What is ACOS and ROAS? Explained
When running ads on Amazon, you have encountered two Amazon abbreviations: ACOS and ROAS. These both metrics are KPIs (key performance indicators) when you analyse the campaign statistics.
What is ACOS?
ACOS 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.
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?
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 will be the profitability. So, ideally, an ACOS between 10 and 20% is generally considered a good ACOS. An ACOS between 25%-40% is considered average.
ACOS above 40% needs a serious checkup of the campaign setting. As it will lash out at 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 daily and 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 is Return on Advertising Spend. It is a metric that helps you calculate the amount you are spending on Amazon Ads.
How to calculate ROAS?
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 higher your profitability. A lower ROAS of less than or equal to 1 is unprofitable.
If your campaigns lack profitability, and you seek assistance from the Amazon PPC agency. Then, feel free to have a word with our PPC consultants. You can fill out the submission form or connect with us via WhatsApp. Our team will connect with you shortly and discuss the problems to boost your ad campaign.
