There’s a quiet problem happening in a lot of businesses right now. They’ve got solid products, decent pricing, and a website that works just fine — but their marketing budget keeps bleeding out on campaigns that don’t convert. Products that should be bestsellers get the same treatment as slow-moving inventory nobody cares about. And the whole operation just keeps running on autopilot, wondering why the numbers aren’t clicking.
Nine times out of ten, the missing piece isn’t more budget or a fancier ad creative. It’s a proper custom labels strategy.
If you’ve never heard that term before, don’t worry — you’re about to, and once you understand how it works, you’ll see your entire product catalog in a completely different way.
What Custom Labels Actually Are (And Why Most People Ignore Them)
Custom labels are essentially tags you assign to your products so that your marketing and sales systems know how to treat them. They’re particularly common in Google Shopping campaigns, where advertisers can add up to five custom label fields per product — labeled 0 through 4 — and fill those fields with whatever information helps them make smarter advertising decisions.
The thing is, the fields themselves are blank. Google doesn’t tell you what to put there. That’s on you. And most people either leave them empty or just slap in something generic like “yes” or “new,” which doesn’t do much of anything.
A real custom labels strategy, on the other hand, turns those five fields into a powerful segmentation engine. You’re essentially teaching your ad campaigns to think about your products the way you do — which ones have the best margins, which ones are trending right now, which ones are seasonal, which ones are sitting in overstock and need a push.
Once your campaigns know that, everything changes.
Why This Matters More Than You Think
Think about how most product catalogs are managed in ad platforms. Without custom labels, Google (or whatever platform you’re using) basically treats every product with the same level of importance. A $400 jacket and a $12 pair of socks might end up competing for the same budget, with the same bid, targeting the same kind of customer.
That’s not a strategy. That’s just noise.
A custom labels strategy lets you break that pattern. Instead of managing your catalog as one giant blob of SKUs, you start managing it as a collection of distinct product segments — each with its own bidding logic, budget allocation, and performance expectations.
For a young entrepreneur managing a Shopify store, this is the difference between spending $500 a month on ads and actually knowing what that $500 is doing. For a mid-size brand running Google Shopping at scale, it’s the difference between a 200% ROAS and a 400% ROAS.
The math is simple: smarter segmentation means smarter spending.
Building Your Custom Labels Framework
There’s no one-size-fits-all approach here, which is actually a good thing. Your custom label strategy should reflect your specific business goals, your product catalog’s characteristics, and the metrics that matter most to you. That said, there are a few frameworks that tend to work well across most business types.
Margin-Based Segmentation
The most straightforward approach is labeling products by profit margin tier. You might create labels like “high-margin,” “mid-margin,” and “low-margin” — then set your bids accordingly. High-margin products deserve aggressive bidding because even if you spend more to acquire a customer, the profit still holds up. Low-margin products need tighter bids to stay profitable.
This alone can dramatically improve your return on ad spend without requiring you to change your prices or your product mix at all.
Seasonal and Trend-Based Labels
If your business has seasonal spikes — and most do — custom labels help you capitalize on them without overspending during slow periods. You can label products as “summer peak,” “holiday push,” or “off-season” and set campaign rules that automatically shift budget priorities when those periods hit.
This is particularly useful for fashion, outdoor gear, home goods, and gift-oriented products where timing makes an enormous difference.
Inventory and Stock Status Labels
Nothing’s worse than running a successful ad campaign for a product that’s out of stock. Custom labels tied to your inventory status let you pull back on out-of-stock items automatically and push harder on products where you’ve got healthy stock levels. Some brands use this to clear slow-moving inventory strategically — labeling overstock items and giving those campaigns a temporary budget boost.
Performance-Tier Labels
After you’ve run campaigns for a few months, you’ll have data. Products that convert well. Products that don’t. Products that drive traffic but not sales. Use custom labels to segment by historical performance and build a tiered bidding structure where your proven winners get the most aggressive investment.
The logic is simple: don’t spend equally on products that perform unequally.
Putting It Into Practice: A Real Workflow
Let’s say you run an online store selling fitness gear. Here’s what a practical custom labels setup might look like:
Custom Label 0 — Margin tier: high / mid / low
Custom Label 1 — Season: evergreen / summer / winter
Custom Label 2 — Stock status: in-stock / low-stock / clearance
Custom Label 3 — Performance history: top-performer / average / underperformer / new
Custom Label 4 — Product type: accessories / equipment / apparel
With this structure, your campaign manager — or your automated bidding rules — can immediately identify that a product is a high-margin, evergreen, in-stock top performer. That product gets maximum investment. Meanwhile, a low-margin, seasonal, clearance item with a weak performance history gets much more conservative treatment.
