In the dynamic world of e-commerce, Amazon has emerged as a global giant, offering sellers a vast market to showcase their products.
To succeed in this competitive landscape, it is essential to understand the numbers, dynamics and results through the analysis of KPIs or Key Performance Indicators.
These metrics not only provide detailed information about your advertising campaigns, but also help you make informed decisions that can increase sales and increase return on investment.
In this comprehensive guide, we’ll analyze Amazon Advertising’s essential KPIs to help you navigate the complexities of advertising on this retail giant.
Amazon KPIs: what they are
- ACoS – Advertising Cost of Sales
The advertising cost of sales or acos, is a key KPI of Amazon Advertising.
It represents the ratio of advertising spending to sales allocated, expressed as a percentage.
Therefore, quite simply, it represents the impact of ADV’s activity on the sales it generates.
A low acos therefore indicates that you are spending less on advertising to generate sales, making your campaigns more convenient. High acos, on the other hand, means you’re spending a significant portion of your revenue on advertising, which may require optimization.
To calculate the acos, use the formula:
Acos = (Advertising spending/Advertising Revenue) x 100
For example, if you spent €100 in advertising and generated €500 in sales, your acos would be 20%.
It is then automatic to understand that the acos is a useful value to control the incidence of advertising on the total margin of sales.
An ideal Acos will vary based on profit margins, industry and advertising goals. For some, a break-even or slightly loss-making announcement might be acceptable, as long-term customer acquisition can be very valuable. Conversely, others might aim for a lower acos, ensuring profitable campaigns.
2. ROAS – Return on Advertising Spend
The return on advertising spending, or ROAS, is another rather famous and relevant KPI in the world of Advertising in general, and in particular on Amazon.
ROAS provides a mathematically clear view of how efficiently your advertising campaigns generate revenue.
The ROAS, logically, is the inverse of the acos, therefore, reversing the formula we will have that the receipts are to be compared to the expense.
You can express it in percentage or points, then simply with a multiplier.
Instead of looking at costs, we focus on performance.
A higher ROAS means you get more revenue for every dollar you spend on advertising.
The formula for calculating the ROAS is:
ROAS = advertising revenue/advertising expenditure
For example, if you spend €100 on ads and generate €500 in revenue, your ROAS will be 500% or, similarly, it will be 5 (ie: 5 times your revenue).
The ideal ROAS depends on your business goals. E-commerce companies often target a ROAS of 400% or more, while others might consider a lower ROAS profitable. It is critical to align your ROAS goals with your business goals and monitor them closely to make informed changes to your advertising campaigns.
Looking at it from the side of the Advertisers, the ROAS is considered a bit of a vanity metric, or a metric less valuable and assessable only if you have very clear all the other KPIs.
For example, if you spend €20 and generate €100, again the ROAS is 5 (or 500%) but it will be an end in itself because low revenue and low spending are not represented in this number and probably, increasing spending and therefore traffic, will change the ROAS.
Impressions indicate how often (the number of times) your ad is viewed by potential customers.
It’s a basic metric that gives you an idea of the visibility of your ad. A large number of impressions do not guarantee success, but it is an essential starting point to drive traffic to your product.
Impressions are generated when, following a search or action of a user, our advertisement is shown.
When this advertisement appears in the monitor or display portion of the potential customer, a display is generated.
Tracking impressions can help you assess the scope and visibility of your advertising campaigns.
There is no formula to calculate the Impressions, as they are directly related to the number of times we can get our ad out based on our “bidding”, that is, the offer for keyword or positioning, complex subject that will be treated separately.
Ultimately, the evaluation of the Impressions varies depending on the strategy. If you are in a phase of exploration of your target, you will aim to display as many ads as possible.
On the other hand if you are in a mid-phasefunnel bottom, you will aim to look for a more precise target that has already shown interest.
4. CTR – Click Through Rate
Directly related to the Impressions, the CTR somehow defines its effectiveness.
In fact, the click-through rate, or CTR, measures the percentage of interest in your ad by the audience and it is manifested by clicking on your product.
It is then calculated as the ratio of clicks to impressions, expressed as a percentage.
A higher CTR indicates that your ad is successful with your target audience and attracts more potential customers to the product details page.
The formula for the CTR is:
CTR = (Click/Impressions) x 100
For example, if your ad received 1,000 clicks from 10,000 impressions, your CTR would be 10%. A strong CTR is a positive sign, it is only the first step in the customer journey.
An ad with a high CTR but a low conversion rate may not produce the desired results. Monitoring CTR along with other KPIs is essential for a holistic view of advertising performance.
