ROAS (Amazon Ads)
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ROAS - Return on Ad Spend and ACOS - Advertising Cost of Sales, are probably one of the most important metrics in Amazon Ads (as in Google Ads): It expresses sales as a fraction of spend (ROAS) or spend as a fraction of sales (ACOS). ROAS and ACOS are each other's reciprocal:
Sales
ROAS = -------
Spend
Spend
ACOS = ------- * 100%
Sales
ROAS = 1/ACOS
ACOS = 1/ROAS
- ROAS is expressed as a fraction - not as a percentage
- ACOS is traditionally expressed as a percentage (so, technically, they are not each other's reciprocal)
- Spend is ex. VAT
- Sales includes VAT and shipping. That might inflate this number, as a more intuitive calculation of ROAS (at least, to me), would be ex. VAT and ex. shipping
- The higher the number, the better
What the numbers mean
| ACOS | ROAS | Remarks |
|---|---|---|
| 1 | 1 | Sales and spend are equal - Break-even |
| <1 | >1 | More sales than spend - Good |
| >1 | <1 | More spend than sales - Not good |
Examples ROAS
Example 1:
- Spend: € 20
- Sales: € 100
- ROAS = € 100/€ 20 = 5
- When correcting spend with subtracting 21% VAT and no shipping costs, corrected ROAS would be 4.13 - Quite a difference
Example 2:
- Spend: € 5
- Sales: € 2.500
- ROAS = 500
Example 3:
- Spend: € 100
- Sales: € 100
- ROAS = 1
Example 4:
- Spend: € 200
- Sales: € 100
- ROAS = 0.5
Example 5:
- Spend can maximally be 25% of sales
- Sales: € 100
- Spend: € 25
- ROAS = 4
Example 6:
- Spend can maximally be 25% of revenue (here: sales ex VAT)
- Sales: € 100
- Spend: € 25
- Revenue-based ROAS = € 82,64/€ 25 = 3,31 → ROAS is actually 30,25%, not 25%
- Increase sales by 21%: € 121
- Spend: € 25
- Revenue-based ROAS = (sales * 100/121) / spend = 25%
- Sales-based ROAS = € 121/€ 25 = 4.84
- So, if max. spend as a percentage, is expressed wrt. revenue rather than sales, the minimum ROAS has to be 21% higher
Examples ACOS
Example (1):
- The advertisement budget is 25% of sales
- Example figures: € 100 sales & € 25 spend
- ACOS = spend/sales = 0.25
Example (2):
- The advertisement budget is 25% of revenue - Assuming that 21% VAT is the only difference between sales and revenue
- € 121 sales & € 25 spend
- ACOS_revenue = (spend * (100/121)) / sales = 0.25
- Similar to ROAS, sales need to be corrected with the VAT rate - In this case sales has to be 21% higher
- Corresponding ACOS_sales = 25/121 = 0,2066 = 0,21
- So, ACOS_sales has to 16% lower than ACOS_revenue.