A major differentiator of AMS in comparison to other PPC platforms, namely Google and Facebook, is the ability to understands how ad campaigns affect awareness, consideration, and most notably, sales conversions. In addition to measuring spend against impressions and clicks, marketers can now understand product sales attributed to their ad spend.
This is called Return on Ad Spend, or RoAS.
Amazon RoAS 101
RoAS is the average revenue earned for each currency unit (USD, EUR, etc.) spent on advertising.
For example, for a brand in the U.S., RoAS tells marketers how many dollars of revenue were a result of one dollar spent on an ad campaign.
Unfortunately, this isn’t a metric that’s available on Amazon’s native search advertising platforms, AMS and Seller Central. Amazon uses the inverse metric, which is Advertising Cost of Sales (ACoS), which reveals how much you spent on ads to gain a currency unit (USD, EUR, etc.) of attributed sales.
ACoS = Total ad spend / total ad attributed sales
The good news is that RoAS is easy to calculate. The RoAS calculation is total attributed sales, divided by the total cost of the ad campaign(s).
RoAS = Total ad attributed sales / total ad spend
RoAS = 1 / ACoS
Why go through the trouble of calculating this metric?
We focus on RoAS because we’re focused on maximizing the efficacy of your ad spend. This metric allows data-driven decisions on where to invest your ad dollars and how to increase efficiency. It answers the question “did that lever I pulled increase sales.” Converting to RoAS also allows for easier comparisons to other parts of marketing, since this is a standard marketing metric, whereas ACoS is rarely used outside of Amazon search advertising.
Pro tip: Tired of calculating RoAS? Downstream’s analytics platform does it for you. Sign up for our 30-day free trial to enjoy RoAS without touching a calculator or spreadsheet.
The expected RoAS of AMS campaigns
Now that we’re clear on what RoAS is within the context of Amazon search advertising campaigns, let’s talk about how to set expectations for this metric.
Unfortunately, there’s no industry standard for what RoAS counts as a “successful” campaign. There are simply too many variables that come into play, such as the specific competitive landscape of a brand, average selling price (ASP), profit margins of the product, etc. And most of all, success is defined by your marketing goals, which may not all prioritize RoAS.
Instead, use your brand’s own historical results to use as a benchmark to understand campaign success.
Determine a RoAS benchmark for a product by looking at the average RoAS during a neutral period (when there are no shopping holidays or deals). From there, you can A/B test the efficacy of different levers, such as keywords, bids, and content.
Factors that impact RoAS
In addition to your internal data trends, consider the following:
ASP of the advertised product. If your advertised product has a lower price point, it’s less likely you can expect a $1 RoAS for an ad campaign.
Deals. Coupons and discounts encourage shoppers to purchase more, but the decrease in price points can influence RoAS. The price of your product could also decrease if Amazon price matches an offer from another e-retailer, lowering the ASP.
Current demand for the product. Not all products are needed (or wanted) continually by consumers, which will decrease click through rates (CTR) and conversion rates (CVR), driving less sales and lower RoAS.
Key events. Shopping holidays bring more traffic, which can impact cost-per-click (CPC), not to mention variable ASP due to deals from your brand and others.
Competition. Similar to other PPC platforms, which ad is shown via Amazon search advertising is determined by a second price auction, so more competition with higher bids will results in higher CPCs, decreasing RoAS.
Estimated click-through rate (eCTR). In an effort to provide a better customer experience, Amazon considers the ad’s estimated click-through rate (eCTR) in addition to the CPC bid to determine which ads are shown in a Sponsored Products ad placement. This means that even if two CPC bids are identical, the one with lower eCTR will have a higher CPCs, and thus lower RoAS.
Don’t fall in the numbers trap
A higher RoAS doesn’t always mean that you’ve better achieved your marketing goal(s). As with any time you’re analyzing data, it’s important to look at the context of your numbers. Additionally, advertisers should keep in mind that RoAS is based on Amazon’s ASP and not the brand’s cost of good sold to Amazon, so it doesn’t reflect an accurate measure of the impact to a brand’s bottom line.
Here are some examples of when a lower RoAS can be a good thing:
Brand awareness, competitive conquesting, or customer acquisition campaigns. In these campaigns, the emphasis should be placed on metrics such as impressions, Detail Page View/Detail Page View Rate, CTR, and cost per acquisition (CPA).
Branded terms. Generally speaking, branded terms will likely net you the highest RoAS, since consumers searching for your branded terms are more likely to click and make a purchase. If you let RoAS alone guide you, you might spend more on branded terms than is productive toward your marketing goals. While important to defend these terms against competitors, these terms typically yield little incremental business.
Drive top line sales or be profitable on a cost of good sold (COGS) basis. The calculation of these business goals doesn’t include the investment made to sell the goods, making RoAS less relevant.
Moving units. When the focus is on moving products out of fulfillment centers, RoAS takes a back seat to metrics like products sold.
RoAS at a glance with Downstream
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