5. Conversion Rate – CVR
We continue our walk through the KPIs, moving further into revenue.
If the CTR is a metric directly connected to the Impressions, in turn, directly connected to the CTR, we find the Conversion Rate (CVR or Coversion Rate).
The conversion rate is a crucial metric and certainly the one that is most relevant in the programming of activities and in the understanding of the effectiveness of our target.
The CVR tells you in what percentage the clicks obtained through the CTR become purchases, so how well your ad is converting clicks into actual sales.
A high conversion rate means that a significant percentage of people who clicked on your ad made a purchase.
Since this is a metric that occurs after the click when the user has visited the product page and consulted for good, it is also an indicator of the quality of the latter.
For example, if you have a high CTR but a low CVR, it may indicate that you are targeting your audience well but the user does not consider the product valid and does not conclude the purchase.
Often this is due to incorrect communication of product information, incorrect or low quality images or unfavourable sales conditions.
The formula for the conversion rate is:
Conversion rate = (Conversions/Clicks) x 100
For example, if your ad received 1,000 clicks and generated 100 conversions, the conversion rate would be 10%.
6. CPC – Cost per Click
The Cost per Click, as suggested by the word, represents the amount of money that we pay to Amazon at each click that the user makes.
The CPC does not have a formula to be calculated but its manifestation is directly linked to the concept of Bidding, or “offer per click”, would say the maximum amount of money that we are willing to pay for each click.
It is not said that the real CPC will be the one offered in bidding but knowing our ceiling is the best way to predict a starting CPC, and then make adjustments during the campaign.
In addition, Amazon Advertising, for each keyword suggests a minimum, a maximum and an average, around which we can make assessments.
The “max CPC” can be calculated based on the product margin and the average conversion rate.
7. CPA – Cost per Acquisition
Hidden metric, or in any case not present among those shown in the reports of Amazon, the acquisition cost, represents the average cost that we pay to place an order.
It has a dual function, reporting and strategic.
Reporting is very easy to calculate= Total cost of advertising/number of orders
In strategic phase, therefore of forecast and forecast activity, it has a statistical function and the average values are used, therefore it will be calculated like this:
(Click AVG * Converion Rate) * Average CPC
NON KPI METRICS: additional indicators and strategic reports
Beyond the key KPIs just explained, there are a number of reporting and metrics that are important for understanding the behavioral dynamics of campaigns and analyzing the competition and their role in activities.
1. Customer Search Terms Report
The selection of keyword that we choose with which to publish our ads, is only a “desired correspondence” towards the searches of users, that is, words that allow you to activate based on “search intent”.
The customer search terms report is just that, a detailed summary of KPI’s regarding research intent; a real gold mine of information to optimize your Amazon advertising campaigns.
This report reveals the specific search terms that led to clicks and conversions on your products. This data helps you understand what customers are looking for and how your ads match their queries.
By analyzing this report, you can identify high-performance keywords to include in your campaign, and inverse-match keywords to exclude. It’s a valuable tool for perfecting targeting and ensuring your ads are displayed to the most relevant audience.
2. Placement of ads
Amazon offers various ad placement options, including the top of your search, the rest of your search and product pages. Tracking the location where your ads are placed can provide valuable insights into their performance. Some ad placements may generate a higher CTR and conversion rate, while others may be less effective.
By monitoring the performance of different ad placements, you can make strategic decisions about where to allocate your ad budget. This ensures you focus your resources on the most effective placements for your products.
3. Sales by type of ad
Amazon offers different types of ads, such as Sponsored Products, Sponsored Brands and Sponsored Display. Tracking sales by ad type helps you understand which ad formats generate the most revenue for your business.
This KPI can guide your strategy in terms of choosing the right types of ads for your products and customizing your ad content to align them with your chosen format. By investing more in the types of ads that generate more sales, you can optimize your advertising efforts.
Advertiser’s work begins with the understanding of these metrics but is realized in knowing how to analyze the interactions that occur with the thousands of exogenous and endogenous variables that manifest themselves on Amazon and outside.
As we are seeing in recent years, many external phenomena (pandemics, economic crises and world events) have affected the digital market and, automatically, the way of advertising and its costs.
Amazon Advertising KPIs are the compass that guides your advertising journey on the world’s largest e-commerce platform.
They provide detailed information about the performance of your advertising campaign, helping you understand what works and what needs to be improved.
By mastering these KPIs, you can optimize advertising spending, increase sales, and get a strong return on investment.