Advertising basics: Are you tracking your ROAS?.

As an Amazon vendor, reaching online shoppers, making sales, and growing your overall business are the goals you always have in mind. While there are many pieces to success on Amazon, advertising is a key piece of the puzzle. How do you determine if marketing is successful and deserving of continual investment? One crucial metric is Return on Ad Spend (ROAS).

What is ROAS?

ROAS is a key performance indicator to determine the effectiveness of your campaigns. It is a way to quickly show what profit was made and attributable to a specific ad. The formula is simple, too. In order to calculate ROAS, you divide revenue by spend: Revenue / Ad Cost = ROAS.

For example, if a brand spends $1,000 per month on an ad campaign and achieves revenue of $5,000 of attributable results, the ROAS would be $5,000 / $1,000 = $5. For each $1 the vendor spent on that ad campaign, they generated $5.

Why is it important?

Appearing organically on the first few pages of search results becomes more difficult by the day on Amazon. To get important exposure. brands need to pay for it by creating sponsored ads. Long gone are the days of getting exposure for free. With more brands investing in sponsored ads, the more competition and the more aggressive the bidding gets. The idea of starting with a small budget and low bid sounds good, in theory. But in practice, brands find that they may have to quickly increase their spend and the cost per click gets more expensive. With sales coming in, it can be easy to lose site of the actual cost of acquiring that sale. This is why businesses should be reviewing the return they are getting on their investment. Not forgetting all those accruals and co-op agreements that creep into the overall profitability of selling to Amazon.

ROAS is important for analyzing success and the true cost when it comes to advertising, and whether or not additional spend on that type of campaign will be worth it. It can also help vendors review how effective their advertising strategy is and understand why type of ads and keywords are performing well.

Monitoring other metrics

While attention should be on the overall profitability of the ads, businesses should not isolate this metric. The amount of focus a business will spend on ROAS also depends on their objective of running ads. For example, a business that is looking to create awareness may initially focus more attention on impressions, clicks, and click through rate (CTR). As opposed to a business that may have been running ads for some time. That business may have generated a wealth of data and learnings and now wants to switch the focus to profitability and make their ads efficient, which is when the ROAS becomes an important metric. Brands should have a target ROAS they are working towards at both campaign level and as a total after factoring in all other costs when it comes to selling to Amazon.

Need more Amazon Advertising or ROAS help?

How do you know what ROAS is acceptable? Like most aspects of eCommerce and Amazon, there is no one-size-fits-all answer when it comes to what is a “good” ROAS. Brands may require more or less depending on the needs and stage of their business (start-up vs well-known brands, for example). Tighter margins may also impact what advertising budget is affordable. If you have questions specific to your business, eCommerce Nurse can help. Contact us for expert help on Amazon Ads.

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