TikTok Wants You to Lower
Your ROI Target to 1.2.
Do You Know What That Actually Costs You?

What TikTok's dashboard is telling you

When you set up a GMV Max campaign on TikTok Shop, the platform recommends a product ROI target of 1.2. It tells you this will make you "more competitive than 99% of similar products." Sounds like a strong position.

When your campaign underperforms and GMV drops, TikTok's Campaign Health panel issues a recommendation: decrease your ROI target — in one real example I have seen, from whatever your current target is down to 2.6. The reasoning given: "Your base ROI target is higher than the recommended value. Adjusting your base ROI target to 2.6 may improve ad delivery and increase gross revenue."

Before you click Edit and follow that recommendation, I want you to understand what these numbers actually mean — and who actually benefits when you lower them.

Argument 1: ROI 1.2 is not a return. It is a loss.

In TikTok's GMV Max context, the ROI target refers to the ratio of gross revenue generated to ad spend. An ROI of 1.2 means: for every RM1 you spend on ads, TikTok will try to generate RM1.20 in gross revenue.

That sounds like a 20% return. It is not. It is a 20 cent return on RM1 of ad spend — but that RM1.20 is revenue, not profit. You still have to subtract your cost of goods.

Let us run the actual numbers for a seller with a 50% gross margin — which as I discussed in a previous article is already considered high for most Malaysian traders.

Every ad-driven sale at ROI 1.2 loses you money. At 20% total platform fees — covering platform charges, transaction fees, and campaign fees — you are losing 72 cents for every ringgit you spend on ads. Before returns, packaging, or customer service.

Now apply that to TikTok's recommended minimum budget of RM800 per day. At ROI 1.2, you are not building a business. You are systematically destroying your cash flow while TikTok collects its fees on every transaction. Shopee has already reached 30% in total platform fees in some categories. TikTok is on the same trajectory.

What about ROI 2.6 — TikTok's "recommended" target in the Campaign Health panel? Let us check that too.

At 20% total platform fees, even TikTok's own "recommended" ROI target of 2.6 is a loss. You are losing 40 cents for every ringgit you spend on ads — before returns, packaging, or customer service. The number TikTok tells you to target when your campaign is underperforming does not even cover your costs.

And TikTok's recommendation, when your campaign underperforms, is to move your target down toward this number.

Argument 2: When you lower your ROI target, TikTok wins. Not you.

TikTok's justification for lowering your ROI target is that it will "improve ad delivery and increase gross revenue." Read that carefully. It does not say it will increase your profit. It says it will increase gross revenue.

Gross revenue going up while your margin stays the same or shrinks means one thing: you are spending more on ads to generate more revenue that you keep less of. The absolute amount of money you earn might go up slightly. The percentage you keep goes down. Your total ad spend goes up significantly.

Who benefits from this dynamic? TikTok collects ad fees on every ringgit of increased ad spend. TikTok collects platform fees on every ringgit of increased gross revenue. TikTok's GMV metric — which is what investors and analysts use to evaluate TikTok Shop's growth — goes up. Every recommendation TikTok makes that results in higher GMV is a recommendation that makes TikTok's business better, regardless of whether it makes yours better.

Argument 3: RM800 a day. Who is TikTok actually building this for?

TikTok's GMV Max campaign has a minimum daily budget of RM800. That is not RM800 for a campaign — that is RM800 per day. Multiplied across a month, that is RM24,000 in ad spend alone, before a single ringgit goes to product cost, logistics, staff, or any other operating expense.

Now ask yourself: how many of the small Malaysian sellers TikTok recruited into its affiliate and Shop ecosystem have RM24,000 per month to spend purely on advertising? The sellers who joined TikTok Shop because "marketing is free" through the affiliate model — do they have a RM24,000 monthly ad budget?

They do not. Most of them are running businesses on margins that cannot support that kind of spend. And yet TikTok's premium advertising product — the one that is supposed to maximise their GMV — starts at a price point that most of them cannot reach.

The budget mechanism in the screenshot I reviewed shows it gets worse. The system is designed to automatically increase your budget: current budget RM800, next increase RM400, with 10 increases queued and a maximum budget of RM4,800 per day. At maximum, that is RM144,000 per month in ad spend.

This is not a product designed for a small Malaysian seller trying to grow their first brand. This is a product designed for established businesses with serious marketing capital — brands that can absorb the spend because their margins and volumes can justify it. The minimum entry point alone filters out the majority of the sellers TikTok used to build its marketplace density.

The real question: do sellers not understand, or is TikTok too smart?

I think about this often. When I look at sellers following TikTok's recommendations — lowering ROI targets, increasing budgets, running campaigns at margins that do not work — I genuinely wonder: do they not understand what they are doing, or has TikTok built a system so well-designed that it bypasses the need for understanding?

The honest answer is probably both.

Most sellers do not understand what ROI 1.2 means in the context of their actual cost structure. They see a number the platform calls a "target," they see TikTok's endorsement that it makes them competitive, and they follow the recommendation. The platform is presented as the authority. The seller defers to it.

But TikTok is also genuinely smart about how it frames these recommendations. The language is always seller-positive: "improve ad delivery," "increase gross revenue," "stay more competitive." None of these phrases mention what the seller is giving up. The dashboard surfaces GMV and revenue numbers prominently. Net margin is nowhere in the interface. A seller who only looks at what TikTok shows them will never see the full picture.

This is not a coincidence. A dashboard that showed sellers their true net profit per ad campaign — after all costs — would produce very different behaviour. Sellers would set much higher ROI targets. They would spend less on ads. TikTok's ad revenue would decline. So the dashboard does not show that number. It shows the numbers that encourage spending.

The sellers who succeed on TikTok Shop long-term are the ones who run their own numbers, ignore the platform's ROI recommendations, and set targets based on their actual margin structure. They treat TikTok's dashboard as a traffic tool, not a business advisor. That requires understanding the math that TikTok does not teach you and does not want you to ask about.

If you are running TikTok ads today, the most important question is not what ROI target TikTok recommends. It is: at what ROI does your business actually make money after all costs? Start there. Everything else is noise.

I have said this. The math is here. The numbers are not complicated. And most sellers who read this will nod, close the tab, and go back to following TikTok's recommendations anyway — because the platform feels authoritative, because everyone else seems to be doing it, and because it is easier to trust a system than to build your own understanding of it.

That is a choice. A legitimate one. But it is a choice — not a circumstance.

So here is where my sympathy ends: if you have seen the math, if you understand that ROI 1.2 does not cover your costs, if you know that TikTok's optimisation serves TikTok first — and you continue to follow the platform's recommendations without running your own numbers — then when your business loses money, stop calling it bad luck. Stop blaming the platform. Stop asking why it is not working. You chose to operate without understanding the economics. The outcome is not a surprise.

The truth has been shared. What you do with it is entirely up to you.

Published by IMA AI — June 2026.