What is a Good ROAS on Amazon?
There are several ways to succeed on Amazon, but using sponsored ads may be the best one. However, measuring the performance of your advertising campaigns is essential to profit from advertising.
To do this, learning what is a good RoAS on Amazon and how to measure it will allow you to spend your money the best way to make your campaigns profitable.
What is RoAS?
Return on Advertising Spend (RoAS) measures the success of your digital advertising campaign. This metric helps you evaluate which ad campaigns work and how much revenue you’ve made for every penny you’ve spent on ads.
How to Calculate Your Amazon RoAS
What is a good RoAS? Before answering your question, you have to learn to calculate your Amazon RoAS. For this purpose, you will only need to divide the total ad attributed sales by your total ad spend
Suppose you spend $250 on sponsored ads and earned $1000. Your RoAS would be equal to 4, which is a good number. The more you know your RoAS, the better the analysis you will make for your ad strategy. As a result, you will have a more profitable ad campaign without the need to invest more money.
What is a Good RoAS?
There’s no exact number that indicates what a good RoAS is. The average rate will greatly vary depending on your industry, the ad strategies you use, and the product price. Moreover, the profit margin also impacts how good your RoAS may appear to you.
For example, Consumer Electronics has a RoAS of around 9x, whereas Toys and Games have a RoAS of about 4.5x. A 2x RoAS might be just right for one brand but a terrible number for another.
Furthermore, the type of campaign you use will also influence your final profit. For instance, your auto campaigns and broad match strategies will bring you a lower RoAS compared to a minutely targeted exact match campaign. You may also find that products between $21 - $30 will get you a better return on ad spend. The reason is that this is a price point where customers usually buy by impulse.
Because all these factors greatly influence how high or low your RoAS is, we suggest finding your minimum RoAS. This number will help you assess what is good for you and your business, and you will be able to determine whether or not your campaigns are profitable.
How to Find Your Minimum RoAS
Suppose the product sell retails at $35. Then, you will have to consider certain factors, known as the cost of goods sold (COGS). These include expenditures such as unit cost, supply cost, shipping fees, and Amazon fees. All these factors will give you a break-even number: your gross profit before your advertising expenses.
Product sale price: $35
Amazon fees: $10
= Profit: $15
Now that you know what your profit is before advertising, you need to think if it is necessary to use an ad campaign to sell your product. If the answer is yes, then you can find your minimum RoAS by using this formula:
Sale price / Break-even point= Minimum RoAS
For instance, the sale price of our example is $35, and the break-even point is 15. After using the formula, your minimum RoAS is 2,3x. In other words, for every dollar that you spend on advertising, you need to make at least $2,3 in revenue for those ads to be profitable. Anything less than that will be a bad RoAS.
How to Improve RoAS on Amazon
Once you have figured out what is the minimum RoAS for your business, you can apply some of the following tips to increase your RoAS.
Use the Right Keywords
By choosing the right keywords, you’ll attract more potential customers thanks to your sponsored content. As a result, you won’t have to invest more money to attract leads, as you have more conversions for your business.
Optimize Page Content
Provide relevant information for the leads that visit your product page. Giving exact and informative content to your leads will make them trust you, and if the information matches the keyword, it will help you get conversions.
Keep Track of your Ad Campaign
Just because it worked once doesn’t mean it will continue to bring you great profit. Once you have defined and implemented your basic tactics, use analysis tools to optimize your campaigns and increase or decrease your RoAS depending on your strategy.
Increase your AOV
When increasing your average order value (AOV), you can see how your RoAS improves. To achieve this, you can bundle your products, creating multi-packs of low-cost products or matching different products together in complementary packages.
Make sure that you match products according to Amazon’s bundling policies. Moreover, the customer data you have will be of great use to determine which products match well together, creating an offer that customers find hard to ignore.
Use Specialized Reporting Tools
To have a good RoAS on Amazon, you may want to switch to data analytics software that helps you enhance your advertising strategy.
Although Amazon Brand Analytics (ABA) is an easy interface to use, it has some limitations regarding granular purchase data and cross-reference information. The third-party analytics software you use will be able to collect raw data from Amazon to provide you with meaningful insights about your customers.
Explore with Different Ad Types
To severely improve your RoAS, you must bear in mind that each ad type will cater to a different audience. However, leads tend to opt for instant, understandable information.
For instance, Sponsored Brand Video ads usually outperform Sponsored Product and Sponsored Brand banner ads by up to 30%. Create compelling and informative video content to increase engagement, ultimately leading to conversion and increase your sales.
Marketplaces are constantly changing. Thus, you could be losing sales because you are bidding too low. To improve your RoAS, review negative keywords, ad placement, campaign types, and bids. The key to a good bid amount is to constantly review your PPC campaign to ensure you make the most out of your ad investment.
You can only achieve a good RoAS through a detailed analysis of your current ad strategy and customer behavior. As long as you understand how your leads convert into customers and their engagement with your ad campaigns, you will have the basics to correctly invest your money in a profitable ad strategy that meets both you and your leads’ needs.