As an Amazon seller, you already understand pay-per-click (PPC) advertising. You have to know this model to succeed in online selling. Also, it is critical to understand how your ad campaigns perform for a successful Amazon PPC. You’ll need to comprehensively understand various performance metrics and formulas that you can apply to get more insight.
The Amazon PPC reporting metrics that you need to understand include:
- Click-Through Rate (CTR)
- Conversion Rate (CVR)
- Advertising Cost of Sale (ACoS)
- Break-Even ACoS
- Return on Advertising Spend (RoAS)
- Break-Even RoAS
- Total Advertising Cost of Sale (TACoS)
As you can see, the metrics present a complex Amazon lingo that you might struggle to understand. So, what are they, and how do they affect your business? Let’s get a walkthrough for each Amazon ad performance metric.
What is Click-Through Rate (CTR)?
As an Amazon seller, you always want to know how engaging your ads are. This might be a challenge because you don’t want to rely only on impressions. Instead, you must go deep and get the number of web visitors persuaded to click your ad for more information.
In this case, you must understand your CTR. This metric presents the number of times your ad was clicked compared to the total number of visitors who saw your ad. However, you have to multiply this number by 100 to get a rate.
How to Calculate CTR
The simple formula for calculating CTR is:
(Total Ad Clicks/Total Ad Impressions) *100
For example, if your Amazon ad has 5 clicks and 500 impressions, your CTR will be;
CTR = (5/500) = 0.01%
To remain successful in Amazon selling, you need to target around 0.05% or higher CTR. Anything below 0.03% is a sign that your keywords are not appropriate and they’re not offering relevant information.
What is Conversion Rate (CVR)?
Conversion rate is another important metric in your Amazon ad campaign that highlights the successful clicks. In this case, you’re not only interested in the number of ad clicks but how many clicks are converting into customers.
There’s no doubt that ad clicks are essential as they highlight your successful keywords and ad relevancy. However, you need to go ahead and make sales to sustain your business.
How to Calculate CVR
From the explanation above, the conversion rate expresses the total number of sales compared to total ad clicks expressed as a percentage.
CVR = (Total Sales/Total ad Clicks) *100
For example, if your ad has 5 buyers and 50 clicks, your CVR will be;
CVR = (5/50) *100= 10%
It would help if you always targeted the highest CVR possible. Any CVR below 10% is not sustainable.
What’s the Difference Between CTR and CVR?
As a new Amazon seller, there’s a chance you’ll confuse between CTR and CVR. However, the two ad performance metrics are unique and provide different information. While CTR measures your ad’s number of clicks, CVR measures how many sales you get from those clicks.
What is Advertising Cost of Sale (ACoS)?
As you continue to measure your Amazon pay-per-click performance, you’ll need to understand your advertising cost of sale (ACoS). In this case, you’ll need to compare your advertising expenditure and the associated sales revenues.
The essence of calculating ACoS is to help you understand how ads are costing your business. For example, if ACoS is high, you’re spending more on advertising compared to the sales those ads are generating.
How to Calculate ACoS
As highlighted above, ACoS expresses total ad expenditure compared to sales revenues expressed as a percentage.
ACoS = (Total Ad Expenditure/Total Sales Revenues) *100
For example, if you’re spending $40 on Amazon ads and generating $200 on sales revenues, your ACoS will be;
ACoS = (40/200) *100= 20%
You have to keep your advertising cost of sale as low as possible. If your ACoS is at or below 30%, you’re getting maximum revenues for any dollar spent on Amazon advertising.
However, ACoS is influenced by multiple factors other than product listing and keywords. For example, your ACoS will be very high when introducing new products to the market compared to advertising established products.
What is Break-Even ACoS?
In any business activity, you must always determine your break-even point. This is where your business will record zero profits and zero costs. Therefore, besides ACoS, any Amazon seller must understand break-even ACoS.
In this case, break-even ACoS explains the point where your expenditure on Amazon ads will balance with the sales those ads are generating. At this point, every dollar spent on an ad will generate a dollar in sales. As such, you’ll neither make profits nor losses.
How to Calculate Break-Even ACoS
To calculate your break-even ACoS, you need first to calculate your profit margin (Sale Value- Item Cost) and ACoS and then compare the two.