You’re not guessing anymore. You’re working from a system.
The Data Side of the Equation
A custom labels strategy only works if your data is clean. This is where a lot of businesses stumble — not because the strategy is flawed, but because the product feed they’re working from is messy, outdated, or incomplete.
Before you start assigning labels, make sure your product feed is accurate. Prices should reflect what’s actually on your site. Descriptions should be relevant and keyword-rich. Images should be high quality. If your feed is a mess, your labels will inherit that mess.
For most ecommerce platforms, you can manage custom labels directly in your product feed through tools like Google Merchant Center, Feedonomics, or DataFeedWatch. If you’re on Shopify, there are apps that let you map product tags or metafields directly to custom label columns in your feed. WooCommerce users have similar options through feed management plugins.
The key is making sure your labels update dynamically when relevant conditions change. A product that moves from in-stock to low-stock should automatically get a different label — and the campaign managing that product should respond accordingly.
Common Mistakes to Avoid
A few patterns tend to trip people up when they first start building out a custom labels strategy.
Over-complicating the structure is probably the most common one. Five custom label fields is enough to do a lot of sophisticated segmentation — but that doesn’t mean you need to max out every field from day one. Start with two or three labels that address your most pressing business questions, run with that for a couple of months, then layer in more complexity as you see what’s working.
Another mistake is setting it and forgetting it. Custom labels need maintenance. A product that was a “new arrival” in March shouldn’t still be carrying that label in September. A seasonal item labeled “holiday push” needs to cycle back to a different label once January hits. Build a quarterly review into your workflow where you audit your label assignments and make sure they still reflect reality.
Finally, don’t confuse activity with strategy. Assigning labels is just the first step. The labels only matter if they’re actually driving different campaign behaviors — different bids, different budgets, different targeting rules. If everything labeled “high-margin” is being managed exactly the same as everything labeled “low-margin,” you’ve done the labeling work but skipped the strategy part.
Custom Labels Beyond Google Shopping
While Google Shopping is where custom labels are most commonly discussed, the underlying concept applies much more broadly. Any time you’re managing a large catalog across any channel — whether that’s Amazon Ads, Meta product catalogs, or even your own internal merchandising decisions — the ability to segment products by meaningful attributes and treat them differently based on those attributes is incredibly valuable.
On Meta, for example, you can use product sets to create audience-specific catalog segments that function similarly to how custom labels work in Google Shopping. If you’ve already built a strong custom label taxonomy for Google, you can often adapt that same framework for your Meta catalog with relatively little effort.
The thinking transfers even if the specific tool doesn’t.
Making It a Competitive Advantage
Here’s the honest reality: a lot of your competitors aren’t doing this. They’re running broad Shopping campaigns, spending roughly equal amounts across their entire catalog, and wondering why their margins keep getting squeezed.
When you implement a thoughtful custom labels strategy, you’re essentially compressing the same catalog into a set of laser-focused mini-campaigns, each optimized for the specific reality of that product segment. You spend more where it makes sense. You spend less — or nothing — where it doesn’t.
Over time, that discipline compounds. You get better data. Your automated bidding algorithms have cleaner signals to work from. Your ROAS improves. And because your competitors are still managing by gut feel, the gap between you and them keeps widening.
That’s not hype. That’s just what good segmentation does when you give it enough time to work.
Where to Start
If you’re reading this and thinking “this sounds great but I don’t even know where to begin,” the most practical starting point is usually a margin audit. Go through your catalog, identify your top 20% of products by profit margin, and flag those. Then build your first custom label structure around that single dimension.
Get your high-margin products into their own campaign. Set bids that reflect their profitability. Let that run for 30 to 60 days and see what the data tells you. Then build from there.
A custom labels strategy doesn’t need to be perfect on day one. It needs to be better than what you were doing before. And for most businesses, almost anything is better than no segmentation at all.
Start simple. Stay consistent. Iterate based on what the numbers show you. That’s the whole playbook — and it works.
Your product catalog is one of your most valuable business assets. A custom labels strategy is how you make sure your marketing actually treats it that way.
