What are ACOS and ROAS? Explained

When selling on Amazon, simply tracking sales is not enough. You need to know exactly what return you are generating for every dollar spent on advertising. This is where the two most critical Amazon PPC metrics come into play. In this guide, we will explain in simple terms accessible to Amazon sellers what ACOS and ROAS are, enabling you to accurately measure your profitability.

When running ads on Amazon, you have encountered two Amazon abbreviations: ACOS and ROAS. Both metrics are KPIs (key performance indicators) when you analyse the campaign statistics. 

What is ACOS?

ACOS full form stands for Advertising Cost of Sales. Through ACOS results, one can measure the profitability of their campaign. It gives you an insight into how much you spent on the ads and, in return, how much you earned from them.

In simple terms, it answers the question: “What is ACoS in Amazon advertising?” by showing the percentage of sales spent on ads.

Let us understand this with an example. Supper David spent $200 on ad campaigns and generated a revenue of $600. The ACOS will be 33.33%.

How to Calculate ACOS?

Understanding the ACoS and TACoS formula is vital. While ACOS focuses on ad sales, TACoS (Total Advertising Cost of Sales) evaluates your overall account health by comparing ad spend to your total revenue (organic plus ads).

Formula to calculate ACOS:

ACOS = [Total ad spend ÷ Total sales revenue] x 100

We will calculate the ACOS of the above example with the formula again.

ACOS= [$200 ÷ $600] X 100 = [.3333] X 100 = 33%

What is a Good ACOS?

The lower the ACOS, the more the profitability. So, ideally, an ACOS between 10-20% is generally considered a good ACOS. An ACOS between 25%-40% is considered average. 

However, to know if your ACOS is truly “good,” you must calculate your Break-even ACOS. If your profit margin is 30% and your ACOS is 30%, you are at a no-profit-no-loss stage.

An ACOS above 40% needs a serious checkup of the campaign setting. As it will slash your profit and incur more expenditure.

How to Lower Your ACOS?

To lower the ACOS, you need to check the following metrics, including your product price and competitor prices, your bidding strategy per click, and keywords, etc. 

You need to monitor the campaign performance on a daily basis, put unwanted keywords and search terms in the negative keywords list. This will save your campaign from getting unwanted clicks. 

Run a discount to attract and gain attention from the customers. This may help you convert better through PPC.

For new sellers, you need to keep an eye on product pricing and give more discounts to lower the ACOS. As you are a new seller with no or few reviews and ratings. So, you need to bid a little higher and give irresistible deals to customers that they cannot deny.

What is ROAS?

ROAS full form for ‘Return on Advertising Spend.’ It is a metric that allows you to calculate how much revenue you are generating from the money spent on Amazon Ads.

How to Calculate ROAS?

If you are wondering what a good ROAS, a ratio of 4:1 ($4 revenue for every $1 spent), is often a benchmark for healthy campaigns, though it varies by category.

Formula to calculate ROAS:

For. E.g., David spent $200 on Ads and earned $400 in revenue. The ROAS will be 2.

Formula:

ROAS = Total Revenue Generated ÷ Total Spend

ROAS= $400 ÷ $200 = 2

The ROAS is a reversal mechanism as compared to ACOS. The higher the ROAS, the more your profitability. A lower ROAS of less than or equal to 1 is unprofitable.

ACOS vs ROAS: What’s the Difference?

When comparing ACOS and ROAS, the primary difference lies in the perspective. ACOS is expressed as a percentage (the lower, the better), whereas ROAS is expressed as a number or ratio (the higher, the better).

Feature	ACOS	ROAS
Focus	Efficiency & Cost Control	Revenue & Return
Ideal Value	Lower is better	Higher is better
Metric Type	Percentage (%)	Multiplier (X)

When to Use ACOS vs ROAS?

Many sellers often feel confused about when and on which metric they should focus. ACoS versus ROAS, both are two sides of the same coin, yet they serve distinct purposes:

• Use ACoS when: Your primary focus is on profitability and expense control. If your goal is to preserve your margins, you must monitor your ACoS (ACoS percentage) on Amazon to ensure it does not exceed your profit margin.
• Use ROAS when: Your objective is scalability and revenue growth. If you are scaling your campaigns on a large scale, you look at the overall return being generated.
• Use TACoS when: You need to conduct a health check on your overall Amazon business. The ACoS and TACoS formulas come in handy when you want to assess the impact that your advertising efforts are having on your organic sales.

If your campaigns lack profitability, and you seek assistance from the Amazon PPC agency. Feel free to have a word with our PPC experts. 

Get in touch with us today.