What is a Good ROAS on Amazon for Your Business?

Advertising helps promote business and attract potential customers. The more visible and recognizable your products are, the better your sales and the higher your ratings. Amazon offers convenient promotion methods — advertising campaigns on the site are really effective and bring profit in the long run. The main thing is to correctly define your marketing strategy. How to do it? On the Amazon website, there are several methods of calculating the profitability of the products and their promotion. One of these is ROAS. This article discusses the meaning, optimal indicators, and ways to improve ROAS on Amazon.  

What is ROAS on Amazon?

Let’s start with the basics — what is ROAS? Literally, the abbreviation stands for Return on Ad Spend. That is, it is an indicator that clearly demonstrates how profitable the advertising campaign turned out to be. This allows you to make sure whether you can continue to promote the page using the same strategy or whether you need to change it to a more effective one. How are values calculated? The algorithm measures the seller’s revenue from the sale of goods for every dollar spent promoting the page. Moreover, promotion means all advertising methods offered by Amazon and which you have used. Having determined the ROAS on Amazon, sellers can change its indicators by updating the advertising strategy. It would help if you continually keep your finger on the pulse and carefully analyze the ROAS value to confirm that your Amazon store is becoming more and more popular among site visitors. You can optimize and reduce advertising costs by removing less effective methods and simultaneously increase your income.  

High ROAS: good or bad?

All experts rely on the fact that the optimal value of ROAS is 4. However, sellers often seek to increase even this indicator, believing that this way, the brand’s advertising becomes more effective. Of course, there are nuances here. Mainly everything will depend on the product category and the final goal you want to achieve. For example, you may choose a strategy to increase ROAS values when selling products with below-average conversion rates. This will work to your advantage and once again remind customers about a product that is already popular. However, suppose you offer products to customers that usually have a consistently low level of sales and need more recognition. It is better to decide the opposite strategy. In this case, ROAS may be lower.  

What is a good ROAS on Amazon?

Now let’s figure out what is a good ROAS on Amazon. You need to create an advertising company in whatever category of goods you sell on the marketplace. An objectively reasonable ROAS will depend on the specific product category you offer. The universal indicator varies from 3 to 4. But for example, in the category of electrical appliances, the ROAS value increases to 9. Therefore, if during ROAS calculation you got an indicator of 5 or more, you have objectively achieved high efficiency of the advertising campaign. Generally, the lower your product costs, the lower your ROAS. So only aim for high values if you’re selling low-converting products. Note also that any advertising on the Amazon site will affect organic sales. When calculating ROAS, you need to take the overall results. We recommend basing the calculation on the ROAS value at which advertising would be zero. The primary earnings would be organic sales.  

How to calculate your ROAS?

We’ve talked a lot about metrics and the optimal ROAS value. It is also necessary to determine how to perform all the calculations required to obtain the value. The formula is quite simple and looks like this: Total sales revenue / all promotional costs. For example, if you earned $2,000 per month and spent $400 on advertising, your ROAS will be 5. That is, it will be considered quite optimal and effective. The value of ROAS on Amazon increases in proportion to how the store’s profit grows.  

How to improve ROAS?

If you calculated the effectiveness of advertising according to the formula and received a relatively low ROAS indicator, you need to carefully review the marketing strategy on the Amazon website. Let’s take a look at how to improve the situation: there are several effective strategies that all sellers use. It is better to combine different options to improve the ROI value of advertising. The right brand promotion tactics will enhance sales and make your store visible to all potential customers.  

Use frequent keywords

The product description on Amazon should contain detailed characteristics allowing buyers to make the right choice and avoid mistakes. However, it would help if you focused on more than just the benefits of the content you put on the site. Even product description text can become advertising if you use particular keywords. These are phrases or single words buyers use when searching for a specific product. You can find the most relevant and frequent keywords using notable aggregators. Regularly check and update the content, removing outdated and less-needed keys and adding new ones.  

Content optimization as a way to promote the page

Moving from the advertisement, buyers carefully study the texts of the product descriptions on the store pages. The more valuable and relevant information there is, the better. After all, if Amazon visitors were searching on the site, for example, knitted toys for children, when they went to your page, they should see precisely that. Likewise, optimize your page for sales, improve the quality of texts and photos, and post helpful information about the product. Combined with reasonable prices, you can count on improved sales. The same goes for optimizing headlines. After all, all buyers pay attention to them. The title should contain the critical concept of the product, using keywords. For example, if we are talking about knitted toys, the title can also include their appearance: color, shape, size, etc.  

Determine the optimal CPC amount for the advertising campaign

Consider how much you are willing to pay to promote your store. Of course, these will be approximate indicators, which are usually calculated as follows: Average product price * conversion rates / projected ROAS values In this case, the promotion cost will increase proportionally to the product’s price. Ads that will be seen by all site visitors are considered the most effective on Amazon. However, you can also allocate ad dollars to different promotion methods. Where can you find the ROAS calculator directly on the marketplace site? To calculate ROAS, you need to go to the Advertising section of Amazon Seller Central. Clicking on the Campaign Manager tab will give you tools to estimate the effectiveness of your marketing company. Regular analysis of the situation will allow you to determine which method of promotion for your product is considered the most effective and profitable. And which one do you use in vain? You can safely remove the latter from your strategy by reducing advertising expenses or attracting advertising funds for more practical techniques.