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One way to measure the success of your advertising efforts is by calculating your return on ad spend. What is RoAS? How to calculate RoAS? Learn more with SageSeller.
On Amazon.com, advertising is a great tool to increase visibility, drive conversions and grow brand awareness. An efficient marketing strategy, which helps formulate an optimized approach to your advertising campaign, can facilitate essential product sales growth, added on to organic sales.
Ads sponsorship is a good way to attract customers, but you need to set your PPC campaigns correctly, and constantly monitor their efficiency, optimize the best-performing ones, and adjust those that are poorly performing to increase revenue and Return on Investment (ROI) figures.
There are different ways to measure the efficiency of your ad spend. Since Amazon PPC is not only SEO-triggered, it boosts visibility and ranking almost immediately, and PPC campaigns influence your organic sales as well, but you need to monitor your organic sales and PPC sales as separate figures. TACoS (total ACoS) allows sellers to measure the effectiveness of their advertising on the long-term growth of their sales. Though in your Amazon Seller Central there is no special tool to calculate organic sales, ad sales, and ACoS, you can easily track these metrics with third-party seller tools.
However, being extremely important metrics on Amazon, ACoS and TACoS are rarely used off-Amazon to measure advertising efficacy. If for your purposes you would need a standard marketing metric, you can calculate RoAS to estimate the performance of your campaigns.
What Is RoAS?
RoAS meaning is Return on Ad Spend. This metric is commonly used by merchants to calculate the efficiency of their advertising campaigns. It demonstrates how much revenue is earned in sales for each dollar spent on advertising campaigns and whether they are working as expected or not. Based on this data, sellers modify, pause, or cancel ad campaigns if they underperform.
How to Calculate Amazon RoAS?
RoAS calculation is done by the RoAS formula. You will get your RoAS figure by dividing the revenue from total ad spend by the total cost of ad spend. The resulting number will show if your ad campaign is profitable.
RoAS = Total Revenue from Ad Spend / Total Cost of Ad Spend
Let’s take an example with figures. If you invested $4,000 on an ad campaign and it generated $18,000 in revenue for the month, when the campaign was active, your RoAS would be then 4.5x. In practice, this means, that each dollar you invested in your ad campaign earned $4.5 in revenue.
RoAS and ACoS
As said, RoAS and ACoS are metrics applied by sellers to estimate the return on their ad campaigns.
Amazon ACoS (Advertising Cost of Sale) is an essential metric showing how many cents per each dollar of revenue Amazon seller advertising earns. It is calculated in percentage so that the seller can estimate the efficiency of his PPC campaign.
ACoS is used on Amazon to show the profitability of an ad campaign in a very simple and straightforward way. For instance, if your target profit margin was 30%, and 25% of it was spent on an ad campaign, it’s much easier to figure out the outcome of the campaign compared to saying that a return on ad spend was 4x.
On the other hand, ACoS is infrequently used off-Amazon, and if you’d like to use your ad spend profitability in standard marketing calculations, you would need to use RoAS.
The RoAS and ACoS formula is inverted. RoAS shows how much revenue you earned from your ad spend, whereas ACoS demonstrates the percentage of how much the ad spend contributed to the generated revenue.
ACoS = Ad Spend / Ad Revenue x 100
RoAS = 1 / ACoS
If we take our previous example with figures, where you invested $4,000 on an ad campaign and it generated $18,000 in revenue, your RoAS was then 4.5x ($4.5 or 450%). If you enter these figures in the ACoS formula ($4,000 / $18,000 x 100), you will get an ACoS of 22%.
You can read more about ACoS in our blog.
What Is a Good RoAS on Amazon?
There is no generalized anticipation, what is good and what is bad RoAS on Amazon. Your target RoAS may vary depending on the product category and strategy. RoAS is influenced by profit margins, operating expenses, and overall business health.
Good RoAS Depends on the Strategy
Small to medium-sized businesses that would like to want to grow their brand awareness and increase product visibility usually have a low target RoAS, since they have a higher ad spend. Businesses that are occupying niches with extreme competition, will need to spend a lot of funds on ads and will also have a low target RoAS.
On the other hand, large distributors generally have a high target RoAS. A high target RoAS is a good strategy for large businesses that focus on maximizing profitability and accelerating turnover.
Good RoAS Depends on the Industry
A good RoAS will also depend on the product category. For example, a great RoAS for the Toys and Games category is 4.5x while for the Consumer Electronics category 9x is considered a good RoAS. The average RoAS on Amazon is around 3x.
Good RoAS Depends on the Profit Margin
If you have a small profit margin, you would need a higher RoAS for your ad campaigns to be profitable. If your product has a high profit margin, you can generate a profit with a lower RoAS.
How to Calculate Your Minimum RoAS
Minimum RoAS is the minimum level for your ads to be profitable. To calculate your minimum RoAS, you need to get a figure of your break-even point. The break-even point is a price of a product sold minus the cost of goods sold (COGS).
Let’s take an example with figures again.
If you sold an item for $60, you’ll need to deduct COGS ($20) and Amazon fees ($20), then your profit will be $20.
$20 will be your break-even point before you invest in an ad campaign.
If you spend $10 on ads, your net profit would be $10.
To calculate your minimum RoAS, use this formula:
Minimum RoAS = Sale price / Break-even point
In our example, $60 / $20 = 3.
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.
Step 1. Log in to your Seller Central account.
Step 2. Navigate to Advertising > Campaign Manager.
Step 3. In your dashboard, you’ll see the totals of all your advertising campaigns: Spend, Sales, RoAS, and Impressions.
Step 4. View your RoAS for each active advertising campaign.
Measuring the efficiency of your PPC campaigns is tricky and requires a lot of effort. However, it’s not less important to monitor the efficiency of all your product business metrics. On Amazon, you always need to stay on top of all your product KPIs. To do that, you need to constantly monitor your main business metrics to maintain and grow your product. Keeping track of your figures is a key to maximizing your profits. Get your easy and visual business analytics with SelleRise's dashboards. Try them now, it’s free.