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
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)
- 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.
- 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"