When it comes to advertising on Amazon, two key metrics that sellers and advertisers need to pay attention to are advertising cost of sales (ACOS) and return on ad spend (ROAS). Understanding and optimizing these metrics can be crucial in maximizing profits and achieving business goals. In this blog post, we'll take a closer look at Amazon ACOS and ROAS, how they’re calculated, and how to improve them to drive success on the Amazon platform.
Understanding Amazon ACOS and ROAS: key metrics for success on the platform
As one of the largest online marketplaces in the world, Amazon has become a crucial platform for businesses of all sizes to reach and engage with customers. One of the most important aspects of success on Amazon is the ability to advertise products and services effectively. That's where metrics like ACOS and ROAS come in:
- ACOS represents the percentage of ad spend compared to the total sales generated from that spend.
- ROAS measures the revenue generated for every dollar spent on advertising.
Both ACOS and ROAS metrics play a critical role in helping businesses understand the effectiveness of their advertising efforts and make informed decisions to optimize their advertising strategies. A lower ACOS indicates that a seller is spending less on advertising to generate a sale, which is generally a positive sign for the success of the campaign. In contrast, a higher ROAS indicates that the seller is generating more sales revenue for every dollar spent on advertising, which is also generally a positive sign for the success of the campaign.
Maximizing your advertising budget: how to improve Amazon ROAS
Improving your Amazon ROAS is key to maximizing your advertising budget. Here are some strategies to consider:
Focus on high-converting and long-tail keywords
By targeting high-converting keywords, you can maximize your chances of generating sales from your advertising spend. In addition, long-tail keywords are more specific and less competitive than broad keywords, which means they can be more cost-effective to target. By focusing on long-tail keywords that are relevant to your products, you can attract more qualified traffic to your listings and improve your ACOS.
Optimize product listings
A well-optimized product listing can improve click-through rates and conversion rates, leading to higher ROAS. For example, if you have a product with a low conversion rate, improving the product listing by adding better images or a more detailed description can lead to more sales without increasing your ad spend.
Monitor and adjust bids regularly
Regularly monitoring and adjusting bids for your ads can help you optimize your budget and improve ROAS over time. When you identify areas for improvement, you’ll achieve better results. For instance, if you notice that a certain campaign is consistently generating a high ACOS, you may need to adjust your targeting or bidding strategy to improve the efficiency of your spend. Tools like MarinOne have AI-driven features that automatically update bids and take away the manual work for paid media managers.
Leverage Amazon's targeting options
Amazon offers a range of targeting options, including keyword targeting, product targeting, and interest targeting. Trying different targeting options can help you find the best approach for your business.
Pro tip: Prioritize profitability at the product level. Delve into detailed data to understand the profit margins of individual SKUs before introducing paid advertising. This will spotlight the products that could gain the most from advertising, thereby mitigating risk.
Amazon ACOS: how to optimize your ad spend
Optimizing your Amazon ACOS is crucial to maximizing the effectiveness of your ad spend and driving profitability on the platform. Here are some tips to help you optimize your ACOS:
Set realistic goals
Before you start optimizing your ACOS, it's important to set realistic goals based on your business objectives and industry benchmarks. An optimal ACoS is not universally applicable, as it depends on numerous factors like product category, profit margins, competition, and product price. Therefore, sellers should aim for an ACoS tailored to their specific circumstances, generally between 15-20%. While a low ACoS might seem ideal, striving for as low as 1% is nearly impossible and may not be desirable depending on the business's advertising goals and product specifics. Understanding the break-even ACoS, where ad spend equals profit, is also essential in campaign planning.
Experiment with different ad formats
Amazon offers a range of ad formats, including sponsored products, sponsored brands, and sponsored display ads. To discover which one is right for your business, experiment with all of them and see which one yields the best results.
Continuously monitor and adjust your campaigns
Regularly monitoring and adjusting your campaigns can help you optimize your ad spend and improve your ACOS over time. When you consistently watch your campaigns’ performance, you can determine which patterns are working, and which ones aren’t.
Pro tip: Focus on enhancing product convenience. This significantly impacts Amazon usage. Factors like lengthy shipping times or unexplained higher costs can reduce convenience, leading to fewer sales and conversions. Remember, pricing and shipping are key for customers.
Use negative keywords
Negative keywords are keywords that you don't want your ads to show for. By adding negative keywords to your campaigns, you can prevent irrelevant or low-converting traffic from clicking on your ads, which can improve your ROAS.
For example, if you sell high-end products and don't want your ads to show for searches related to "cheap" or "discount," you could add these keywords as negative keywords to your campaigns.
How to calculate Amazon ACOS or ROAS targets
To calculate your Amazon ACOS, you'll need to have access to your Amazon Advertising account and the following information:
- Total ad spend
- Total sales generated from ad spend
Once you have this information, you can use the following formula to calculate your ACOS:
ACOS = (Total ad spend ÷ Total sales generated from ad spend) x 100
For example, if your total ad spend is $500 and your total sales generated from ad spend are $2,000, your ACOS would be:
ACOS = ($500 ÷ $2,000) x 100 = 25%
This means that you're spending $0.25 on advertising to generate each dollar of sales.
Calculating ROAS is simple, you can use this formula to calculate your ROAS:
ROAS = (Total sales generated from ad spend ÷ total ad spend)
For example, if your total ad spend is $600 and your total sales generated from ad spend are $2,200, your ROAS would be:
ROAS = ($2,200 ÷ $600) = 3.6
This means that you're getting a ratio of 3.6 return on ad spend.
Navigating the world of ACOS and ROAS with MarinOne
ROAS and ACOS determine the efficiency of your PPC campaigns. Knowing these formulas is helpful — but only if you truly understand how they can be applied to different scenarios. When you do, you’ll be able to achieve your business goals and scale to greater heights.
By following our tips and strategies outlined above, you can maximize the effectiveness of your ad spend, drive profitability, and achieve your business goals and objectives on Amazon.
Need help navigating the world of Amazon ACOS and ROAS metrics? The MarinOne team is here to guide you. Contact us for more information or to schedule your demo today.