing your chances of conversions and enhancing your overall gross merchandise value (GMV).

📌 Best Traffic in this case just means Most Qualified and Highest Quantity

• Most Qualified -> Highest Quality of potential customers.

• Highest Quantity -> Highest number of most qualified potential customers.

✅ The reason for this definitions is because Shopee makes their money through a transaction fee model. Which means that when you run an auto ads strategy, they have a built in incentive to optimize the ads for the highest chance of conversion. (to earn transaction fees %)

Types of ads

📌 Though there are many ways to slice these defnitions, for the purpose of this guide, we will only slice it 2 ways:

1. Middle of Funnel Ads (MOFU) - Discovery Ads, GMV Max Ads

2. Bottom of Funnel Ads (BOFU) - Search Ads, GMV Max Ads

The Marketing Funnel

✅ The funnel's job is to help your prospects realise they have a problem that your product can solve - and to be there for them when they're ready for the solution.

Top of Funnel (TOFU)

The amount of people in a market who are "ready to buy right now" is usually under 10%

📌 In the first stage of the funnel, your ideal customer is becoming aware of a problem that they will eventually need a solution to.

✅ The key to nailing the awareness stage of the funnel lies in distributing high-value, free content.

Middle of Funnel (MOFU)

Your ideal customer might not know how to purchase a solution, who the players are, or what to do next. They are probably still learning - Watching YouTube videos, TikToks...etc, and piecing things together on their own.

📌 In the second stage of the funnel, your ideal customers are starting to develop a mental model for how to think about the problem - and in turn, how to think about the solution.

✅ Our job is not to convince these prospects to buy, but rather, teach them how to think. Our product listings need to teach customers how to think about their problem, and also simultaneously positions our product lising as the best solution to buy.

Bottom of Funnel (BOFU)

When prospects read your product listing, they are deciding whether or not what you have listed is "for them."

📌 In the last stage of the funnel, This is where our customers get serious about buying something. They are actively comparing available solutions, comparing features, benefits, looking at pricing, and determining which offer makes the most sense for them.

✅ At this stage, if our product listings "make the most sense to them". They will buy from us instead of our competitors on Shopee (whether they clicked on an ad or not)

Search Ads (GMV Max)

📌 The purpose of search ads (GMV Max) is simple. It's designed to put your ads in front of the prospects who are already ready to buy (BOFU)

These prospects are are considered "hot leads" as they are:

• already aware of the problem

• actively looking for the solution on shopee

• know what keywords to search for on Shopee

• will most likely buy if the offer makes sense to them

📌 When you buy search ads on Shopee, you are essentially trying to outbid your competiton for the top placements in Shopee's ad auctions to have your product listings show up at the very top right below the search bar.

For us, we only regard the 1st 4 listings displayed on the very first search result as "Top SEO" (More on this later)

📌 To remain "competitive" & "top-of-mind". Sellers on marketplaces like Shopee are willing to out-bid each other in ad auctions and pay a premium to feature their products on those placements for that particular keyword that the buyer is searching for.

Discovery Ads (GMV Max)

📌 The purpose of discovery ads (GMV Max) is also simple. It's designed to put your ads in front of the prospects who are in the consideration stage of the funnel (MOFU) or are transitioning into the decision stage (BOFU)

Consideration Stage (MOFU) - 80%

• Window Shopping

• Comparing features...etc

• Understanding available options

• Comparing competitor offers with yours...etc

Decision Stage (BOFU) - 20%

• Comparing prices

• Comparing shipping and delivery times...etc

📌 When you purchase discovery ads (GMV Max) on Shopee, you are competing with others for these placements. However, the competition is less intense than for search ads (GMV Max), as users from discovery ads are generally less likely to make a purchase compared to those from search ads.

Based on this understanding, we do not consider discovery ads to be "top placements."

Our strategy in a nutshell

📌 Now that you have a more thorough understanding of the types of product ads that can be purchased on Shopee, here's the outline of our ads strategy:

Questions we ask ourselves

📌 This applies to every single product listing (new or old) that we plan to run ads for before we run them and after we run them during our monthly ad audit reviews.

Q1: Should I continue running ads?

• If the ad is making money (i.e not losing money), we should continue running it.

• If the ad is not making money, we should probably stop running it.

