What is a Good Amazon ROAS and How to Calculate it?
Using Amazon Sponsored Ads can really help increase your sales, make your products easier to find, and boost your rankings naturally. And while advertising on Amazon can be very rewarding, to truly gain from it, you need to track how your ads are performing.
One effective way to do this is by measuring ROAS (Return on Ad Spend). Even though ACoS is viewed more widely as a key metric for measuring success of PPC campaigns, brands should still calculate RoAS to look at their sponsored ad campaign from a different perspective.
This guide will help you understand what Amazon ROAS is, how to calculate it, and the strategies you can use to enhance it.
What is Amazon RoAS?
RoAS, or Return on Advertising Spend, is a way to see how much money you make from sales for every dollar spent on ads. It helps you understand if your ad campaign is doing well.
Unlike other measures like ROI or ACOS, RoAS focuses on a specific campaign and its direct impact on revenue. By calculating RoAS, you can decide if a campaign is worth continuing based on its effectiveness.
How to calculate Amazon RoAS?
To calculate RoAS, use the following widely-used formula:
RoAS = Revenue from Campaign / Cost of Campaign
The cost of campaign involves several components beyond just the bidding costs:
1. Ad Testing Expenses: If you conducted A/B testing to optimize your ad performance, the costs associated with these tests are part of your overall ad spend.
2. Creative Costs: This includes the expenses for developing ad assets, such as paying for the labor involved in creating images/videos, copywriting, etc.
3. Overhead Costs: These are any extra expenses that may not be directly linked to specific ad campaigns but still affect your overall returns.
To break down the formula, let’s take a look at this example: if you spent $500 on an advertising campaign and made $2000, your ROAS is 4. This means for each dollar spent on advertising, you earned 4 dollars back in revenue.
If your RoAS is equal to 1, that means you make no profit and only cover the costs of advertising.
If your RoAS is <1, that means your campaign is loss-making.
Therefore it’s safe to say that the higher your RoAS is, the more profit your ad campaign brings.
What is a Good RoAS?
Every business needs to decide how much profit they want to spend on ads for each sale. This is a decision you have to make for your own business.
If your ROAS is 2:1, it means you earn $2 for every $1 you spend on ads. This is a bit better than the average in the industry right now. However, it’s best to aim for a higher ROAS, like 3 or 4, to maximize your earnings.
Benchmarking your ROAS against industry standards can provide valuable context for evaluating your campaign performance, as industries get influenced differently by factors like competition, average order value and profit margins.
Industry | Average ROAS |
Apparel & Accessories | 4:1 |
Beauty & Personal Care | 3.5:1 |
Consumer Electronics | 4.5:1 |
Home & Kitchen | 3:1 |
Toys & Games | 4:1 |
Strategies to Optimize Your Amazon ROAS
Even if your current RoAS is meeting your objectives, consider the potential benefits of aiming for even better outcomes.
To achieve better RoAS, you need to either reduce your CPC (cost-per-click) or increase your CVR (conversion rate), ideally both. But how exactly do you do that? Here’s a list of our suggestions:
1. Aim for Long-Tail Keywords
If you’re new to Amazon and would like to advertise your product, you should almost never focus on broad keywords, unless you have the money to do so of course.
If you choose to advertise against a highly competitive keyword anyway, rest assured that you will have no choice but to pay a significant sum per every click, and if you have a fresh listing with no orders – you might just face high advertising costs without a proportional return on investment.
Instead, we suggest you conduct keyword research to find as many long-tail keywords relevant to your product as you can. The more specific they are – the less you’ll to pay and the greater your chances of converting clicks into actual sales will be.
2. Optimize Bids Regularly
Running a PPC campaign isn’t as easy as just setting a bid and expecting it to do the job for you.
Amazon PPC operates like a real-time auction where you have to keep a close eye on your competition and regularly revisit your campaigns to tweak your bids. Paying too much can eat into your profits, while paying too little might push you out of the competition.
Therefore, it’s essential that you monitor your competitors’ actions and make your own moves as you see fit.
3. Create Promotions
Running promotions is key for Amazon sellers aiming to boost their return on ad spend (ROAS). By regularly offering deals like percentage discounts and promo codes, you can attract more buyers by enticing them with offers they wouldn’t normally find. These promotions can encourage hesitant shoppers to take the plunge and make a purchase, as well as spark impulse buys.
4. Make Use of Different Ad & Match Types
Amazon offers a variety of ad types, each with unique benefits.
If you’re focused on boosting product sales, Sponsored Product ads are ideal because they reach customers who are already browsing and ready to buy. On the other hand, if your aim is to build brand recognition, Sponsored Brands ads are perfect for putting your brand in the spotlight.
To further enhance your RoAS, consider experimenting by using various match types, especially exact match bids and negative keywords.
Exact match bidding allows you to bid on specific keywords that are likely to convert interested shoppers into buyers, leading to better click-through and conversion rates.
Negative keywords are useful for filtering out search terms that don’t match what you’re selling. By clarifying what your product isn’t, you can avoid spending money on ads that don’t reach the right audience, thus improving your ROAS.
If you’re not sure what’s going to work best, creating separate campaigns for different match types (exact, phrase, and broad match) can help capture a wider range of search queries, making it easier to see which one you should concentrate on.
5. Encourage Customers to Leave Reviews
When it comes to purchase decision-making, reviews play a big role here. A customer won’t hesitate to read the description or even bother to stay on your product listing for long if it has no reviews at all, as it makes them think nobody wants to buy this product for a reason.
Therefore, you need to think of some strategies to encourage feedback, as potential buyers often rely on others’ experiences with a product to assess its quality and reliability.
How to Find your RoAS in Seller Central
You can access the details on your current RoAS by navigating to Seller Central -> Campaign Manager.
There you will not only see your RoAS, but other valuable metrics such as Ad Spend, Sales, Impressions, etc.
If RoAS doesn’t immediately show up, you can click on the drop-down above a metric and manually choose it from the available options.
Final Thoughts
We hope this article helped you grasp the basics of RoAS and learn what strategies you can implement to boost it far and beyond. It’s important to understand that there is no “good” RoAS, and the best value for your business depends on several factors, including the nature of your product, its price point, the types of ads you implement, and your profit margins.
If you have any questions left or need assistance optimizing your Amazon PPC Campaign – look no further! Our dedicated team of specialists at Weby Corp will gladly look into the problem and help you make the most out of your advertising efforts.
