The Metrics That Drive Success in Amazon Advertising
Measuring the performance of Amazon advertising campaigns is crucial for optimizing expenses and maximizing profits. Three fundamental metrics to focus on are ACoS, ROAS, and TACoS.
1. ACoS (Advertising Cost of Sales)
What does it mean?
- Low ACoS (below 20%): Indicates good performance; advertising costs are low relative to sales.
- High ACoS (above 30%): Indicates poor efficiency; spending is high compared to the sales generated.
- ACoS at 25% is your break-even point, if it drops to 15% you will be in the ideal profit zone.
However, keep in mind that it depends on the category of the product you sell. ACoS varies widely depending on the marketplace, ad type, competition, product price, and many more factors. For a general idea, here are the median ACoS values across different categories on Amazon:
When to measure ACoS?
- PPC Campaign Optimization:
- Assess whether ads are profitable.
- Advertising Budget Control:
- Identify campaigns that need adjustments in keywords or targeting.
- Evaluation of New Campaigns:
- Quickly measure the potential of experimental campaigns.
2. ROAS (Return on Ad Spend)
What does it mean?
- ROAS > 4x: Indicates strong performance. Each dollar spent generates at least $4 in revenue.
- ROAS < 2x: Indicates poor performance; optimization is needed.
When to measure ROAS?
- Evaluate Overall Campaign Performance:
- Useful for assessing the long-term profitability of broader campaigns.
- Compare Product Performance:
- Identify which products deliver better advertising returns.
- Ensure Financial Viability:
- Evaluate whether advertising spending produces positive margins.
3. TACoS (Total Advertising Cost of Sales)
What does it mean?
- Low TACoS (below 10%) indicates that organic sales drive growth and reduce reliance on advertising.
- High TACoS (above 30%): Indicates over-dependence on advertising to generate sales; suggests the need to strengthen organic strategies.
TACoS between 10% and 20% is a good balance between paid and organic sales. It’s the ideal range to avoid overspending.
When to measure TACoS?
- Assess Long-Term Business Health:
- Analyze whether campaigns are contributing to additional organic sales.
- Measure Advertising’s Impact on Organic Growth:
- Verify if ads improve visibility and future sales.
- Identify Advertising Dependence:
- Determine if the business can sustain itself without high advertising budgets.
Metric Comparison
| Metric | Primary Focus | Reasons to Measure It |
|---|---|---|
| ACoS | Direct profitability of ad campaigns. | Optimize ad costs and identify unprofitable campaigns. |
| ROAS | Overall profitability of ad spend. | Measure long-term efficiency and ensure positive returns. |
| TACoS | Total impact on business growth. | Evaluate if ads drive organic sales and reduce reliance on paid advertising. |
Conclusion
Measuring ACoS, ROAS, and TACoS helps you:
- Assess immediate profitability (ACoS).
- Measure overall advertising efficiency (ROAS).
- Analyze the long-term impact on organic growth (TACoS).
Recommendation:
- For new or experimental campaigns: Focus on ACoS.
- For long-term campaigns: Use ROAS.
- For growth strategies: Rely on TACoS to evaluate sustainability.
- Optimize keywords: Use the keywords that your customers use and don’t use the keywords that don’t generate sales because you are losing money.
- Optimizing listing with good titles, photos, descriptions, and reviews will lower your ACoS as TACoS because it converts more.
- Adjust high budget for new products and lower budget on products that are already positioned selling
- Use automatic campaigns to help you discover new keywords and manual campaigns give you control over spending on those keywords. Monitor and adjust by reviewing the results.