Investing in an Amazon advertising campaign is a great way to organically reach a higher rank on Amazon’s search page. Although increasing your listings’ visibility doesn’t necessarily guarantee more sales, strategic advertising can produce greater returns. However, to increase conversion rates and make your advertising campaign profitable, you need to be able to measure their success accurately.
One possible way to gauge the efficacy of your ads is to calculate your Return on Advertising Spend (RoAS). Fortunately, Amazon provides this measurement for you, but what is a good RoAS on Amazon, and how can you use this measurement to increase sales?
At Click Fluency, we can help you remove the guesswork from Amazon advertising. We can teach you the best practices for Amazon listing, how to create effective ads, and how to use the tools at your disposal to track your success. Read on to learn more about RoAS and how you can use it to develop better, more profitable ads.
What Is Return on Ad Spend (RoAS)?
Return on Ad Spend (RoAS) measures how much revenue you’ve made relative to your advertising costs. Put simply, RoAS helps you determine whether or not your ad campaign is profitable for your business.
Your Amazon dashboard will provide information about your RoAS and sales metrics. Still, knowing how to calculate RoAS for all your products can help you determine which advertising strategies increase sales and which require more fine-tuning.
How To Calculate RoAS
To calculate your Amazon RoAS, divide your ad-generated income by how much you spent on those ads. For example, if you spent $200 on an advertising campaign and made $800 in profit from those ads, your RoAS would be 4.
What Is a Good RoAS?
Now that we’ve established what RoAS is, we can address the most important question: What is a good RoAS on Amazon?
According to industry statistics, the average RoAS for Amazon sellers is around 4. However, this metric varies greatly depending on profit margins and what kind of products you sell. Additionally, what constitutes a good RoAS also depends on how much competition you face. For example, you may have to increase ad spending in a highly competitive market to see results.
In general, a higher RoAS translates to higher profits and more successful ad campaigns. Given business expenses and Amazon’s various seller fees, only earning small amounts back will result in significant losses over time, especially if your total profit is less than or equal to the amount spent on ads.
To prevent losses and find a profitable RoAS metric for your products, consider calculating your minimum RoAS. With this measurement, you can more easily determine your advertisements’ profitability and adjust accordingly.
How To Calculate Minimum RoAS
Calculating your minimum RoAS requires establishing your break-even point, which is your total profit earned before advertising costs. This calculation factors in all selling expenses, including supply and shipping costs and Amazon’s seller fees.
To create an example, let’s say you’re selling a product for $40. If the total selling expenses come to $10, and Amazon’s fees also total $10, your profit would be $20. However, this $20 would be your profit before any advertising expenses, which means that in order “break even,” the cost of your advertising for this product can’t exceed $20.
“Breaking even” means that your profit is $0. You don’t lose money on the sale, but you don’t make any back, either.
With your break-even point in mind, let’s look at the formula to calculate your minimum RoAS. To find your minimum RoAS for a given product, you must divide your product’s sale price by your break-even point. If we were to use the above example, it would look like this:
$40 / $20 = 2
With this example, the minimum RoAS would be 2, meaning you would need to earn a minimum of $2 for every one dollar spent on ads.
If you’re asking yourself, “What is a good RoAS on Amazon?” know that the answer ultimately depends on your goals for your business. Anything above your minimum RoAS will be profitable. Whether or not you wish to exceed that minimum by a significant amount will affect what feels like a “good” RoAS for you.
How To Increase Your RoAS
High-quality advertisements are often crucial to ensuring success as an Amazon seller. To help you optimize your ads and make a profit, we’ve compiled a few tips and tricks that can aid in increasing your RoAS.
Choose the Right Keywords
In digital marketing, keywords are everything. Conducting keyword research to find which keywords are the most prevalent in your market can help you generate organic leads without having to splurge on ads.
Optimize Your Product Listings
In addition to including keywords in titles and product descriptions, ensure that the information displayed on your product listing is relevant to your potential customer. Consider your target audience and what they might search for to determine what information to include on your listing page.
Adjust Your PPC Campaigns Accordingly
To meet your RoAS goals, pay close attention to your ad campaigns. Making your ads profitable requires you to frequently review keywords, adjust your bids where necessary, and monitor your cost of sales to see if your minimum RoAS changes. The goal is to maximize your ads without overspending.
Develop Profitable Ads With Click Fluency
At Click Fluency, we know what it takes to succeed as an Amazon seller. We’ve been in your shoes before, and now we’re offering you an opportunity to take advantage of everything we learned. With helpful tools like our guide to Amazon product videos, we demystify the road to success on Amazon and provide you with everything you need to build your online business, including ways to keep track of your RoAS.
Before you spend hours researching “What is a good RoAS on Amazon?” check out our helpful guides to learn more about the best practices for Amazon sellers, or contact us to schedule a free discovery call!