If you’re running Amazon advertising campaigns you’ll of course be looking for the best return possible.

But what is a good return on ad spend (ROAS) on the Amazon platform?

And more importantly, how do you continue to improve your ROAS over time to increase ad efficiency and grow the profits of your Amazon business?

I manage PPC campaigns that generate six figures in revenue every month, and in this guide, I’ll walk you through everything I’ve learned about Amazon ROAS to get you up to speed.

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Why is Amazon ROAS important?

Amazon ROAS is the Return On Advertising Spend that you are getting from your advertising campaign, meaning it directly relates to the profit you are making.

A good ROAS will allow you to continuously reinvest in campaigns that generate a healthy profit margin.

This is what allows Amazon sellers to scale up advertising efforts and expand their business quickly.

Conversely, if your ROAS is too low, then it can cripple your growth and make it very difficult to launch new products.

How do you calculate Amazon ROAS?

Amazon ROAS is calculated in a very similar way to ACOS (Advertising Cost Of Sale), a metric that Amazon sellers may be more familiar with.

In fact, the nature of the two numbers means they will always be linked.

To calculate ROAS, simply divide ad sales by total advertising spend.

For example, if you generate $100 in sales from $20 in ad spend, you have a ROAS of 5x because your ad spend has returned 5x the value.

how to calculate roas

Whereas ACOS is calculated as a percentage by dividing total ad spend by ad sales.

Using the same example, your $20 divided by the $100 in sales gives you an ACOS of 20%.

how to calculate acos

There is no better metric, you can simply use whichever you find easiest to interpret and act upon.

What is a good ROAS on Amazon?

Like in many areas of eCommerce marketing, ‘good’ is a subjective term whose definition largely depends on two factors:

  1. Your competition
  2. Your objectives

Defining ‘good’ in the context of competition

Every product category on Amazon is different and can have wildly varying advertising costs.

For example, if you find yourself in the supplement niche you’ll know that ad costs are particularly high.

Brand owners know that acquiring a customer for a good supplement product can be very lucrative given the potential customer lifetime value.

As such, they are often willing to pay a much higher cost-per-click (CPC), and a ‘good’ ROAS in the context of your competition might be as low as 1x due to the increased ability to recoup profit on future sales with a replenishable product.

Compare that with a category that has a much lower CPC and suddenly a ‘good’ ROAS that keeps you in line with competitors is much higher.

This is why I personally receive the Perpetua Benchmarker report each month and recommend all of our BBU community to get this free report too.

It benchmarks your Amazon PPC performance against your direct competitors and gives a much clearer idea of what is in fact ‘good’.

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Defining ‘good’ in the context of objectives

Secondly, your unique business objectives have an impact on what a good ROAS looks like.

For example, if you are launching a new product with aggressive PPC campaigns, you should be far less concerned with advertising costs and instead focus on driving organic rank.

Ranking products for relevant, high-traffic search terms should be your primary objective on Amazon as this is what can drive large volumes of profitable sales.

As such, in a launch period, a good ROAS might be as low as 1x knowing that the sales you are driving will impact long-term organic growth.

However, if you have launched a product and established a good spread of organic keyword ranking, then naturally your objective will move towards optimizing for a profitable ROAS.

At this point, a good place to start is a base level of a break-even ROAS.

By generating ad sales at a break-even ROAS you know that you aren’t losing money on your advertising and can optimize PPC ads for greater profit from there.

Plus, the sales you are making – unlike on any other advertising platform – will directly impact your organic visibility.

Calculating break-even ROAS

To calculate the minimum ROAS you need to achieve with an ad campaign in order to hit a break-even point, you first need to know your profit margins.

To calculate product profit margin, subtract all expenses including product costs and Amazon fees from your selling price then divide your profit by your selling price.

how to calculate profit margin

For example, if your profit is $5 and your selling price is $20, you would divide 5 by 20 and be left with 0.25, or 25% profit margin.

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To convert this percentage into a minimum ROAS, divide 1 by the percentage.

So in the above example, your minimum ROAS would be 4.

Now you can confidently run Amazon PPC campaigns knowing exactly where your ROAS needs to be.

Where do you find ROAS in Seller Central?

To find out what your Amazon PPC ROAS is at any time, head to Seller Central and navigate in the menu to Campaign Manager.

Then in your dashboard, you will see a number of metrics such as ad spend and ad sales.

Usually, ROAS appears as a default for new accounts.

Campaign Manager

If ROAS isn’t immediately visible you can click the drop-down above a metric and choose ROAS from the available metrics.

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How do you improve ROAS on Amazon?

If your ad campaigns aren’t hitting your target ROAS you’ll need to carry out some optimizations.

