Return on Advertising Spend

The Return on Advertising Spend (ROAS) is an important key figure for online marketing. The return on investment (ROI) forms the basis for this. The ROI considers the general turnover in relation to the costs. The ROAS is about comparing the costs of an advertising campaign with the profit achieved.

With the help of ROAS, the profitability of an advertising campaign can be determined.

Calculation of ROAS

The Return on Advertising Spend can be calculated as follows:

ROAS = (profit/advertising costs) * 100

With a profit of 100€ and advertising expenditure of 10€, the ROAS is 1.000%. The higher this number is, the more profitable the ads are. Depending on the desired target, a smaller value may also be sufficient. If the short-term profit is not in the foreground, it is advisable to use a different key figure to measure success. This could be, for example, market share, number of orders, impressions or clicks.

The calculation of the ROAS can help to answer the following questions:

  • Do my sponsored products ads convert?
  • How are my Amazon Marketing Services campaigns doing on Amazon?
  • What advertising campaigns should I budget or pause?

Using the ROAS on Amazon

Amazon specifies the key figure Advertising Cost of Sale (ACoS). This ratio relates advertising costs to sales. This ratio often serves as a measurement for the success of advertising campaigns. In many cases, the goal is to achieve a low percentage (< 10%) with ACoS. However, the ACoS does not provide any information about the actual profit.

The ACoS alone is not sufficient to determine the success of a campaign. Because only the turnover is to be set in relation to the expenses and a small percentage is to be achieved as possible, it can happen that the company misses many sales. A higher ACoS can lead to significantly more sales and can mean more profit on the bottom line.

For this reason it is recommended to include the ROAS during planning. The ROAS compares the actual profit to the advertising costs. Here a value can be defined, which can serve as a measure for the profitability of the advertising campaigns.

Basis for the ROAS on Amazon

To use the ROAS on Amazon it is important to make a profit calculation.

With the help of the calculated profit and the number of orders by advertisements on Amazon it can be calculated how much profit was achieved by the advertisements. This profit is then compared to the costs and the ROAS can be calculated.