ROAS, short for 'Return on Ad Spend' is one critical paid search metrics of an Amazon Advertising campaign.
Paid search advertising lets you examine your investment by how much you spend on a campaign, ad, or keyword, and how much new revenue is generated. After accumulating all the information and using ROAS, you can get a clear idea of which area of your paid search advertising should you invest more, and which requires improvement.
It helps you to budget your advertising money on the right sponsored products and make the changes accordingly.
What is Return on Ad Spend?
Are you making less than you're spending? If yes, you are not doing this right way.To make it right, your ROAS needs to be in the right place so that other metrics are also falling in line.
ROAS measures how effectively you are spending your dollars on a marketing campaign by dividing the ratio of revenue from the ad campaign to the cost of the campaign itself.
If you have balanced ROAS, it automatically helps other metrics to fall in line. ROAS offers a more granular look at your advertising efforts. Here, it is vital to understand how the other Amazon Advertising metrics apart from ROAS are interconnected as it can give you valuable insights to optimize your campaigns further.
Understanding the Other Amazon Advertising Metrics
The success of your Amazon PPC advertising doesn't depend solely upon knowing how much money a campaign is making. Other key metrics need to be considered along with ROAS to ensure the campaign is performing proficiently.Hence, brands must take all of the Amazon Advertising metrics into consideration to meet your objectives holistically.
Impressions tell you how many times a potential customer has seen your ads. It allows brands to measure the numbers the search terms appeared and triggered by shoppers. Impressions are important to increase brand recognition by serving ads more frequently to attract more shoppers.
Click-Through Rate (CTR)
CTRs measures the percentage of impressions from the number of clicks advertisers receive on their ads. You can drive more traffic to the products that have a high conversion rate by improving CTR. Brands with good CTR but low conversions need to focus on improving their content because it lacks the information that leads customers to a sale.
Cost Per Click (CPC)
Amazon charges per click, and if the campaign is not optimized properly, it will eat your bottom line quickly. A well-optimized Amazon campaign is necessary to stop overpaying for CPCs as it will result in a lower average cost paid for a single click. When you pay less for each click and keep campaigns aggressive and efficient at the same time is a crucial metric for increasing ROAS.
Advertising Cost of Sales (ACOS)
It is also one crucial metric that helps you understand how much your ads are costing you per dollar of sales. You can measure your ACOS by dividing your advertising costs by the sales you have generated. The higher your ACOS, the lower your overall margin will be.
Factors That Influences ROAS
Apart from internal data trends, the following factors impact ROAS:
- Cost of the advertised product: If the product you are advertising has a lower price point, it's unlikely to expect a $1 ROAS for an ad campaign.
- Current Deals: Coupons and discounts motivate shoppers to buy more, but the decrease in cost can affect ROAS. If your offer matches the offer put by another e-retailor, it can also decrease your product price.
- Market demand for the product: The demand for the product keeps fluctuating as per the changing requirement of the consumers. It lowers the click-through rates (CTR) and conversion rates (CVR), resulting in fewer sales and lower ROAS.
- Retail readiness: Ensure if your products are optimized enough to be ready to sell on Amazon. Lack of inventory and poor reviews are a few aspects that can have a negative impact on conversions.
- Key events: Shopping on holidays bring more traffic, which impacts cost-per-click (CPC), and it also affects the ASP of the product due to different deals from your brand and others.
- Competition: More competition with higher bids generates higher CPCs, which cause a significant reduction in ROAS. Just like other PPC platforms, the ad shown via Amazon search advertising is determined by the second price auction.
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Now that you know that what is ROAS, it's high time to start analyzing your return on ad spend. If you find your current campaign doesn't justify your goal and still struggling to improve your ROAS and other metrics, feel free to reach out to our team.
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