Amazon is a great place to sell, but if you want to succeed there, you have to come up with strategies to beat the competition. Running sponsored ads and PPC campaigns is one of the most effective ways to gain more visibility, outrank your competitors, and improve your sales and conversions.
It’s easy to get carried away with the benefits of running ads that you spend so much without tracking your ad spend. Your Amazon ROAS is an important metric that shows you how well your ad budget is converting. The ROAS is one metric that many sellers overlook. As a result, they end up spending so much on ads yet they’re in red and making next to zero sales.
In this post, we’ll tell you everything about Amazon ROAS and we’ll provide you with effective strategies to help you improve your ROAS. First, what is ROAS?
What is ROAS?
ROAS, short for Return on Advertising Spend, is a metric that measures the success of your ad campaigns. Using this metric, you can track your advertising efforts to see which methods work and which ones don’t. Your Amazon ROAS measures how much you’ve made in sales for every dollar you spend on ads. So, for every dollar you spend on ads, you can see how much you made in return.
Running sponsored ads is a great way to gain more visibility and improve your sales on Amazon. But if you keep spending so much on ads without tracking results with respect to cost, you may end up wasting your resources. Thus, it is important that you have good knowledge of the ROAS for every product you promote. So, how do you calculate your ROAS to check if your advertising efforts are paying off?
How to calculate your ROAS
Your ROAS can be calculated using a simple formula: Total Ad sales/ Total ad spend.
So, if you spent $2000 on ads and made $10,000 in revenue, what would your ROAS be?
$10000 in revenue/ $2000 in ad spend.
This brings your ROAS to 5. In other words, for every dollar you spent on ads, you made $5 back in revenue. The question you might have would be “How do I determine if my ads are profitable just by calculating my ROAS?”
Well, the higher your ROAS, the more profitable your campaigns are. So, if your ROAS is pretty high, then your ads have been performing well. However, if the margin between your ad spend and revenue is little, then your ads are most likely not performing well.
For instance, if you spent $2,000 on ads and only made $2,200 back, you can already tell that your campaigns are not profitable. A $200 revenue will leave you nothing once you deduct your product costs, overhead costs, and Amazon fees. So, you see, calculating your ROAS is important if you want to maximize your ad spend.
Sellers always mistake ROAS for ACOS and although these terms are very similar, they are not the same. ACOS is short for Advertising cost of sale and is an important term you’ll have to learn when tracking ad performance. So, what’s the difference between your Amazon ROAS and your ACOS?
Difference between ROAS and ACOS
ACOS, Advertising Cost of Sale, is the opposite of ROAS. It is the ratio of ad spend to ad revenue and tracks how well your ad spend is paying off. In other words, it calculates how much you need to spend on ads to make a certain number of sales.
To calculate your ACOS: Ad spend/Ad sales
We’ll use the same example we used earlier. If our ad spend is $2,000 and revenue is $10,000, then 2,000/10,000 is 0.2. Your ROAS should be high, but your ACOS should be as low as possible.
Many sellers are overwhelmed with trying to figure out if their ROAS is great or not, but they don’t even know what a good Amazon ROAS is. Your Amazon ROAS is largely unpredictable because it depends on many factors. So, how do you tell if your ROAS is good or not so great?
What’s a Good ROAS?
Good ROAS is relative and your ROAS may vary depending on several factors. A ROAS of 3 may be good for one seller and bad for the other, it all depends on individual targets and business goals. Here are a few things your ROAS depends on:
If your profit margin is modest, you’ll need a greater RoAS to make your ads profitable. You can make a profit with a lower RoAS if your product has a large profit margin.
Small businesses often want to gain more visibility and increase their brand awareness. As a result, they usually have low ROAS targets. Large enterprises also want to beat the competition so they’ll have to run ads and set a low ROAS target. In contrast, a high ROAS is a great strategy for large businesses that intend to increase their turnover.
The product category will also influence the RoAS. For example, in the Toys and Games area, a fantastic RoAS is 4.5x, whereas, in the Consumer Electronics sector, a decent RoAS is 9x. On Amazon, the average RoAS is roughly 3x.
So, how do you determine if your ROAS is good enough? You’ll have to calculate your minimum ROAS.
How to Calculate Your Minimum ROAS
As you can already tell, the minimum ROAS is the minimum Amazon ROAS figure your ads must attain to be profitable. To get your minimum ROAS, you will have to calculate your Break-even point.
Yeah, that’s another technical term. So, what’s your break-even point? It’s that point at which increased spending on ads will result in losses. The break-even point is the profit you make after the cost of goods sold (COGS) or business costs have been deducted from a sale.
Your COGS covers expenses like shipping fees, supply expenses, and Amazon fees. So, your break-even point is the profit after all these costs have been deducted but before advertising expenses are deducted. Simply put, it is your gross profit before all advertising expenses are factored in. Since your have to determine your break-even point before the minimum ROAS, we’ll show you how to do that first.
