If advertising on Amazon wasn’t worthwhile, it wouldn’t be worth $22.5 Billion.
To put that into perspective, the digital advertising market is expected to reach $191 Billion in the US by the end of 2021. And while Google may continue to dominate online advertising for the foreseeable future, Amazon currently maintains over 10 percent of the digital advertising market share. It’s a tremendous leap in less than ten years since Amazon launched its ad platform. In fact, Amazon Advertising is a marketplace that’s actually growing faster than Amazon’s retail division itself.
There’s just one problem facing brands advertising on Amazon: making certain they’re actually getting their money’s worth. Amazon ad rates have soared by as much as 50 percent over the past year; and as digital spending continues to increase beyond 2021, so will advertising.
What is RoAS (And Why it’s Important)
Return on ad spending (RoAS) is a metric which measures just how much revenue has been generated from every dollar spent on advertising. It’s the ultimate bottom line for any sales driven advertising strategy, one which demonstrates the efficacy of your campaign and can ideally validate your expenses. And those expenses can only be validated by one critical factor: conversion value.
The value of your conversions is directly linked to actionable behavior. But the cost of your campaign needs to result in a direct profit. The higher your RoAS, the higher your conversions—and ultimately your profit. In a nutshell? RoAS = your ultimate conversion value divided by your advertising costs.
Your RoAS is a formula which can be applicable across multiple levels of your Amazon campaign, whether it’s your overall account, your sponsored listings or specific strategies, with PPC being one of the most notable examples. Let’s assume that your PPC expenses (including bidding, CTRs and actual conversions) ultimately amounted to $500 after a 7 day campaign, but that your actual sales were only $750 after cost. In this case, you’re seeing an RoAS of 1.5x. That’s certainly a profit, but it’s not as significant as it should be. And that can frequently be the result of failing to calculate your advertising cost on spending (ACoS) beforehand. In short, ACoS = Total generating revenue / Total ad spending.
RoAS on Amazon
Unfortunately, many sellers fail to take both RoAS and ACoS into consideration until after they’ve spent thousands of dollars into a campaign only to see virtually no profit margin whatsoever. If your RoAS consistently turns out to be 1, you’re not seeing any profit at all. And if your ACoS is higher than your profit margin, it’s obvious that you’re losing money. Don’t be content to simply break even. But don’t spend recklessly if you’re not seeing any consistent and profitable RoAS.
While profit margins will ultimately vary based on categories, visibility and seasonality, an ideal benchmark you might want to strive for on Amazon might be approximately 3.0 - 4.0. Keep in mind you may not see that figure overnight, however. Nearly 3 out of every 4 consumers in the US have indicated their willingness to purchase entirely new brands in at least one product category. But they have to be aware of those brands first. And virtually no digital ad campaign will see an automatic return.
Not every solution will result in a positive RoAS. If you’re entirely new to advertising on Amazon, start slowly and measure your RoAS in weekly, monthly and 3 month intervals. The cost of your campaign shouldn’t be a rough estimate. It should be based on a realistic budget and your target RoAS—both of which can increase or decrease depending on your results. Do not spend outside your budget. Far too many new-to-launch brands have high expectations but minor returns from their campaigns.
What Are the Most Profitable Advertising Solutions on Amazon?
Most advertising solutions on Amazon are predicated on a PPC strategy, which can sometimes be intimidating for new brands who don’t always have the time to devote themselves to keyword research and trends. Working with an outside agency who specializes in PPC can take most of the second guessing out of structuring and managing your Amazon campaign.
If you have an entirely new-to-product launch, you may want to consider strategizing your campaign around a mix of both category targeting and product targeting. But while there’s no one-size-fits-all advertising solution on Amazon, some tactics have proven consistently effective. Full funnel Sponsored Display strategies, for example, have been known to yield as an RoAS 3.8x greater than single stage tactics. But it’s Sponsored Products which can frequently yield the highest returns. According to a 2020 report from Feedvisor, 55 percent of brands found that Sponsored Products resulted in an RoAS of at least 4.0—and in many cases, up to 7.0 - 10.0.
How Do I Find My RoAS?
To find your RoAS, simply calculate the bare minimum return needed to break even after the cost of goods, fees and services. If you’re only seeing an RoAS of 1.0 after 45 - 60 days, you’re not seeing any profit from your campaign and you may want to consider an entirely new strategy.
You can access your RoAS very easily from your Campaign Manager dashboard. To access it:
Go to Seller Central and click on Advertising > Campaign Manager. This will bring you directly to the dashboard itself.
When you first log in to your dashboard, you should be able to see your RoAS from all campaigns in your account as well as your sales, your spending and the number of your impressions. You can also customize your dashboard by adding specific metrics for each product.
Your RoAS can be calculated on a weekly basis.
For each active campaign, analyze your RoAS based on your preferred intervals in a separate spreadsheet. Were there some weeks in which your RoAS was notably high? Did some products perform better after a 7 day ad campaign than others? Did their performance coincide with holiday sales? What solutions deliver the best results? Are they consistent week after week? What are the weakest links in your campaign—your product, your timing or your solutions?
Ultimately, RoAS isn’t just an overextended marketing acronym. It’s a direct and actionable measurement which indicates your success on and off Amazon. And it can reveal just whether or not advertising on Amazon is the best solution for your product. Not every brand is guaranteed to be a best seller. What works for your competitors won’t always work for you. As we’ve tried to stress, don’t expect instant returns. The right product demands the right audience. Your RoAS is simply a map—one which indicates the easiest route of finding them.
Color More Lines provides white glove, global account management of your ecommerce platforms so mission-driven companies can focus on new product development, branding and growth strategies. Find out more at Color More Lines.