Do you only know ACOS in Amazon advertising metrics? This performance indicator is also important!

Do you only know ACOS in Amazon advertising metrics? This performance indicator is also important!


What is Return on Advertising Spend (RoAS)?


Return on advertising spend (RoAS) measures the effectiveness of your advertising. It is a benchmark metric that helps you evaluate which ads are working and how to improve them.

How to calculate RoAS and how is it different from ACoS?


For example.

If $250 in ad spend leads to $1,000 in sales, then the ROAS is 4x (or 400%). If $250 in ad spend leads to $1,000 in revenue, then the ACoS is 25%. A 4x RoAS equals a 25% ACoS.

Why are there different statements about the same thing? Because experienced sellers tend to use RoAS as a metric because it shows the effectiveness of ad spend.

ACoS is rarely used outside of Amazon search ads. However, what ACoS does provide is a very direct way to measure the profitability of your ads. For example, if the target profit margin is 30%, and 25% of the profit is spent on ads, this is easier to understand than getting a 4x return on ad spend.

What is a good RoAS?

All businesses have a goal for how much of their profit from each sale they want to spend on advertising.

The average RoAS on Amazon is around 3x. This varies based on industry, strategy, and goals. For example, consumer electronics has a RoAS of around 9x, while toys and games have a RoAS of around 4.5x.

However, these numbers mask some other differences. For example, compared to exact match campaigns, automatic marketing campaigns and broad match/phrase match bidding strategies will have lower RoAS. This also depends on where your product is in its life cycle and how competitive the market is. Especially in a competitive market, your ad spend will inevitably be higher in order to win the auction.

Generally speaking, a RoAS of around 6x is considered good, or an ACoS of 16.6%. But this is a very vague benchmark and you need to adjust it based on the specifics of your campaign.

Is a high RoAS necessarily a good thing?


Generally speaking, sellers believe that a high RoAS is something they should aim for. However, this depends on what your product sales strategy is.

Setting a high RoAS goal is a good strategy for products with low sales conversion rates or products that don’t require a lot of exposure.

Setting a low RoAS target can result in high exposure. Setting a low RoAS target is effective if you want to clear out unsaleable inventory, or if you want to increase brand awareness or capture a niche market.

Finding a balance

It is important to find a balance. The budget for product promotion should not be too small, so that the product does not get enough exposure. On the other hand, the budget should not be too large, so that the profit margin is compressed.

You can set a minimum RoAS (or maximum ACOS). This is the break-even point. This is the point at which you start losing money or making money on your ad spend.

Experienced sellers use different target RoAS for different types of products to maximize sales potential. While having a high RoAS can be a big help to profitability, having a low RoAS can increase visibility, dominate a niche, and lead to more profits in the long run.

RoAS Strategy

Once you’ve decided on a strategy to use for each product, either volume/growth based or efficiency/ROI based, you can start grouping your campaigns.

Products can be grouped around a target ROAS number, and then further divided into ad groups. If you have a lot of products, this can be a hassle to set up and maintain. Once you have your ad groups set up, there are four main strategies to improve your RoAS.

1. Find the right keywords
By choosing the right keywords, you’ll be able to attract more customers through your ads, which will lead to higher conversion rates. The first step is to do keyword research using an Amazon-specific keyword tool.

2. Optimize page content
When you attract customers to your page, you have to provide relevant information. If someone searches for “flashing holiday tie”, your listing should contain information related to “flashing holiday tie”. If your product is relevant and priced appropriately, you will get conversions.

3. Optimize titles
The title should be based on keywords and relevant information. If someone is searching for ties, you can add some information about the material and pattern in the title.

4. Set the right bid amount
Take the average order value, multiply it by your conversion rate, and divide it by your target RoAS. In the example of ties (which is between clothing and gifts, your RoAS is about 7.5x or an ACoS of 12.5%). This will give you an estimated bid amount.


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