To improve ROAS with sponsored product ads you need to either reduce your cost per click or increase your conversion rate – ideally a combination of the two.

Reducing Cost Per Click (CPC)

Amazon-sponsored ads work in a bid auction format, meaning the higher you bid the higher you will potentially pay per click.

The more you pay for each click, the lower your ROAS will be. So, to lower it, try these optimizations.

Carry out exhaustive keyword research

If you’re selling a yoga mat, please for the love of Jeff Bezos don’t just advertise against the keyword yoga mat.

It’s broad in focus and highly competitive meaning you will be paying top dollar for every click.

Instead, conduct a robust process of keyword research to find as many long-tail highly relevant keywords as you can.

The more specific you get, the lower your costs are likely to be – and more often than not they will convert better too.

Optimize bids regularly

Amazon PPC is unfortunately not a set-and-forget operation.

Once you set your bids, you need to go into each ad campaign on a weekly basis to optimize your bids and ensure you aren’t paying too much for each keyword.

This is also true in the opposite – there may be some keywords for which you are getting great results but bidding too low.

You may be able to bid higher to grab more market share whilst maintaining strong ROAS.

This is where a good Amazon PPC tool becomes very helpful as it can analyze keywords across all your campaigns and save having to navigate a clunky campaign manager dashboard.

This will allow you to optimize an ad campaign in minutes vs hours each week.

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Test multiple match types

Finally, be sure to test different match types for each keyword.

Exact match keywords will often cost more per click but don’t always convert as well.

So test both broad and phrase match types alongside exact match to optimize for the best CPC possible.

NOTE

Reducing cost per click shouldn’t be your only focus. You can reduce it so much that the only clicks you get are from shoppers on page 3 or 4 of search results which will convert poorly.

As such, it’s important to also focus on conversion rate.

Increasing Conversion Rate (CVR)

If you send 100 clicks at $1 per click to a listing that converts 10% of visits to a sale, you’re paying $10 to acquire each customer ($100 in clicks, 10 visitors purchase).

However, if you send 100 clicks costing $1.50 each to a listing that converts 20% of visits, you’re acquisition cost is slashed by 25% to $7.50 ($150 in clicks, 20 visitors purchase).

Despite paying 50% more for each click, improving the conversion rate has made a big difference to these example numbers.

The same will be true for your numbers too if you can improve your conversion rate.

Here are a few things to focus on.

Launch quality products

Often new Amazon sellers will look for quick hacks to grow sales and neglect the most important thing of any physical product business – the core quality of your actual products.

If you don’t put the work in upfront to identify opportunities to differentiate you’ll just be another product in the crowd.

Instead, carry out in-depth product research, seek to fully understand the customer you are serving and the problem you are solving, and meet that need.

Then, once you’ve created it, you need to make sure you shout about it!

Optimize your listing

It’s no good having an amazing product if no one knows just how amazing it is.

Therefore, to drive higher conversion rates, it’s essential you fully optimize your Amazon listing.

This includes adding relevant keywords to your title, bullet points, and description but goes much further than that.

Be sure to also create engaging product images and A+ content that sell the benefits of your product.

Remember: Amazon PPC is not a magical source of traffic that will turn dreams into reality. If you’re paying to send traffic to a listing it’s essential you optimize that listing for conversions.

Obtain customer reviews

Studies show that reviews are a big factor in customers’ decision-making.

As such it’s essential you work hard to populate your listing with as many good-quality reviews as possible.

Related: Explore our top tips for getting more reviews on your Amazon products.

Test, test, test!

Like anything in data-based marketing, you have to always be testing.

You should never arrive at a ‘good’ ROAS on Amazon and should instead continually run tests to improve conversion rates for a higher ROAS.

You can either do this by manually testing aspects (for example, testing one main image for a week and swapping it out for another main image for another week) or by using Amazon’s Manage Your Experiments feature.

PRO TIP

To make sure your testing data is accurate and the results actionable, be sure to only test one aspect at a time.

What is a good Amazon ROAS for you?

In conclusion, Amazon ROAS is an important metric that sellers should strive to optimize.

To improve your ROAS, focus on reducing cost per click and increasing conversion rate by launching quality products with optimized listings, obtaining customer reviews and testing different aspects of the listing.

Ultimately what counts as a good Amazon ROAS will depend on both your competition and your product-level objectives.

A newly launched product will have a different ad strategy than a more mature product and this should be taken into consideration.

But, if you’re looking for a guide to optimize ad campaigns around, a break-even ROAS is a good place to start.

Ready to take the next step and elevate your Amazon PPC game further?

Then check out our PPC Masters course, now available inside Brand Builder University.

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