Here’s a simple example:
Product price = $40
COGS = $10
Amazon fees = $15
Profit or Break-even point = $15
Your Break-even point is $15 because you haven’t spent anything on advertising yet. However, if your advertising cost per sale is $5, then it would be deducted from your break-even point and your net profit will be $10.
Your break-even point could accommodate your advertising cost so it’s safe to say that you broke even. But if your advertising cost was $15, then you’ll be left with nothing. In that case, you didn’t lose or make money, so you didn’t exactly break even.
Now, we’ll determine your minimum ROAS using the break-even point from the above example:
Minimum ROAS = Sales Price/ Break-even point
Sales Price = $40
Break-even point = $15
Minimum ROAS = $40/$15 = 2.6
From this example, your minimum ROAS will be 2.6x. So, for every dollar you spend on ads, you have to make at least $2.6 in revenue for your campaigns to be profitable. In other words, an ROAS of less than 2.6 means that your ads are not profitable and you’ll have to tweak your advertising strategy.
Now, you see why a good ROAS is subjective. One seller’s Amazon ROAS may be 3 and considered great, while another seller may have an ROAS of 5 and still consider it bad. Since profitability is the main goal, it should be the sole determinant of what you think about your ROAS score.
Where to find ROAS in Seller Central
It is important to monitor your RoAS figures for each of your ad campaigns. You can do it in your Seller Central.
- First, log in to your Seller Central account.
- Next, navigate to the advertising tab and then click on “campaign manager”
You’ll be able to see the total for your advertising campaigns in your seller central dashboard. The report contains a breakdown of your ad spend, sales, impressions, and ROAS. So, you can check your RoAS for each active advertising campaign.
Tracking your ROAS frequently is great because it helps you to maximize your ad spend and review your advertising strategies to see what works.
5 Best Tactics to Help You Improve Your Amazon ROAS
Your ROAS is a significant indicator of how well your advertising efforts are paying off. So, it’s important that you strive to improve your Amazon ROAS if you want to maximize your ad spend. You can increase your ROAS in two ways: reduce your expenses or increase your sales. Regardless of the route you choose to take, you will find these tips helpful:
Dedicate time to keyword research
Your keywords go a long way in determining the reach of your sponsored ads. So, if you want to reach more people and improve your conversions. Sponsored ads rely heavily on relevant keywords, so it’s important that you track keyword performance to see which ones convert and which ones don’t. Keep an eye on your clickthrough and conversion rates. If you have a number of high-performing keywords, do well to focus on them and boost their bids.
Keywords are an essential tool you must have if you want to win the tug of war involved in making sales on AMZN. But keyword research is not so easy, so it’s best to use AMZN software to uncover relevant, high-converting keywords for your niche.
ZonBase Amazon software offers a keyword research and tracking tool that brings you the best keywords for your listings in a matter of seconds.
Optimize your listings
Your listings must be well-optimized if you want to improve your clickthrough rates and the overall performance of your ads. Buyers are more likely to click on listings that pull them in and make them want to learn more about the product. So, take out time to create catchy titles and descriptions that describe your products in ways that make potential buyers go through with their purchase.
Also, use bullet points and images in your listings to make them readable and attractive. Product images are important because buyers interact better with images. Try as much as possible to show your products from different angles and use great lighting.
Split test your ads to see which ones perform better
There are so many ad types, but not all of them will work for you. Thankfully, you can test your ads to assess their performance before launching them fully. It’s easy to assume that a certain ad type will work great, but you’ll be surprised when you see that it’s the opposite.
Sometimes, Sponsored Brand Videos might perform better than Sponsored Display ads, and vice-versa. So, how do you decide the best ad type for your business and target audience? Run an A/B test and see which ads yield the best results.
Related: A/B Testing for Amazon ads
Engage in dynamic bidding
Dynamic bidding is important if your goal is to maximize your PPC campaigns. The AMZ marketplace is fluid, and customer behavior shifts on a daily basis. So, what worked yesterday might not work today, because the trends change so quickly.
Track and optimize your ads on a regular basis, this will give you a leg up on your competitors. It’s no longer sufficient to just put up your ads and forget about them. To get the most out of your ad budget, be aggressive and dynamic in your bids.
If you want to get the most out of your ads, you will have to test and modify your strategies as you go along. Ensure you pay attention to your ad reports and improve your advertising strategies based on performance per time. Nothing remains the same for too long on Amazon, so don’t get stuck on the same methods and ad types. Sometimes, you’ll have to switch things up if you want to get results.
PPC campaigns can help you increase your conversions and sales, but you also don’t want to spend so much on ads and get very little results. Hence, it’s important to monitor your PPC campaigns, optimize them, and ensure they’re performing as they should. Your ROAS is also important and if you utilize the tips we have provided in this article, you can keep your ROAS high.
Zonbase is a comprehensive software solution that will help you boost your ad expenditure ROI. You’ll be able to execute profitable sponsored ad campaigns using its keyword research, listing optimization, and PPC management services. All while keeping your spending under control.
If you want to improve your Amazon ROAS and maximize your ad spend, ZonBase is one tool that you should not joke with. You can try out the tools for free when you sign up for a free trial.