If you deal with advertising, you probably have already heard about ROAS — Return on Ad Spend. Let’s figure out what this metric means, which ROAS is good for Amazon, and how you can improve this indicator.
Table of content:
- What is Amazon ROAS?
- How to Calculate Amazon ROAS?
- What Is a Good ROAS on Amazon?
- Your Minimum ROAS
- Do You Need High ROAS?
- Ways to Improve Amazon ROAS
- How to Find Your ROAS
- ROI vs. ROAS
- Final Word
What is Amazon ROAS?
Amazon ROAS is a metric that measures the efficiency of an advertising campaign or even a single keyword. With its help, sellers calculate the profitability of each dollar invested in advertising and draw conclusions about which marketing tools should be used further and which ones should be left out. It helps optimize the budget, increasing income while reducing costs.
Impressions, clicks, and conversions are also important, but they do not show profitability and, therefore, the payback of a particular campaign, channel, or source.
How to Calculate Amazon ROAS?
Amazon ROAS calculation is simple: you must divide Ad Revenue by Ad Spend.
Ad Revenue includes all revenue generated from the ad campaigns.
Ad Spend is all expenses for the ad campaign.
For example, if a seller spends $500 on an ad campaign and earns $1,000, their ROAS is 200%.
But remember that when calculating Amazon ROAS, the system does not consider the costs of PPC services of PPC specialists, designers, copywriters, and other non-obvious expenses associated with setting up an advertising campaign.
What Is a Good ROAS on Amazon?
More than 100% ROAS is profitable, and less than 100% is profitless.
How do you know if a particular Amazon ROAS is good for your company? It all depends on your niche and profit margin. On average, you can focus on 3-4x ROAS. The greater your profit from an advertising campaign, the higher this indicator is.
Also, pay attention to your margin. If the margin is low, you must provide a higher ROAS to make the advertising campaign profitable. Conversely, sellers with high margins can profit from lower ROAS.
Your Minimum ROAS
To understand your financial situation, it is crucial to calculate the break-even point and minimum ROAS.
The break-even point is the gross profit without advertising costs. For example, if your item price is $50, the cost of sold goods is $20, and Amazon fees are $10, you make $20 in profit. That $20 will be your break-even point.
The minimum ROAS is the sale price divided by the break-even point. If the item price is $50 and the break-even point is $20, the minimum ROAS is 2.5 or 250%.
As a result, you should earn $2.50 for every dollar spent on ads to profit from the campaign.
Do You Need High ROAS?
Most companies aim for high ROAS, but it depends on the business strategy.
If you sell low-converting products or ones that do not need high visibility, aiming for a high ROAS can pay off.
But if you want to get rid of low-selling stocks or increase brand awareness, low ROAS with a significant ad investment will suit you.
Ways to Improve Amazon ROAS
Want to improve your chances of high ROAS? Then stick to these four tactics:
Use Keywords
Relevant keywords help sellers drive quality traffic and prospects, increasing your conversion rate and reducing your lead cost. That means you can get better results at a lower price.
Optimize Your Content
Complete and up-to-date information is one of the critical success factors for your listing, primarily if you use advertising campaigns to attract prospects. For example, if a customer is looking for “silicone gypsum molds,” these molds should appear on your product page. Please provide all the necessary characteristics, explain how to use molds, and visualize it with photos.
Improve the Titles
Be sure to include essential keywords and relevant product information in the title. The title should be perfectly readable by Amazon algorithms and users interested in a similar product.
Control Bid Amount
To calculate the bid amount, you should focus on the average order value, multiply it by the conversion rate and divide all this by the target ROAS.
To keep all these indicators in good condition, sellers should effectively manage PPC campaigns, test variations, and optimize their performance. It is also vital to ensure that the target Amazon ROAS matches the goals and expectations.
How to Find Your ROAS
To see your Amazon ROAS, go to Seller Central, find the “Advertising” section, and click “Campaign Manager.”
This way, you can track which advertising campaigns are effective and which should be turned off.
ROI vs. ROAS
ROI and ROAS are not the same things, so it is crucial to understand the difference between these metrics.
When calculating ROI, all costs are taken into account, including margin, so the seller understands whether the company can get more profit considering all costs.
ROAS considers ad revenue and costs, determining whether a business gains or loses from advertising.
That is, ROI provides more systematic data, but ROAS helps determine the efficiency of individual advertising campaigns and redistribute the advertising budget.
Final Word
Today you have learned what ROAS is, how it is calculated and how you can improve it. This knowledge will help you build a more effective advertising strategy.
However, if you need expert help, Profit Whales specialists will gladly assist you on your journey. Please, contact us to achieve impressive ROAS.
