ROAS and Amazon Advertising: Explanation, Calculation & Optimization

1. Definition and explanation of ROAS (Return on Ad Spend) on Amazon
2. Importance of ROAS for Amazon Sellers
3. Amazon ROAS Calculation and Interpretation
4. Strategies for improving the ROAS on Amazon
5. Role of Amazon Advertising and CPC in relation to ROAS
6. Current trends and future perspectives in terms of ROAS on Amazon
7. Frequently asked questions and misunderstandings on the topic of ROAS on Amazon
8. Which tools are suitable for successful advertising on Amazon?
9. Conclusion

Before you start advertising on Amazon, you usually set different goals that you want to achieve with your advertising. The goals can include branding on Amazon,sales on Amazon, or other topics such as the product launch on Amazon. Regardless of the respective objective,monitoring and theevaluation of the set goals is of great importance. This is done by looking at various key figures in the advertising console. In addition to impressions, clicks and sales, the ROAS plays a major role. In the following article, I explain to you what the ROAS on Amazon is, how you calculate it and how you can improve your ROAS. In another article you will learn how to develop successful Amazon PPC strategies.

Definition and explanation of ROAS (Return on Ad Spend) on Amazon

The ROAS, or Return on Ad Spend, is an advertising indicator that represents the ratio of advertising expenses to advertising revenues on Amazon, but also outside of Amazon. The ROAS is therefore - similar to Amazon's own ACOS (Advertising Cost of Sales) - a KPI that can be used for profitability measurement.

Importance of ROAS for Amazon Sellers

If you sell on Amazon and run your own advertising campaigns, you should always keep an eye on the ROAS. It helps you to see how your expenses hold up to the revenue. The ROAS also helps you with your decision on how to distribute your budgets. But what is a good ROAS on Amazon? That depends on your category and the competitors in it. The goals you set for reach, sales and branding also play an important role.

Important: You should keep an eye on all your KPIs and not just the ROAS. On OMR Reviews you can find an overview of the most important Amazon KPIs.

Source: Screenshot from BidX

The BidX AMX500 index provides benchmarks for various KPIs on Amazon.

Amazon ROAS Calculation and Interpretation

You can calculate the ROAS on Amazon using the following formula:

Advertising revenue : Advertising expenses = ROAS

On Amazon, the ROAS indicates the ratio of advertising revenues in relation to advertising expenses. You can use it to determine what factor of the advertising costs you take in again through advertising. It thus shows you how much sales have fallen on 1 € of advertising expenses.

Strategies for improving the ROAS on Amazon

There are several approaches to improving the ROAS, which affect various Amazon disciplines.

1. Review your keywords: Analyze your campaigns to identify unprofitable keywords with a high ROAS in Amazon Advertising. Then decide whether you want to keep these keywords in the campaign or exclude them from the campaign. If necessary, you can also make changes to the bidding structure to make the keywords more profitable.

2. Use negative keywords:If you've identified weak keywords, set them to negative. This will save your campaigns unnecessary spending that drags down the ROAS. Keywords from direct competitors often have a very low ROAS. You can promote these in separate campaigns that have a different target ROAS.

3. Longtail keywords: Longtail keywords consist of several words and are much more specific. For this reason, fewer retailers usually compete for the keyword and the click prices are lower. They are also more relevant for user searches due to the more specific approach and can therefore have a higher CTR (Click-Through Rate) and Conversion Rate. You can use the reports from the Amazon advertising console to find out the longtail keywords with the strongest performance.

4. Optimize your product pages: If customers click on your Amazon ads, but the conversion rate is poor and your product is therefore not bought by the customers, a poorly optimized product page can be a reason why buyers jump off before buying. Check if titles, descriptions, images, and A+ content match and reflect the right information.

5. Improve Media Assets: If you use campaign types with media assets and want to improve your ROAS, optimizing the graphics and videos for your Sponsored Brands and Sponsored Display campaigns is important. Be sure to select creatives that are high quality and meaningful and that catch the eye of potential customers right away. Testing different creative approaches and visuals can provide important insights into a possible increase in profitability.

