Amazon RoAS or return on ad spend is an advertising metric that gauges the effectiveness of your Amazon PPC campaigns. As the importance of advertising on Amazon continues to rise. Sellers and eCommerce business owners need to track a variety of metrics to assess the success of their advertising campaigns.
If you’re looking to maximize the results of your Amazon PPC campaigns, here are a few simple yet effective things you can do to increase your Amazon ROAS (Return on Ad Spend).
What is RoAS?
RoAS is an advertising metric that calculates the revenue your business generates from each dollar spent on advertising campaigns. The core concept of RoAS is similar to ROI or return on investment because you’re looking at the return of investing in digital advertising.
Thankfully, calculating this powerful metric is straightforward. Here’s how to calculate RoAS:
ROAS = Ad Sales / Ad Spend
The Amazon RoAs calculation indicates that if you spend $100 per day on ads, and it generates $500 per day in ad sales, you have a ROAS of 5. A high RoAS means that you’re generating more revenue in ad sales.
ACoS vs RoAS
ACoS = Ad Spend / Ad Sales
Using the same example, ACoS would be 20%.
What is Break-Even RoAS?
RoAS on Amazon only gives a view of revenue vs ad spend. However, revenue is just one piece of the puzzle that determines eCommerce success. This where knowing your profit margin and break-even point becomes important.
Amazon sellers with a high-profit margin can allocate more costs to PPC campaigns to increase their revenue. On the other hand, sellers with low-profit margins may not have enough room to generate a profit after accounting for advertising costs.
To sum it up, you need to achieve your break-even RoAS to ensure you’re not losing money on Amazon PPC campaigns.
How to Calculate Your Break-Even RoAS
Calculating break-even RoAS is simple. The first step is to determine your gross profit margin. Once you have this data point, plug it into the following formula to determine your break-even RoAS and voila!
Break-Even RoAS = 1 / Gross Profit Margin
With a gross profit margin of 30%, your break-even RoAS would be 3.33x.
What is a Good RoAS on Amazon?
The answer to this question depends on several factors including the industry you operate in and your profit margin. It is not possible to identify a standard Amazon RoAS figure that is applicable to all businesses. Having said that, the industry average for RoAS stands at about 4.
It’s best to take these averages with a grain of salt. Differing campaign management strategies, stages of the product life-cycle, and the industry competition all have a direct impact on what makes a good RoAS on Amazon. If you’re starting out, it is best to evaluate benchmarks within your industry and evaluate the scope of your advertising efforts to identify what could be a good RoAS for you.
Should You Always Aim for a High RoAS?
Most Amazon sellers believe that they should always aim for a high RoAS. After all, a high RoAS signifies that you’re generating more sales from advertising campaigns.
However, depending on your business strategy, you may also aim for a low target RoAS. This works in scenarios where you’re looking to conquer a niche, increase brand awareness, or sell a product that requires high visibility.
7 Simple and Proven Ways to Improve RoAS
To improve your Amazon ROAS or ACoS, you either need to increase your ad sales or decrease your ad spend. So, how can we improve ad Sales at the same fixed ad spend?
Ad Sales will go up if you focus on the following simple changes:
- Focus on keywords that convert better
- Don’t get sucked into a keyword bidding war
- Discover Ad types that convert better
- Improve your content
- Frequently optimize bids
- Consistently harvest new keywords
- Maximize your Amazon RoAS with automation
Focus on Keywords that Convert Better
Every combination of keyword and match types will have a different conversion rate. Therefore, it is best to let the data guide you by focusing your spending on keywords that convert better.
Focus on regularly calculating the Click-Thru-Rate (CTR), Conversion Rate (CVR) for each keyword in your campaign and make sure you bid higher on keywords that convert and soft-negate (bid down) keywords that don’t.
Remember, this requires discipline and some good spreadsheet skills! 🙂 Here are the quick formulas to calculate CTR and CVR.
CTR = Clicks / Impressions
CVR = Orders / Clicks
Don’t Get Sucked into a Keyword Bidding War
Amazon sellers often worry about ranking for certain keywords, driving up bids and reducing Amazon ROAS will do the trick; remember only Amazon wins in a bidding war. Whether you have top of the funnel or long-tail keywords, only bid on keywords at the bid value that meets your target ROAS
Trellis’ Top Tip: Did you know? You can get sales for a keyword at a bid value much lower than the recommended bid.
If you’re wondering what should you bid for a keyword, here’s how to calculate bid value:
Bid Value = Product Price x Target ACoS x Conversion Rate
Discover Ad Types That Convert Better
Each ad type caters to a different part of the shopper funnel. Humans are lazy, so when it comes to reading or watching a video, humans will always watch.
Our data has shown that Sponsored Brand Video ads outperform Sponsored Brand banner and Sponsored Product ads by as much as 30%. Invest in video content to drive engagement that will lead to conversion and generate more sales
Improve Your Content
The objective of ads is to drive traffic to your Amazon product listing. If the consumer is on your listing and does not hit the “Buy Now” button, then your content is not working. Features bullets, A+ content, images, and videos that highlight the benefits, tell your story, engage the consumer to drive better conversion.
There is a science behind how shoppers look at content and make decisions on purchases. Work with an expert that is well versed in shopper design and claims and improve your content. Run your ASIN on Arch, Trellis’ free Amazon listing analyzer which provides real-time recommendations to help improve your listings
Frequently Optimize bids
Marketplaces are very dynamic, always changing. You could be losing sales because you are bidding too low. Your ACoS could be unnecessarily high if you are bidding too high.
You need to continuously monitor and frequently optimize your bids to get an edge! Gone are the days when you can set the bid and adjust it after a few weeks; this needs to be done daily if you want to compete
Continuously Harvest New Keywords
Keyword harvesting on Amazon is the act of taking keywords from the search terms reports and adding them to your own campaign. Doing so increases the number of keywords that can potentially generate a sale.
Harvested keywords tend to be long-tail and as such likely have a lower bid value. Driving more sales from a wide range of keywords that have a lower bid value will naturally increase your ROAS or lower your ACoS
Maximize Your Amazon RoAS With Trellis
Signing up for Trellis gives you access to an all-inclusive demand generation platform trusted by leading Amazon brands.
The Trellis solution for Amazon sellers automates all aspects of your PPC campaigns, from campaign management, keyword harvesting and smart budgeting to advanced analytics.
Our team of eCommerce advertising mentors will guide you through every step of making the most of what Trellis has to offer.