How to Calculate Amazon Advertising ROAS (Tips Included)

When it comes to Amazon ads, ROAS is one indicator that makes every dollar pull its weight. Still, many sellers are tempted to cut back on ads when unhappy with their return on advertising spend, which isn’t always helpful.

As Henry Ford wisely suggested, stopping advertising to save money is like stopping your watch to save time—it’s not the solution.

So, let’s explore optimizing your Amazon advertising ROAS instead of cutting back on your ad spend. We’ve got some practical strategies you can try to boost your ad performance and sales.

TIP: When you’re ready to go beyond ads, join our affiliate network, Archer Affiliates. With 2,500+ affiliates eager to promote your products, we can help you get to a whole new level of sales and efficiency.

What is ROAS (Return on Ad Spend)?

ROAS is an advertising metric that measures revenue earned for every dollar spent on ads. It can be represented in percentage form, in dollars, or, most commonly, as a ratio.

For instance, if you’re spending $30 in ads to sell one product that earns you $120, your ROAS is 400%, or $4, or 4:1. In other words, you make $4 for every dollar you spend advertising this product.

Importance of ROAS in Amazon Advertising

ROAS is important because it shows how effective your ads are. By looking at this metric, you can tell if your ad spending is paying off or adjustments are necessary.

For reference, a higher ROAS means your ads are generating more revenue.

ACoS vs. ROAS

These two metrics offer different perspectives on your ad performance. Knowing how they compare can help you make smarter decisions to maximize your Amazon results. Let’s break them down side by side.

What is a Good ROAS on Amazon?

Since ROAS shows how much revenue your ad spending drives, you want it to be as high as possible. But there’s no rule set in stone on the ideal value. The consensus is that you're doing okay as long as you stay profitable.

Also, a “good” ROAS will vary depending on your industry, product type, business goals, and profit margins. It can be anything from 3 to 10 from one sector to another.

TIP: Amazon offers brand advertising performance insights in a category benchmark report within the Amazon advertising console. This report includes metrics like average ACoS, ROAS, and other key performance indicators across different categories. Use it to understand how your ads compare to industry averages and identify areas for improvement.

How to Calculate ROAS

All you need to do to calculate your return on ad spend is the ROAS formula and a few simple steps:

1. Determine your total sales revenue: This is the total amount of money you’ve made from the sales attributed to your ad campaigns.
2. Determine your ad spend: This is the total amount spent on your ads during the same period.
3. Apply the Amazon ROAS calculation formula: ROAS=Sales Revenue / Ad Spend​
4. Interpret the result: The result will be a ratio. For example, if you spent $1,000 on ads and made $5,000 in sales, your ROAS would be 5:1, so you earned $5 for every $1 spent on ads.

Key Factors Affecting Your ROAS

If your ROAS isn’t where you want it, the first step to improving it is understanding the factors that drive this crucial metric. Here are the five most important.

1. Conversion Rate

This is the most direct factor affecting your ROAS. A higher conversion rate means more of the clicks you pay for turn into sales, improving your return on ad spend. You need great ads and product listings to have a high conversion rate.

2. Product Price and Margins

Higher-priced items or products with better margins can drive a higher ROAS because each sale generates more revenue. Even modest conversion rates can result in a good ROAS if your product has a strong margin.

3. Targeting Accuracy

Precise targeting helps your ads reach the people who are most likely to buy. The better you target your audience based on demographics, interests, and behaviors, the more likely you are to convert clicks into sales, boosting your ROAS.

4. Bid Strategy

Your bid strategy directly influences your ad costs. Overbidding can reduce your ROAS by increasing costs without proportionate sales. Conversely, underbidding can limit your visibility and potential conversions. Striking the right balance is crucial for maintaining a healthy ROAS.

5. Ad Quality and Relevance

Well-crafted, relevant ads are more likely to capture attention and lead to conversions. While dependent on the ad creative, this also requires that your ads' messaging, visuals, and offers resonate with your target audience, encouraging clicks that convert into sales.

