How To Calculate Roas And Acos

How to Calculate Your Target ROAS and ACOS for PPC

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Just think. There are 1,000's of advertisers running ads right now without knowing what their ROAS or ACOS targets are.

They operate on feelings: "it FEELS like things are improving."

They are then doomed since their optimization can't be centered around a target. Don't be doomed. Calculate your minimum ROAS and maximum ACOS with this video.


How to Find your Target ROAS & ACOS



Video Summary

Calculating Minimum ROAS and ACOS Video Notes

  • ROAS: Return on Ad Spend AKA Revenue over Ad Spend
    • Spend 100, Make 20 = 5x ROAS
    • (Revenue / Ad Spend)
  • ACOS: Ad Cost of Sales AKA Ad Cost over Sales
    • (Ad Spend / Revenue)
    • Spend 100, Make 20 = 20% ACOS
  • These represent the same thing: the relationship between your spend and your revenue
  • ROAS = 1/ACOS
  • ACOS = 1/ROAS
  • This is very important: the breakeven point
    • Minimum ROAS & Maximum ACOS
  • To Calculate breakeven:
    • Need revenue, cost of goods sold, any other fees (like Amazon Fee)
  • Example:
    • If you generate 100 dollars of revenue, with COGS of 20 dollars, and other fees of 15 per sale.
    • Profit per sale: $65
    • If you spend $66 on Ads, you will lose 1 dollar.
    • If you spend $64, you will make 1 dollar
    • Your Minimum ROAS is 100/65 = 1.53
    • Your Maximum ACOS is 65/100 = 65%
  • You need to decide what percentage of your profit you spend per sale
  • Some advertisers are very aggressive, others are much more conservative
    • Example: "I want to spend 50% of my profit on ads"
    • Example: I want to spend 80% of my profit on ads"
  • After you establish how much you want to spend per sale, you can calculate your target ROAS and target ACOS
  • This is very easy with 1 product, but it becomes a lot more challenging when you have dozens of products
  • Group products in ROAS target-groups.
  • Example:
    • If you have two products with an ROAS of 4x and 5x, you can put them in the same ad group targeting 5x.
  • This allows you to have a starting off-point to easily organize your campaign.
  • Be sure to label or title your campaigns with the target KPI inside of it.
    • Example: "Water Bottles + Target ROAS 4.5x + USA + Search + Cold Traffic"

Michael Erickson

Emailing my clients and telling them I helped increase their return on ad spend by 300% never gets old. I love rising above the technical jargon and providing your business with online marketing momentum to reach new heights.
Enthusiast for all things science, surfing, and Search Scientists.