Role of Amazon Advertising and CPC in relation to ROAS

An important role in Amazon advertising and the ROAS is played by the CPC (Cost-per-Click). This provides information on the average amount an advertiser has to pay when the displayed ad is clicked. If the CPC rises with sales remaining the same, the ROAS and thus the profitability of the ad drops. If new competitors with high keyword bids enter the market without the overall buying readiness of the buyers increasing, the CPC rises and the ROAS drops.

Current trends and future perspectives in terms of ROAS on Amazon

For many Amazon-only brands, the additional profitability metric, alongside the ROAS, the ACOS on Amazon, plays a big role. But more and more brands are targeting the ROAS to simplify comparability with other metrics in other disciplines such as social media marketing or Google SEA. Market indices like the AMX500 index from tool provider BidX provide Amazon ROAS benchmarks and show: The average ROAS on Amazon has fallen compared to the previous year, so profitability of ads has also declined. So the advertising costs have increased more than the advertising revenues. This is due to an increasing number of advertising slots for all kinds of campaign types and a strongly increased competition on the Amazon marketplace. Even brands that are not yet represented on Amazon recognize the advantages of the marketplace and push onto Amazon with high budgets. This leads to higher click prices and falling ROAS values on Amazon.

Source: Screenshot from BidX

The ROAS has slightly decreased compared to the previous period.

Frequently asked questions and misunderstandings on the topic of ROAS on Amazon

Many advertisers use the ROAS alone as a profitability indicator. But the ROAS only shows how profitable the campaign is in terms of ad sales. Other metrics such as the reach of a campaign, the conversion rate of a product or the indirect influences on other campaigns are often neglected.

The influence on the organic sales is often not looked at in more detail. With the Total ROAS (total revenue / advertising costs) you can measure how high the total revenue are compared to the advertising costs. Based on the Total ROAS, additional room for e.g. a reach increase can be identified, as this metric gives you more insight into how high the margin of a product is.

Which tools are suitable for successful advertising on Amazon?

There are several tools that are ideal for setting up an ideal advertising structure, not only to set it up, but also to control it and always keep an eye on metrics like the ACOS, the ROAS on Amazon, impressions or spending.

For the optimal preparation of campaigns and an optimal keyword research,AMALYZEoffers a very large range of functions. Amalyze focuses on the search behavior of users, as a result the most searched keywords can be found in a short time. The tool is also useful for optimizing product pages and analyzing market potentials and is thus almost an all-rounder in the Amazon tool market.

The tool can't assist in campaign creation and control though. That's where BidX comes into play. The dedicated advertising tool is constantly being developed and offers, besides standard functions like automated campaign control and bid optimization, also a customizable dashboard, automated adjustments with a scheduling function for times of day and days of the week, as well as various ways to focus campaigns with goal settings.

The tool from ADFERENCE also helps advertisers on Amazon optimize their advertising. Like BidX, the tool optimizes bids on keywords and ASINs. An algorithm from science is used to achieve optimum results. Adference acts less rule-based than most of the competition and is suitable for both Amazon PPC beginners and Amazon PPC professionals.

Helium 10 completes the landscape in the Amazon PPC area by using a unique ASIN database, analysis and comparison functions to also identify seasonal trends. The tool can also be used to overlook market opportunities and evaluate the top performers of competitors. For a comprehensive campaign strategy, which should include not only growth through performance campaigns of your own but also the overall market, the tool is indispensable.

Conclusion

With the ROAS, advertisers on Amazon can evaluate the profitability of their advertising campaigns. The ROAS in Amazon advertising provides insights into the relationship between advertising revenues and advertising expenses, but should never be considered without a look at the other Amazon metrics. If you want to improve your ROAS, you can do this not only by analyzing your campaigns, but also by optimizing your content or your media assets. In order to improve the ROAS in the long term, numerous Amazon tools like BidX or Adference will help you get closer to your ROAS target value.