Challenges in Measuring and Improving Amazon Advertising ROAS

Achieving a strong ROAS on Amazon can be tricky. To truly master your ad performance, you need to know the obstacles that stand in your way. Here are some of the biggest challenges you’ll encounter:

• Attribution complexity: Despite Amazon’s tools automating much of the tracking, it’s difficult to interpret data when customers interact with multiple touchpoints before purchasing.
• Ad spend saturation: After a certain point, increasing your ad spend might not proportionally increase your sales, leading to diminishing returns and a lower ROAS.
• Competitive pressure: High competition in your product category can drive up costs per click, making it harder to maintain a strong ROAS.
• Seasonal variability: Sales cycles and the Amazon seasonal sales boosts can cause ROAS to fluctuate, so maintaining consistent performance throughout the year is challenging.
• Data delays: Delays in reporting can make it difficult to get real-time insights, which means you’re less likely to make timely adjustments that improve ROAS.

Best Practices for Improving ROAS on Amazon

Rather than spending more on your ads, improving your ROAS requires smart, strategic moves. Here’s what will actually boost your ad efficiency and make a real difference in your ROAS:

• Optimize product listings: A well-optimized listing turns more clicks into sales, boosting your ROAS. Keep your product pages top-notch with high-quality images, compelling descriptions, and competitive pricing.
• Leverage negative keywords: The negative keywords filter out irrelevant traffic. Regularly update them to focus your ad spend on high-intent buyers, reduce wasted clicks, and improve your ROAS.
• Experiment with bid adjustments: Changing bids based on performance data lets you allocate your budget more effectively and improve your ROAS over time. Continuously test and tweak your bid strategy.
• Use A/B testing for ad creatives: Refining your ad content can lead to higher click-through and conversion rates, increasing your ROAS. Test different ad creatives to see which ones resonate best with your audience.
• Monitor and optimize targeting: By helping your ads reach the right audience segments, you’ll increase the likelihood of conversions and achieve a stronger ROAS. Regularly review and refine your targeting settings.

Reach New Customers by Driving External Traffic With Archer Affiliates

Driving external traffic to your Amazon listings can significantly boost your sales and ad performance. While not so obvious, the two have a strong connection:

• More conversions lead to more positive reviews.
• When people click on your ads and see those reviews, they’re more likely to buy.
• As more people who click also buy, your ad performance and ROAS improve.

At Archer Affiliates, we help sellers like you leverage affiliate marketing to reach broader audiences, increase sales, and indirectly enhance ROAS. We also work with Amazon attribution links, which means tracking your sales is easy and accurate.

Connect with Amazon influencers through our network and experience all these benefits yourself. We’ve got vetted affiliates who would like to learn more about your products and send you external traffic for a per-sale commission that you get to set!

Frequently Asked Questions (FAQs)

Want to make the most of your Amazon advertising? Here’s what you should know about ROAS, in particular:

What is the Average ROAS on Amazon Advertising?

The Amazon ROAS benchmark typically ranges from 4:1 to 7:1, but this varies by industry and product category.

How Does Ad Type Affect ROAS on Amazon?

Sponsored Products usually deliver higher ROAS due to direct purchase intent. By contrast, Sponsored Brands and Sponsored Display ads may have lower ROAS, but they help you build brand awareness.

How Often Should You Monitor and Adjust Your ROAS?

Monitor and adjust your ROAS weekly to stay on top of trends, optimize performance, and keep your ad spending efficient.

What Role Do Product Prices Play in ROAS?

Higher-priced products can improve ROAS since each sale generates more revenue, making your ad spend more cost-effective. Lower-priced items may require higher sales volumes for good ROAS.

Conclusion

Keeping a close eye on your ROAS helps you get the most out of your Amazon advertising. But more than how much you spend, it matters how effectively you turn your spending into revenue. And optimizing your ad performance is just one way to boost ROAS.

A powerful alternative is to drive even more traffic and sales with affiliate marketing.

Join Archer Affiliates today and let our trusted affiliates promote your products. They’ll bring you high-quality external traffic that complements your ad efforts and takes your sales to the next level.