Your ultimate goal is to ensure that your profit margin is higher than your ACoS. However, if your ACoS is higher than your profit margin, you’re making losses. You can adjust this and realize break-even ACoS by reducing your item costs, including shipping, manufacturing, and warehouse costs. Our ACoS calculator can help you to calculate ACoS and break even ACoS quickly.
What is Return on Advertising Spend (RoAS)?
RoAS is an Amazon ad performance metric that highlights the proportion of sales generated by advertising expenditure. RoAS is ACoS expressed as a number rather than a percentage.
Generally, RoAS helps you to understand how your ads have been effective. In addition, it will provide a clear insight into your return on investment.
How to Calculate RoAS
To calculate RoAS, you’ll inverse the ACoS formula
Therefore, RoAS = (Total Sales/Total Ad Spend)
For example, if your Amazon business generates sales worth $100 while spending $20 on Amazon ads, your RoAS will be;
RoAS = (100/20) =5
Therefore, with a RoAS of 5, your business is getting 5 times more sales than your total advertising spends. Therefore, your return on investment is 5 times (very high).
Ideally, target the highest RoAS possible. However, anything above 1 is good because your business is getting more than it is spending on ads.
What is Break-Even RoAS?
Break-even RoAS is a key performance indicator in your Amazon business. It helps you understand how much money your Amazon ads need to generate to cover the cost of the products you’re promoting.
Basically, for an efficient Amazon RoAS, your business needs to make as much money on sales as it uses on advertising.
How to Calculate Break-Even RoAS
You don’t have to work backward to calculate break-even RoAS. Instead, you can use a simple formula for your e-commerce business.
Break-even RoAS = 1/Average Profit Margin %
For example, if you have a profit margin of 70%, your break-even RoAS is;
Break-even RoAS = 1/70% =143%
In this example, your break-even RoAS is at 143% RoAS. If your RoAS is below 143%, your business loses money on Amazon ads.
What’s the Difference Between ACoS and RoAS?
As you can see, confusion between ACoS and RoAS is likely. However, these performance indicators are very different. For example, while ACoS shows the money spent on Amazon ads to gain a dollar in sales revenues, RoAS highlights money earned for every dollar spent on ads.
Despite the difference, you should analyze both ACoS and RoAS together to gain a comprehensive insight into ad performance.
What is Total Advertising Cost of Sale (TACoS)?
TACoS is a comprehensive Amazon PPC reporting metric that explains how your ad spends fits into your e-commerce. It focuses on analyzing the sales you generate through ads and those that are organically generated.
Therefore, TACoS provide reliable information as compared to ACoS. It can help you understand overall profitability and how ads affect organic sales. Other important areas where you can rely on TACoS include:
- Scaling your Amazon business
- Launching new products on Amazon
- When trying to achieve better keyword rankings
How to Calculate TACoS
To calculate TACoS, you need to divide your ad spend by sales revenues and multiply by 100.
TACoS = (Total Ad Spend/Total Sales Revenues) *100
Generally, you need to calculate TACoS regularly. If your TACoS is increasing, you need to drive more organic sales by optimizing your Amazon SEO strategy. However, if your TACoS is decreasing, your advertising campaign is helping to generate more organic sales.
Growing Your eCommerce Brand with Amazon PPC Automation
As you can see, meeting targets for each of the above PPC performance metrics is laborious and time-consuming. It is even challenging when done manually. You must constantly analyze different metrics and adjust them to meet your short and long-term business goals.
On the other hand, the level of competition on Amazon and other e-commerce platforms is growing every year. Every new seller entering the market makes it hard for your business to stand out. As such, you need to consider automation to manage Amazon PPC campaigns effectively.
Amazon PPC automation offers automation capabilities that can assist your business in achieving your goals in the complex market. Analyzing and adjusting your Amazon PPC campaign metrics will be faster and accurate-enabling you to beat the competition.
Other critical benefits that Amazon PPC automation will provide to your online business include:
- Saving time
- Scaling your PPC campaigns
- Optimizing on built-in features
- Beating Amazon competition
Improve your Amazon metrics today! For more information on how to manage your Amazon PPC reporting metrics, get in touch with our team today.