What Is a Good ROAS on Amazon? Benefits and Factors That Affect It

July 10, 2024

Helpful Summary

  • Overview: In this article, we discuss what constitutes Amazon’s Good Return on Ad Spend (ROAS). We also tackle the benefits of tracking it and factors that can negatively affect it.
  • Why You Can Trust Us: We've helped numerous businesses achieve a good ROAS using Merch Jar to optimize their Amazon ads. Our clients have experienced higher profitability and better ad performance through our automated keyword management and bid adjustments.
  • Why This Is Important: Understanding and optimizing ROAS is crucial for maximizing ad profitability, making data-driven decisions, and aligning marketing strategies with business goals.
  • Action Points: Use Merch Jar to automate and optimize your Amazon ad campaigns, ensuring efficient ad spending and maximizing ROAS.
  • Further Research: Explore advanced strategies such as exact match bidding, product bundling, and targeting less competitive search terms to improve your Amazon ROAS even further.

When you run sponsored ads for your Amazon listings, you’re grabbing the opportunity to improve how customers discover your products, increasing their sales and growing your organic rankings. An advertising presence in the world’s biggest e-commerce platform can bring high returns. It’s worth your investment. But, to really profit from it, you should be able to measure your campaigns’ performance. One way to do this is by calculating your Return on Ad Spend, or ROAS. 

For Amazon-based businesses, tracking your ROAS is more vital than ever.  With advertisers increasing their spending, it’s important to know how your ad campaigns perform compared to your ad spend. This is where ROAS comes into play. 

In this Merch Jar guide, we will answer the question that lays the foundation for successful Amazon ads–what is a good ROAS? 

Why Listen To Us?

We have first-hand experience helping businesses optimize their Amazon ads to achieve a good ROAS. We help our clients increase their ROAS by automating keyword management and bid adjustments, which reduces ad spend and boosts sales.

Solving these pain points has enabled our clients to experience higher profitability and better ad performance. Using Merch Jar’s automation tools, they've streamlined their ad management processes, allowing them to focus on other business areas while maintaining strong ad performance​.

What Is ROAS?

ROAS calculates the overall revenue generated for a particular marketing channel.  An example would be a pay-per-click channel (PPC) divided by the total campaign cost. Broadly speaking, it can show how effectively you’ve communicated your ad’s message to your target audience. The higher the relevance of the message to the audience, the higher the return on ad spend (ROAS)

Calculating Your Amazon ROAS

You can compute this by dividing your total attributed sales by your total ad spend. 

For instance, if you spent $100 on Sponsored Ads and earned $500 in sales from those, your ROAS is 5. That’s a great number. But the higher it is, the more profitable your ad campaigns are. 

However, if you spend $100 on Sponsored Ads but earn only $100 in sales, your ROAS is 1, which is unprofitable. 

What is a Good ROAS on Amazon?

Some benchmarks, such as the one presented above, indicate that a certain number is good and another isn’t. 

Generally, you should aim between 4:1 and 7:1. But, the truth is that a  good ROAS will ultimately rely on your profit margin. Generally speaking, there is no one-size-fits-all figure. A ROAS of 4:1 may be considered great, but still terrible for some brands. 

How To Achieve the Most Ideal ROAS

A great way to achieve the most ideal ROAS for your product is to learn your minimum ROAS. Once you know this, you can quickly determine whether or not your Amazon ad campaigns are turning in profits. 

Calculate Your Break-Even Point

To calculate your minimum ROAS, you must first determine your break-even point. This is your gross profit from a sale after deducting the cost of goods sold (COGS). It also includes expenditures such as shipping fees, unit and supply costs, and Amazon fees. It is your gross profit before your ad expenses.

Here’s an example to illustrate:

Product sale price: $50

COGS: $20

Amazon fees: $15

Profit: $15

Keep in mind that this profit is before spending anything on ads. 

So, if your advertising costs are $5 per sale, you’ve made a $10 net profit. If your advertising costs are $15 per sale, you just “broke even” since your profit is $0. You didn't lose money, but you also didn't make any.

If advertising costs are $20 per sale, you incur a loss of $5 per sale.

Calculate Your Minimum ROAS

Now that you know your break-even point, let’s calculate your minimum ROAS. 

To determine your minimum ROAS, follow this formula:

Sale price / Break-Even Point = Minimum ROAS

Using the same example earlier:

$50 / $15 = $3.33

This means your minimum ROAS is approximately $3.33. So, for every dollar you spend on advertising, your ads must generate at least $3.33 in revenue to be profitable.

Following the number-specific benchmark, your ads aren't profitable if your ROAS is around 3 or lower. Your ads are only profitable if your ROAS is higher than 3. But remember, a good ROAS is still subjective and depends on your business goals.

Our platform, Merch Jar, helps you calculate your ROAS. We offer intelligent bid management, keyword optimization, and comprehensive dashboards, allowing you to track and optimize your advertising performance. This ensures that ad spend is efficiently utilized to maximize profitability.

Benefits of Tracking ROAS

You’ve just learned what a good ROAS is and how to determine your ideal figure. Now, let’s find out the benefits of tracking ROAS.

Optimize Your Ad Spend

One of the greatest advantages of tracking ROAS is optimizing your ad spend. By closely monitoring it, you can then make data-driven decisions to maximize your return on investment (ROI). 

