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Amazon RoAS is another indicator you should keep an eye on as an Amazon seller. Perhaps, you already feel frustrated because of the necessity of tracking and monitoring them all. Nevertheless, there is no other path to Amazon’s success. You have to stay tuned in to your business data and key performance indicators to compete on Amazon day after day. Analyzing your RoAS is just one of the tasks to make sure your marketing strategy is effective.
Let’s find out the essence of this indicator, the way to calculate and interpret it right.
What Is Amazon RoAS and What Figure Is Good?
RoAS, or Return on Ad Spend, is a critical performance metric that measures the effectiveness of your advertising campaigns. Simply put, RoAS calculates how much revenue you earn for every dollar spent on advertising.
For example, if you spend $1,000 on an Amazon ad campaign and generate $5,000 in sales, your RoAS would be 5:1. This means that for every dollar spent on advertising, you earned $5 in revenue. RoAS is a pivotal metric because it allows sellers to assess the profitability and efficiency of their ad campaigns, helping them make informed decisions about where to allocate their marketing budget.
Amazon ads RoAS stands for return on advertising spend Amazon. This indicator allows for measuring your advertising efforts from the return on investment. Also, it has a lot in common with ACoS – advertising spends of sale. These indicators use almost the same formula to develop the final figure and calculate the relations between the spent on advertising and revenue.
The only difference is that ACoS is the figure reflected in percentage, while return on ad spends Amazon shows the difference in “how many times” relation.
Suppose you have sold five items for $5 each and spent $10 on Amazon PPC. In this case, your ACoS will be:
$10 (your spending for PPC ads) / $50 (your revenue from selling this item to five buyers) *100% = 20%.
And now, let’s find out how does Amazon calculate total return on advertising spend:
$50 (your revenue from selling this item to five buyers) / $10 (your spending for PPC ads) *100% = 500%
Amazon RoAS stands for return on advertising spend Amazon. This indicator allows for measuring your advertising efforts from the standpoint of the return on investment. Also, it has a lot in common with ACoS – advertising spends of sale. These indicators use almost the same formula to come up with the final figure and calculate the relations between the spent on advertising and revenue.
How to Understand Return on Advertising Spend (RoAS)
An average Amazon RoAS is 3. It means that on average, Amazon sellers generate three times more profit than the amount invested in ad campaigns and sponsored product ads. Still, depending on the category and type of the product, RoAS for Amazon can be both higher and lower. For example, newly launched products or newly created brands can have lower RoAS since they have to invest more in advertising until their brand becomes better recognizable.
As an indicator, the higher RoAS – the better. It means that you drive your product sales at a good profit margin and a low amount spent on ads. ACoS, in turn, should be as low as possible since, despite both indicators being calculated according to the same formula, their essence and business value are entirely different.
Key Factors Affecting Your Amazon Advertising RoAS
Profit Margin
Your profit margin is a significant factor influencing your RoAS. Higher profit margins generally lead to a better RoAS. If your profit margins are slim, achieving a high RoAS becomes challenging, as a larger portion of your revenue is consumed by costs. To calculate your ideal RoAS, you must first understand your profit margins, including all costs associated with producing and selling your product.
Product Category
Different product categories have varying levels of competition, which impacts advertising costs and, consequently, your RoAS. High-demand categories like electronics or fashion typically require higher ad spends due to increased competition. On the other hand, niche categories may see lower ad costs but also have a smaller audience. Understanding the dynamics of your product category can help set realistic RoAS expectations and tailor your ad strategies accordingly.
Campaign Goals
Your advertising goals significantly shape what constitutes a “good” RoAS for your campaigns. If your primary goal is brand awareness, you might be willing to accept a lower RoAS initially, as you’re investing in long-term brand building. Conversely, if your goal is immediate sales, you’ll likely aim for a higher RoAS to ensure that your ad spend directly translates into revenue. Clearly defining your campaign objectives can provide a more nuanced understanding of what a good RoAS means for your business.
How to Boost Your Return on Ad Spend and Keep a Good RoAS
So, if you want to improve your ad spend RoAS and increase the revenue you can drive from your ads, keep in mind that all your subsequent actions will be about ads campaign management and optimization. To put it simply, you, as always, should find a way to spend less on more effective advertising on Amazon. Below are some practical steps.
- Optimize your listing for relevant and winning keywords. Matching your ad campaign with relevant search queries and powering your ad copy with them is a direct way to make your product better visible and tailor it to the search requests. Get started by gathering the keyword pool for your ad campaign and shortlisting the ones that make the most sense for your product. Also, look at the key queries your competitors are using for both PPC and organic search, and combine the most winning one into a holistic strategy.
- Power your product description with compelling images and videos. The first impression the customer gets from most of the web ads is visual. The visual impression drives the buyers to find out more about your product, and that’s why your graphics should be compelling and visually attractive. The practice shows that if your fail in backing up your campaign with stunning visuals, your RoAS will be lower since you have to spend more and more without making the users click through and purchase.
- Leverage the power of customer feedback. It is one of the most effective approaches for growing your return on advertising spend. After the ad attracts your prospective leads, they get started with discovering and researching the product, looking at its images, reading product descriptions. As the last point (which, by the way, can even be the first for some customers), they read the reviews of the previous buyers. You are better to have many positive reviews and good product ratings since social proof is a potent purchase trigger. Indeed, you can’t satisfy all Amazon users. However, you can still make the most use of buyer-seller communication and indirectly increase ROI. The only thing you have to do is collect as many users’ reviews as possible.
What’s more, you can do it with ease with the help of SageMailer. Amazon customers feedback management software allows you to send kind requests to your users with a transparent suggestion to leave a review. Plus, SageMailer notifies you instantly when you receive a new positive, negative or critical review. The app also spots fake feedback you can immediately deal with as one more feature.
Conclusion
Amazon’s return of advertising spend is only the one metric you have to keep an eye on. What’s more, you can’t find it out within Seller Central – it provides you only with statistics on your ACoS. But given the fact that both of these figures are directly interconnected, you can take your ACoS as a starting point and then proceed with calculating RoAS according to the formula we have shared above.
Also, don’t ignore the power of social proof as a way to improve your conversion rate and increase revenue. Consider using SageMailer for better buyer-seller communication and gathering user feedback automatically.
Get registered right now and unlock the opportunity to use SageMailer for free for a month!
