For a long time, Amazon sellers running PPC campaigns were fixated on one core metric: ACOS.
Meanwhile, advertisers on almost all other platforms had their own north star: ROAS.
Amazon has since introduced the ROAS metric into Campaign Manager reports and even defaulted to ROAS ahead of ACOS.
So what does that mean for Amazon sellers? Is ACOS obsolete? And how do the two metrics compare?
All will be explained in this article, so buckle up and read on!
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What is ACOS?
ACOS stands for Advertising Cost of Sale, and it’s an Amazon-specific metric that shows how much you spend on advertising in relation to the revenue generated from those ads.
It’s calculated by dividing total ad spends by total sales resulting from those ads.
It’s a simple equation: ACOS = Ad Spend/Ad Sales.
For example, if you spend $20 on ads and generate $100 in sales, your ACOS would be 20%.
The beauty of ACOS is that it’s easy to understand and gives Amazon sellers an immediate idea of how profitable their PPC campaigns are.
An ACOS percentage above 100% means you’re spending more on ads than you’re making in sales, while a lower percentage indicates the opposite.
Related: Explore the ten key metrics of Amazon ACOS and how to optimize for improved advertising performance.
What is ROAS?
ROAS stands for Return on Ad Spend, and it’s the same concept as ACOS, just expressed differently.
It’s calculated by dividing total sales resulting from ads by total ad spend.
ROAS = Sales/Ad Spend.
For example, if you spend $20 on ads and generate $100 in sales, your ROAS would be 5x.
A ROAS of 1x or higher means that you’re making more money in sales than you’re spending on ads, while a ROAS lower than 1x indicates the opposite.
Related: What is a good Amazon ROAS?
Why did Amazon introduce ROAS?
For a long time, Amazon didn’t even include ROAS as a metric inside Campaign Manager and calculating ROAS had to be done manually.
Its reliance on ACOS was designed to help Amazon sellers understand their advertising efforts better as it is a useful metric to track when optimizing campaigns.
With ACOS you can quickly see what percentage of your ad spend is being converted into sales and a lower ACOS means more profitable campaigns.
However, ROAS has since made its way to being the primary overall performance metric for Amazon advertising, and here’s why.
1. Industry standardization
ROAS is the key metric most advertisers outside of Amazon look at to determine the effectiveness of their online advertising.
It gives a more holistic view of the effectiveness of advertising spend as it’s expressed in terms of return rather than cost.
In order to try and bring Amazon’s advertising ecosystem in line with other marketing channels, Amazon introduced ROAS to its Campaign Manager.
It even defaults to ROAS on new accounts with ACOS being an additional option that can be added to data columns if required.
Amazon’s advertising revenue is still much smaller than that of big players like Facebook (Meta) and Google, but it continues to strive for more growth.
Making ROAS the central performance metric is a clear sign that Amazon sees its advertising product as being a core part of the modern eCommerce brand’s strategy.
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2. Amazon advertising expansion
Whilst Amazon Sponsored Ads have historically focused on a pay-per-click model, this won’t always be the case.
If Amazon is to convince big enterprise brands to spend larger and larger portions of their advertising spend on the platform it needs to deliver a full-funnel solution.
As the Amazon advertising product expands into more complex ad formats over time, ROAS helps standardize performance and reporting.
How to calculate ROAS from ACOS
ACOS and ROAS are two sides of the same coin, so it’s easy to calculate one metric from the other.
To convert ACOS into ROAS, divide 100 by your ACOS percentage.
For example, if your ACOS is 20%, your ROAS would be 5 (100/20 = 5).
How to calculate ACOS from ROAS
Conversely, to convert ROAS into ACOS, divide 100 by your ROAS percentage.
For example, if your ROAS is 5, your ACOS would be 20 (100/5 = 20).
Frequently Asked Questions
ACOS vs ROAS: Which metric should I use?
At the end of the day, it all boils down to which metric you can interpret the quickest and easiest.
Amazon ACOS helps you to quickly understand profit margin and overall performance of PPC ads.
Whereas ROAS will help you understand what kind of return your ads are generating.
ROAS metrics will also be in line with other platforms such as Facebook or Google Ads which may become a big part of your strategy as your brand grows.
So, understanding both ACOS and ROAS is advised in order to fully understand the performance of your Amazon PPC campaigns.
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