  • But if we do, there should be a good reason for it. (Loss leader strategy...etc)

Q2: When to adjust ad daily budgets?

• If our average daily spend < max daily budget (i.e not maxed out), why should we increase our max daily budget?.

  • Max daily budget = $8/day

  • Average daily spend = $4/day

• If our average daily spend = max daily budget (i.e maxed out), shouldn't we consider increasing our max daily budgets to allow for more ad spend?

Metrics underpinning this strategy

📌 If you want to deploy our ads strategy, you need to first understand a few fundamental concepts and core metrics key to this strategy:

1. Direct GMV

2. Expense

3. Direct Return on Ad Spend (Direct ROAS)

4. Gross Margin %

5. Breakeven ROAS (BEROAS)

6. True ROAS (T-ROAS)

Direct GMV

✅ This metric shows you how much sales was generated by this product listing that came directly from this ad. (Tracking only buyers that bought this product from your listing in 7 days after clicking on your listing)

Expense

✅ This metric shows you how much of your total ad budget was spent on this listing in this spending window (In this case it was in 1 month)

Direct Return on Ad Spend (Direct ROAS)

Formula = Direct GMV/Expense

✅ This metric shows you how much of your total ad budget was spent on this listing in this spending window (In this case it was in 1 month)

Gross Margin %

Formula = (Selling price - COGS - Cost of Sales) / Total Revenue) x 100

✅ The gross margin formula is a key metric in finance and accounting that helps businesses evaluate their profitability.

For us, we count this metric on a per unit basis, with definitions as such:

• Selling Price -> refers to the selling price before any discounts and promotions

• COGS -> refers to our product cost price before factoring in any other costs of selling the item

• Cost of Sales -> refers to any associated cost with selling the product (before running ads)

  • Freight costs

  • Shopee Marketplace Fees

    • Commission

    • Service Fees

    • Transaction Fees

    • Delivery Fees

  • Fulfillment fees...etc

Breakeven ROAS (BEROAS)

Formula = 1 / Gross Margin %

✅ The breakeven Return on Ad Spend (ROAS) is a crucial metric for determining the minimum revenue you need to generate from your advertising efforts to cover your costs. Understanding the breakeven ROAS helps in setting realistic advertising goals and managing your advertising budgets effectively.

True ROAS (T-ROAS)

Formula = Total Revenue (Paid sources + Organic sources) / Expense

✅ Unlike direct ROAS, this metric takes into account sales attributed from organic traffic + paid traffic to give you a "true" measure of how much GMV your listing generated from all sources, relative to the amout spent on ads. The result is a number that reflects your true ROAS.

For us, we see this as the true metric of success for all product listings advertised on Shopee.

Ad Level vs Product Level

📌 From this point onwards, I will be referring to components of our Ads Audit Dashboard as I built this dashboard to be used alongside out strategy.

Ad Level

• Reporting in the ad level takes into account the GMV performance of just paid sales that was clocked during the month. (Be it search or discovery)

Product Level

• Reporting in the product level takes into account the GMV performance of both paid + organic sales that was clocked during the month. (Be it search or discovery)

CPC & CPI

• Doing an ad audit at the ad level strips away the organic results and will tell us how overpriced/underpriced placements on currently is.

  • Cost per Click (CPC) - We look at this metric to tell us whether sellers are actively bidding for the same product on Shopee ads. As a rule of thumb:

    • If CPC 📈, It is an indicator that more sellers are bidding in the same ad auction as us, which results in higher overall bid prices, and CPC. (We pay more per click)

    • If CPC 📉, it is an indicator that less sellers are bidding in the same ad auction as us, which results in lower overall bid prices, and CPC. (We pay less per click)

  • CPI (Cost per 1,000 impressions) - We look at this metric to tell us whether sellers are actively bidding for the same product on Shopee ads. As a rule of thumb:

    • If CPI 📈, It is an indicator that more sellers are bidding in the same ad auction as us, which results in higher overall bid prices, and CPC. (We pay more per click)

    • If CPI 📉, it is an indicator that less sellers are bidding in the same ad auction as us, which results in lower overall bid prices, and CPC. (We pay less per click)

In the specific case of Shopee ads:

• Higher CPC -> usually means that we have more competitors (especially new ones) trying to sell the same product as us.

  • They are usually running shopee ads (and are probably paying a premium to outbid us) to gain more visibility than our listing.

