Amazon is a pay-to-play platform with advertising being one of the most valuable tools in your arsenal. Whether you’re launching new products and want visibility fast or need better exposure in search results for your top-converting keywords, advertising is the most effective way to reach your audience. To make sure your advertising is effective, Amazon pay-per-click has many different metrics to analyse – ACoS, TACoS, ROAS and now TROAS!
In this blog, we are going to explain the difference between these advertising metrics and why we believe TROAS offers the best insights.
This stands for Advertising Cost of Sales. This figure is used to measure the success of advertising campaigns by showing the percentage of ad spend versus revenue from advertising. The lower your ACoS the better – a low score means that you are getting a higher return on investment.
The equation to solve for ACoS is “Ad Spend” divided by “Sales From Ads”. For example, if the ads generate £50 of revenue and our investment was £30, dividing 50 by 30 gives us an ACoS of 60%. Also seen as 60% of revenue re-invested into the ads.
On Amazon, this stands for “Total Advertising Cost of Sales”. The key difference between ACoS and TACoS is the word ‘total’. This means that this metric looks at all sales of a product, including those that weren’t necessarily generated by a pay-per-click campaign. ACoS only looks at the revenue, or sales, from shoppers that went directly through advertisements. TACoS offers a much wider picture of your Amazon performance. With Amazon advertising having so much effect on organic sales, this is an extremely important metric.
The equation to produce TACoS is “Ad Spend” divided by “Total Sales”. For example, if you spent £50 on PPC ads for a product and had £300 in total sales (ad sales and organic sales), to find the TACoS we would divide 50 by 300, giving us a TACoS of 17%.
ROAS stands for “Return on Ad Spend” and is a popular metric in the e-commerce industry. It is very similar to ROI (return of investment) as it reveals exactly how much of a return your advertising campaign is yielding. This metric is basically the same as ACoS but in reverse. While ACoS is measuring how high or low your advertising costs are, ROAS is measuring how high or low the return on your advertising costs is.
To work out the ROAS of your advertising is to divide the “Ad Sales” by the “Ad Spend”. If you spent £30 on advertisements and sold £50 worth of products your ROAS would be £1.67.
Introducing “Total Return On Ad Spend”. This measurement is the combined revenue generated by paid and organic sales compared with the total investment in advertising. TROAS measures the total return gain on every pound spent. Amazon is a pay-to-play platform which means you can’t increase your organic ranking or sales without investing in paid ads first. With this in mind, TROAS shows the true value of your advertising investment.
The equation to figure out the TROAS is to divide “Ad Spend” by the combined number of “Ad Sales” and “Organic Sales”. For example, if ad sales generate £50 and organic sales generate £50 the total revenue is £100. If the paid investment in ads is £30, we divide £100 by 30 to get the total revenue. In this example, for every £1 invested in advertising, we’re gaining £3.33 back.
Why is TROAS important
ACoS is an Amazon-specific metric which measures the percentage of advertising investment taken from the revenue generated on ads. However, this doesn’t take into account the close relationship between organic and paid sales on Amazon. This means we only see half the story with ACOS. With TROAS, you can take both into account and better measure overall success.
In a perfect world, every product would have an extremely low ACoS with high ROAS, as this would mean a significant return on advertising investment. But depending on your goals for a particular product or advertising campaign, a high ACoS isn’t necessarily a bad thing. You could be experimenting with new keywords and growing your organic rank. This can lead to confusion and affect your overall Amazon goals and profit.
Here at marketplace amp, our goal is to make sure our clients’ Amazon listings perform at the highest standard possible, ranking well organically as well as offering a great return on advertising spend. This is why we focus our attention on TROAS, to ensure advertising works well to convert, as well as to help boost organic ranking and sales.
If you have more questions on Amazon advertising our Amazon accredited advertising team can help. Contact us today to find out more about TROAS as well as the other valuable Amazon metrics. Set up your campaigns for success today!