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Amazon

Amazon Advertising – Return on Ads Spend ( ROAS )

 

ROAS has been introduced to Amazon advertising not long ago to measures the effectiveness of the ads campaigns. Before ROAS was introduced, marketers were using ACoS ( Advertising Cost of Sales) to measure the performance of the ads. Let’s look into a bit more ROAS. 

What is ROAS?

ROAS = Revenue from Ads / Ads Cost 

ROAS is calculated by dividing return from ads with ads cost. So, for example, if you spent £ 100 on advertising and got £ 800 in sales from those ads, your RoAS would be 8. 

8 = Revenue from Ads £800 / £ 100 total ad spend 

The higher the ROAS, the more profitable campaigns you have. If you spent £100 and got £100 back, your ROAS = 1.00, which means the ad campaign is not profitable as you have other Amazon fees apart from your product costs. However, you may consider this OK during the product launch process, aiming for sales irrespective of profitability. 

So, how do you determine a good level of ROAS for your business? 

What is a good ROAS?

A good ROAS is dependent on your profit and your product life cycle. Some companies aim for a 10:1 ratio which means £10 revenue for every £1.00 ad spend. 

In the example below, the ROAS is 1.51, and it is unprofitable. The campaign is a part of a product launch process, and the aim is to generate as many orders as possible. Although ROAS is poor, it is improving gradually. 

In the example below, ROAS is 24.6, and it is highly profitable. This campaign started on February 2021 and has improved over time. 

Why should we measure ROAS? 

ROAS helps to identify whether your ads spend profitable or not. It helps to –

  • discover whether we should invest more in the ads campaigns or not 
  • determine highly profitable campaigns and products

How to improve ROAS?

ROAS can be improved over time by optimising keywords and bids. Some of the key steps are explained below:

1// Select the right keywords

Advertising costs are based on the bidding system so, if we use the high in-demand keywords, the cost per click of the ads will go up, which lowers ROAS. So, target long-tail keywords, which may bring less traffic but increases ROAS.

 2// Experiment with all match bids

When we target keywords, we get to choose between broad, phrase and exact match types. 

Broad match – targets loosely related to the seed keywords

Phrase match – targets keywords in word order into account

Exact match – targets only exact keywords

Once all match types are tested, identify the keywords and match types that have high conversion rates. Then, create campaigns just targeting these keywords, which in turn helps to get a better ROAS.

 3// Consider increasing order value 

Once the product is ranked better and has good reviews, test the performance with a slight increase in the product price. This increases your order value and pushes up our ROAS.

4// Launch single keyword campaign ( SKC )

Single keyword campaigns Once we have a list of high converting campaigns, consider launching single keywords campaigns (SKC) that allow you to adjust bids, placements bids and bid strategy for that particular product and keyword. 

5// Advertise highly converting variations

Not all the product variations convert the same. Therefore, once you have tested, advertise only highly converting variation listings.

If you are looking for some professional help with your ROAS, we can help. With our decade long experience working with Amazon sellers, we can help to improve your advertising performance and maximise your ROAS. So get in touch and find out more about how we can help. 

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