• Lower CPC -> usually is a good sign, so we don't really care about it, and see it as a win.

  • But in some instances, it may be a bad thing (especially when revenue is going down) as it may be a sign that the product demand is weakening.

• Higher CPI -> usually means that we have more competitors (especially new ones) trying to sell the same product as us.

  • They are usually running shopee ads (and are probably paying a premium to outbid us) to gain more visibility than our listing.

• Lower CPI -> usually is a good sign, so we don't really care about it, and see it as a win.

  • But in some instances, it may be a bad thing (especially when revenue is going down) as it may be a sign that the product demand is weakening.

Win Conditions

A win condition refers to the signals we look for to know that we are on the right track. Think of it like green = go (like a 🚦)

Lose Conditions

A lose condition refers to the signals we look for to know that we are on the wrong track. Think of it like red = stop (like a 🚦)

Deep Dive - Q1: Should I continue running ads?

ROAS > BEROAS

This is our 1st win condition

📌 If the above condition is fulfilled:

1. Your ads are NOT losing money, and;

2. Your ads are printing money and in fact, paying for itself.

ROAS Multiplier > 1

This is your 2nd win condition

📌 ROAS Multiplier builds on ROAS and BEROAS. It is a relative metric that compares the performance of one Shopee ad to another using objective standards.

✅ In short, the higher your ROAS multipler, the better. (Vice Versa)

• ROAS > BEROAS -> ROAS Multiplier >1

  • In this scenario, a product ad with a higher ROAS multiplier indicates that the ad is getting more results per dollar of ad spent as compared to another with a lower ROAS Multiplier.

• ROAS = BEROAS -> ROAS Multipler of exactly 1

  • In this scenario, a product ad with a ROAS multiplier of 1 indicates that your product listing is only breaking even.

  • However, this is a vulnerable position to be in, because when you add on additional costs that spring up over time or are not accounted for in the BEROAS calculator, you will lose money.

• ROAS < BEROAS -> ROAS Multipler <1

  • In this scenario, A ROAS multiplier of <1 indicates that your product lising after running ads is losing money.

What success looks like:

ROAS < BEROAS

Conversely, if you see this signal. This your 1st lose condition

📌 If the above condition is fulfilled:

1. Your ads are losing money,

2. Your business is likely coughing up money from other areas to pay for these ads.

3. It's likely you are losing money on every sale when all other cost not reflected in the BEROAS calculator are accounted for.

ROAS Multiplier < 1

This your 2nd lose condition.

📌 Once again, ROAS Multiplier is an extension of ROAS & BEROAS. It is a relative metric that benchmarks the performance of one Shopee ad to another on an objective and quantifiable standard of measurement to help you figure out who are your winners and losers.

✅ if your ROAS multiplier for any product listing you are running ads on is 1, or goes below 1, that listing is losing for some reason, and you got to figure out why, and fast!

It usually boils down to these few things:

1. Product problem - The product that you brought in has little to no buying demand now compared to before, or it was a bad bet to begin with on hindsight.

2. Pricing/promo problem - Your listing is visible, your product listing has good positioning compared to your competitors, but just lose out in price or promo.

3. Listing problem - The product has demand, it's just that your product listing has weak positioning compared to your competitors (which is why sales are going to them, not you.)

Identifying losers

We consider anything with ROAS multiplier equal to 1 or less than 1 as a loser. If the product is a loser, we stop running ads to fix the product listing first, before running ads again.

📌 You can see this relationship very clearly when you extrapolate all of these ROAS Multipler scores on your RMR report. (ROAS Multiplier report) The report will tell you objectively:

1. Who your winners are

2. Who your losers are

✅ More importantly, now that you know who exactly your winners and losers are. You are now empowered with data to make the decisions necessary to improve the performance of your shop.

📌 You can now ask questions like:

1. Assuming my products have demand, why them am I losing?

   1. Are my prices not competitive?

   2. Are my promotions not competitive?

   3. What is my competition that is crushing me doing that I am not for this particular listing?

   4. ...etc

2. Assuming that my product has no more demand, is there a reason why I'm still selling it?

3. If I know that my ROAS multiplier is < 1, what's the reason for me to continue running ads then?

Identifying winners

We consider anything with ROAS multiplier >1 as a winner. If the product is a winner, we will continue running ad and move to answer Q2.

