How to calculate the ROAS in Amazon advertisements? How much does it take to make money

ROAS(Return on advertising spend) The indicator is the return on advertising expenditure, which canAmazon SellerCalculate the income or loss of each dollar of investment and evaluate the specificAmazon Advertising Campaign, evenkeywordProductivity.

In the analysisAmazon AdvertisingIndicators such as views, clicks, and conversions are really useful during events. However, they did not mention the cost-effectiveness of advertising. Only relying on these indicators, sellers may draw wrong conclusions about the return on investment of specific sources, channels or activities.

Blue Ocean Yiguan has learned that,ROASHelp Amazon sellers understandAmazonThe profitability of advertising under the current marketing strategy; Learn which marketing technologies and tools are practical, can be used in the future, or should not be used again.

ROAS indicators can also help sellers reallocate marketing budgets and increase revenue without increasing expenditure.

IHow to calculate Amazon ROAS?

Amazon ROAS is calculated as follows:

In this formula, each part represents:

1. Revenue: total Revenue from Amazon advertising activities.

2. Spend: the total expenditure of an Amazon advertising campaign.

For example, a seller earns $1000 from $250 in advertising spending, which means ROAS equals 400% in this example.

It should be understood that when calculating Amazon ROAS indicators, it is crucial to start and maintain the budget for advertising activities. However, additional costs such as designers, content authors, PPC experts, delivery and product costs are not included.

IIWhat kind of Amazon ROAS makes the most money?

By comparing the ROAS of several advertising campaigns, sellers can determine which are the most profitable ROAS (more than 100%) and the least profitable (less than 100%).

1. The more revenue and profits generated by advertising activities, the higher ROAS.

If the seller spent $100 on advertising, but only made $100 back from sales, the ROAS is 1. This means that the seller earns one dollar for every dollar spent on advertising. Therefore, such advertising activities are not profitable.

2. The good Amazon ROAS almost depends on the profit margin.

The general ROAS benchmark is a 4:1 ratio, but different companies have different benchmarks. For example, a 3-fold ROAS may be excellent for one brand, but disastrous for another.

3. If the profit margin is low, the seller needs to ensure a higher ROAS to maintain the profitability of the advertising campaign. According to the data of Statista, the following table shows the digital advertising channels that generate the highest ROAS for retail brands sold on Amazon America (December 2019).

Conversely, sellers with high profit margins can benefit from lower ROAS.

3、 How to find the minimum ROAS?

To calculate the minimum ROAS, sellers need to calculate their break even point.

Break even point refers to gross profit excluding advertising expenses. Breakeven point is important in an enterprise because it allows sellers to decide when they can recover their costs from sales. For example:

This $20 is the profit before the advertising expenditure, that is, the break even point of the seller. If a seller spends $5 on advertising, the net profit is $15.

Amazon's minimum ROAS calculation formula is as follows:

Therefore, if the sales price is $50, the break even point is $20, and the minimum ROAS is 2.5.According to Blue Ocean Yiguan,This means that for every dollar spent on advertising,AmazonThe seller must generate $2.50 to keep the advertising campaign profitable.

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