Want more exposure, but worried your Amazon ad spend would eat into your profits? Not to worry; metrics like Amazon ACoS and ROAS can help you boost your Amazon advertisingAdvertising is a means of communication … More performance and keep your costs down.
AdvertisingAdvertising is a means of communication … More is an essential part of selling on Amazon. It can help you reach new customers, increase your sales, and boost your profits. However, it’s important to track your Amazon advertising performance so that you can ensure that you’re getting a good return on your investment.
Amazon Ad Spend Trends
According to Business of Apps, Amazon’s main revenue stream in 2022 was its own sales on its online stores. This amounted to $220 billion last year. As for third-party sales, this source of revenue was dwarfed by the monetization of AWS, subscription, and advertisingAdvertising is a means of communication … More services combined.
Amazon spent $16.9 billion on advertising last year, making it the biggest advertiser in history, by some accounts. So, it’s only natural that it should also have a huge share of the global ad revenue, as Axios reveals. But this surge in Amazon ad spend and revenue is affecting third-party sellers.
Nowadays, some of the most successful Amazon campaigns cost at least $50-$100/day, according to Influencer Marketing Hub. As sellers spend more on ads and buyers spend more on subscriptions, there’s an all-round money squeeze and an even greater need to keep Amazon advertising costs down.
Amazon Advertising Cost Metrics
We’ve talked about some of the main Amazon advertising costs and KPIs in “Quick Guideline for Advertising on Amazon”. From the AdvertisingAdvertising is a means of communication … More menu in Seller CentralAmazon Seller Central is a portal or a h… More, simply go to your CampaignSellers and vendors have a variety of ad… More Manager to see all the metrics relevant to you (e.g., Amazon ad spend, impressions, sales).
Today, we’d like to focus on two of the most important metrics for tracking your advertising performance:
- Advertising Cost of Sales (ACoS). This percentage shows the amount of money you spend on advertising as a proportion of your sales. For example, an ACoS of 20% means that, for every $1 you spend on advertising, you generate $5 in sales. This is a metric specific to Amazon Advertising.
- Return on Ad Spend (ROAS). This is the amount of money you earn from advertising as a proportion of your ad spend. It’s basically the inverse of ACoS. Using the example above, for every $1 you spend on advertising, you generate $5 in sales, so your ROAS is 5:1 or 500%. This metric is specific to Google Ads, but you can also use it to manage and compare your on- and off-Amazon ads.
Understanding Amazon ACoS
ACoS is a valuable metric for understanding how your advertisingAdvertising is a means of communication … More is performing. A high ACoS means that you’re spending a lot of money on your ads. Worse yet, if it exceeds your profits, then you’re losing money. If you’re not making or losing money, you’ve reached your breakeven ACoS.
Since the ACoS is given in percentages, it’s easy to monitor changes. A percentage rise stands out right away. When your ACoS is high, this could be a sign that you need to adjust your targeting, bidding, or budget. There are a few factors that can affect your ACoS, including:
- The product you’re selling. Some sought-after products come with a higher ACoS.
- Your target audience.Your ACoS will usually be higher if you’re targeting a broad audience.
- Your bidding strategy. If you’re bidding too high, your ACoS will be higher than usual.
- Your ad quality. If your ads are not relevant or high-quality, your ACoS will be higher.
- Your ad copy. If descriptions and images are off-putting, conversions drop and ACoS rises.
- The timing of your ads. If your ads reach your target too late or out of season, they can haul up your ACoS.
As WebFX reminds us, the average Amazon ACoS is 30%. Ideally, your ACoS should be half that, but it all depends on your product, target, and strategy. Finding the right level of Amazon ad spend is a balancing act. You can easily tilt too much toward exposure to the detriment of profits.
Understanding Amazon ROAS
Your ROAS shows how much revenue you’re generating from your advertisingAdvertising is a means of communication … More. So, when it comes to ROAS, the higher the better. A high ROAS on Amazon means that you’re earning a lot of money from specific ad campaigns, which points to an effective Amazon advertising strategy.
Depending on the software or formulas you use, your ROAS can be a ratio or a percentage. Either way, it’s easy to keep an eye on this KPI. Just as above, there are a few factors that can affect your ROAS on Amazon:
- The product you’re selling. Some products are low-profit and low ROAS by nature (e.g., consumables).
- Your target audience.Your ROAS will reflect the spending power of your target audience.
- Your bidding strategy. If you’re bidding too low, your ROAS will be lower than usual.
- Your ad quality. If your ads are not relevant or high-quality, your ROAS will be low.
- Your ad copy. If descriptions and images are off-putting, conversions and ROAS drop.
- The timing of your ads. If your ads reach your target too late or out of season, your ROAS can plummet.
ROAS indicates the efficiency of a campaign. It tells you how well your resources are being used. The typical ROAS is below 3:1, according to Nielsen. But as shown above, you could aim for 5:1. There’s no benchmark and can always tweak it in your CampaignSellers and vendors have a variety of ad… More Manager to match your ad goals.
Over time, you can get a feel for what your Amazon ACoS and ROAS should be and start setting realistic expectations for every campaign’s success. This will help you adjust your Amazon ad spend and budget continuously, bidding dynamically and tweaking your keywords to improve conversion.
As we’ve shown, understanding your ACoS and ROAS on Amazon can make all the difference. With all the Amazon ad spend metrics and KPIs you need right at your fingertips, you can stay on top of your costs and stretch your budget to bring all your sales goals to fruition.
Melanie takes an active interest in all things Amazon. She keeps an eye on the latest developments and keeps Amazon sellers up to speed.