If certain campaigns aren’t yielding good ROAS, reallocate your budget and make necessary adjustments to improve their performance. This will ensure that you effectively use every dollar you spend on ads.

Improve Your Campaign’s Performance

Tracking your ROAS reveals trends, patterns, and opportunities to improve your campaigns. By knowing your ROAS, you can fine-tune your message, targeting, and creative elements, allowing you to optimize your campaigns’ performance. And when you do, you can drive higher ROIs. 

Align Your Marketing Tactics With Your Business Goals

By tracking ROAS, you can assess the impact of your advertising efforts on your revenue, ensuring that your marketing strategies are aligned with your business's goals. ROAS allows you to measure your ads’ tangible results, making it easier to justify your marketing investments and present their value to your stakeholders.

Make Decisions Based on Data Insights

ROAS can empower you to make informed decisions based on concrete data insights. By leveraging ROAS, you can devise strategies that can yield positive results. 

Factors That Can Hurt Your ROAS

Here are the mistakes you should avoid, or you’ll hurt your ad campaign’s revenue potential.

Ignoring Audience Research

Failing to conduct thorough audience research makes it incredibly difficult to build and run ads that convert. Your ads will not perform well without a profound understanding of your audience’s demographics, interests, and pain points.

Our platform has keyword optimization and performance analytics features, which help you understand and target the right audience for your Amazon ads.

Unclear Goals and KPIs

Failure to set clear goals and Key Performance Indicators (KPIs) leads to the inability to track and optimize your ROAS. When goals are defined well, you guide your advertising strategy, and you can accurately measure your ROAS.

Merch Jar provides performance analytics and tracking tools, helping you set and monitor KPIs for your Amazon ads.

Insufficient Ad Tracking and Analytics

Neglecting ad tracking and analyzing data ineffectively are also problems. To combat this, you can seek help from platforms such as Merch Jar. 

With our tool, you can utilize our advanced analytics and reporting features. Merch Jar provides detailed performance metrics, including impressions, clicks, conversions, and sales data. These insights allow you to monitor and analyze the advertising campaign's effectiveness, enabling data-driven decisions to optimize your ad spend and maximize ROI.

Poor Ad Testing and Optimization

Another mistake hampering ROAS is failing to test and optimize ads. Businesses that stick to just one ad creative or messaging without exploring and experimenting with other variations are hurting their ROAS’ potential. 

Disregarding Data Insights

Data contains a goldmine of insights that help optimize your advertising efforts. You must know how to unearth and pinpoint trends to maximize your ROI. 

Our tool features an Ad Manager, consolidating your advertising data to see every ad group, keyword, and search term in one place.

Tips To Improve Your Amazon ROAS

Here are some advanced tips that will help you improve your Amazon ROAS:

Use Exact Match Bids

If you wish to reduce wasted Amazon ad spend,  use exact match bids to focus on driving traffic that converts. Exact match bidding lets you bid on specific words or phrases.  Once you identify the search items with the highest conversion rates, you can shift your ad spending toward them using exact match bidding.  

Jungle Scout's Million Dollar Case Study highlights the importance of exact match bidding in optimizing Amazon PPC campaigns. For example, when launching a new product like a "hooded baby towel," the campaign initially used broad-match keywords to gather data and then switched to exact match bidding. 

Boost Your AOV

Increasing your average order value (AOV) can significantly boost your Amazon ads’ ROAS. One effective strategy is bundling products, which creates higher-value listings to advertise. 

A brand that advertises its bundled products is The Love Crate Co. You can see their gift bundle as a Sponsored Ad below:

Take Advantage of Promotions

Promotions, like product bundles, are a great way to convince your customers they’re getting a worthwhile deal on your products. They can boost your conversion rates and reduce your advertising cost of sales (ACoS).

One of the best promotion options for getting the most out of your Amazon ads spending is the Buy One Get One Free offer.  The TOMS brand is a good example of how to excel using this strategy for shoes, accessories, and apparel. 

Prioritize Targeting Less Competitive Search Terms

While broad search terms (for instance, “shirts” and “shoes”) are an excellent way to build awareness and reach a wider market, they’re very competitive. So, you’d want to focus on less competitive search terms. For example, “brogues for women” if you sell these items. 

Merch Jar can help you manage your keywords, creating keywords from your best performers and negating the poor performers.

Stay Focused on Your Goals and Align Them With Appropriate Ad Types

Regardless of which Amazon ads strategy you choose, it must always align closely with the goals you want your business to reach. Improving your campaign's ROAS is fantastic, but your sales can stagnate if you forget about long-term goals. 

Additionally, ensure you use the right ad types to reach your goals. Sponsored brand ads are more targeted at top of funnel searches, while sponsored product ads are best for converting.

Achieve Your Ideal ROAS With Merch Jar

So, what's a good ROAS on Amazon? A good ROAS on Amazon typically ranges from 4:1 to 7:1. This is one benchmark, but actually, it will all depend on the industry and your goals. Achieving this involves optimizing campaigns, targeting the right audience, and continuously refining strategies. Strive for a balance between cost and revenue to maximize profitability and growth.

Our tool, Merch Jar, can help you optimize your Amazon ads without using spreadsheets. Thus, you can achieve a good ROAS. With our platform, you will spend less time managing your ads, make them profitable, and reach your business goals. 

Get started for free today.