✅ Similarly, now that you are empowered with this knowledge

📌 You can now ask questions like:

1. Do I have clear outliers that I should be scaling?

   1. If so, how do I scale them?

   2. Should I increase my ad budget?

2. How do I improve the ROAS multipler of my current winners?

3. What characteristics do all my winners have in common? Is there a pattern?

Deep Dive - Q2: When to adjust ad daily budgets?

📌 Assuming that you have cleared Q1, you should now know exactly which products are your winners and your next questions should be this.

For us, there are only 2 criterias to meet to justify adjusting the daily ad budget:

1. Average daily spend > Max daily budget -> Our average ad daily budget for the month must be maxed out.

2. Our listing is not top SEO after the ad budget is maxed out.

Average daily ad budget is maxed out

This is your 1st win condition

✅ If this criteria is not even met, we won't even consider the second criteria and we will not adjust the budget.

Our listing is not top SEO.

This is your 2nd win condition

✅ If the first criteria is met, we will move on to see if our listing is Top SEO or not.

• If our listing is not Top SEO -> We will increase the budget by 2x our current spend until we hit Top SEO.

• If our listing is Top SEO -> we will drop the budget all the way back to our minimum (Which is $8/day)

The Logic behind this

📌 For us, when it comes to selling on Shopee, we only have one goal for all products:

We want as many of our listings as possible to have top SEO organically on shopee search results page when our customer is searching for the products we sell.

✅ The reason is simple: Conversions coming organically from search is the highest quality form of lead that will become a customer.

• We pay zero for visibility (by not running ads)

• We get the full value of the conversion (from the sales)

📌 Example of a sale coming from paid advertising:

• Ad expense = $20

• Revenue = $100

• ROAS = 5.0

📌 Example of a sale coming from organic traffic:

• Ad expense = $0

• Revenue = $100

• ROAS = ∞

One last thing about increasing ad budgets

✅ For us to spend as little as possible on ads and get the most GMV out of it, this implies that we need our organic sales to grow the listing as much as possible while simultaneously cutting down reliance on paid ads. (GMV Max)

• This is why True ROAS & True ROAS Multiplier is way more important to look at.

• If our average ad spend = our Daily ad budgets, and our GMV is increasing for any praticular product:

  • This means that our organic revenue for this product is increasing and responsible for boosting our GMV. (Which is a huge win signal)

  • If we see this win signal, we will not increase daily ad budgets until this trend stops.

Setting target ROAS on Shopee ads

📌 The last part of this guide will go over how we set our target ROAS for all of our GMV Max ads.

Our best practice

✅ We always set 2x BEROAS as our target ROAS regardless of whatever targets Shopee recommends.

Example

📌 For this above product:

• BEROAS Needed = 3.86

• True ROAS (Product Level - October 2024) = 45.99

• True ROAS Multiplier (Product Level - October 2024) = 11.31

📌 As seen from the screenshot above:

✅ Shopee's auto bidding system is recommending an estimated ROAS that is around 2x our of our BEROAS needed for this product.

📌Alternatively, you can always set your own target-ROAS as follows

✅ Either choice works. You can even choose the 10.4 option if you like. The point is to set your target ROAS 2x your BEROAS so that you give Shopee ads enough wiggle room to set bid prices that will get you your desired ROAS.

Why 2x BEROAS

• If you set your target ROAS as your BEROAS, you are basically telling Shopee that you want your product listing to breakeven.

  • and we know that if your ROAS = BEROAS, you still lose money because of fees that are not accounted for in your BEROAS calculator.

📌 Cadence - How often should this course be revisited?

• Frequency: When there's a new update from Shopee

📌 Checklist - Before deploying this strategy, check the following.

• Step 1 - You are running GMV Max Ads for most of your products.

• Step 2 - You have no idea whether or not your ads are making you money or losing you money.

• Step 3 - You have no idea how to identify your winners and loser objectively.

In Summary

This course outlines a systematic approach to managing Shopee Ads effectively. By following the structured steps, sellers that follow this strategy can optimize their campaigns to identify the most profitable ads, ultimately boosting their GMV while minimizing risks. Regular reviews of this SOP will ensure that strategies remain relevant and effective in the ever-evolving e-commerce landscape.

FAQ