Here’s a golden rule of marketing: the key to success lies in measuring your results, so that you can fine-tune and improve your campaigns. Regardless of whether you’re creating a new drip campaign, dabbling in influencer marketing, or experimenting with Amazon Sponsored Ads, keeping track of your metrics is an absolute must.
More specifically, let’s look at the importance of tracking your metrics in the context of Amazon Sponsored Ads. If you’re just going to run your ads without paying attention to your key metrics, then you’ll end up parting with more ad budget than necessary – simple as that. On the flip side, analyzing your metrics will help you improve upon your keyword targeting and copy, and this in turn brings you more sales with a lower ad spend.
In this article, we’ll explore 4 crucial metrics that help you track the success of your Amazon Sponsored Ads. Make sure you keep an eye on these important numbers at all times!
1. Clickthrough Rate (CTR)
When running Amazon Pay Per Click ads, divide the total number of clicks an ad receives by its total number of impressions, and you’ll have its CTR. The higher your CTR, the more effective your ad is, and as a general rule of thumb, ads targeting highly specific keywords tend to enjoy higher CTRs.
2. Cost Per Click (CPC)
CPC is fairly self-explanatory – this is simply the average cost you’re paying for a single click. To maximize the amount of return they get on an ad, sellers should try and push down their CPC. That said, you do have more leeway with this figure if you’re selling big-ticket items.
3. Conversion Rate
An ad’s conversion rate is calculated by dividing its number of conversions by the number of clicks it receives. Say you have 100 clicks on your ads, and two people went ahead and bought your product. This means you have a 2% conversion rate.
Conversion rates are measured on a one, seven and 30 day basis. If someone sees your ad and clicks on it today, but only purchases your product a week later, this conversion will count in your seven-day conversion rate, but not your one-day conversion rate.
For this reason, your seven-day conversion rate will always be higher than your one-day conversion rate, and the same goes for your 30-day conversion rate.
4. Advertising Cost of Sale (ACoS)
In a nutshell, ACoS measures all your advertising costs and divides them by the sales you’ve generated. This gives you an understanding of how much you’re paying for advertising per dollar of sales. Say you spend $50 on your ads, and this generates $500 worth of sales for you. This gives you an ACoS of 10%, which means that you’re spending an average of $0.10 on ads to make $1.
While most sellers will simply look at their overall ACoS or the ACoS of their different campaigns, it’s possible to dive deeper and calculate your ACoS for your individual ad groups or ads as well.
The ideal ACoS for Amazon Sponsored Ads
Here’s a question we get a lot at PPC Entourage: what’s an ideal ACoS to aim for? Unfortunately, there’s no magical figure that is guaranteed to maximize the success of your sponsored product campaigns. However, keep in mind that the lower your ACoS is, the higher your profits are.
If your aim is to generate as much profit as possible, it makes sense to go all out in reducing your ACoS. That said, if you have other marketing goals (such as to increase the visibility of your products, or to dominate a niche), you might be okay with having a high ACoS as well.
The problem with relying on ACoS
While ACoS might seem like a good indicator of how profitable your Amazon Sponsored Ads are, this metric doesn’t actually give you the whole picture.
First and foremost, ACoS looks at gross sales instead of net sales. It doesn’t account for Amazon’s share of the revenue, which is both misleading and problematic.
Say you’ve earned $200 in gross sales from an ad that you’ve spent $90 on, for example. Your ACoS would be 45%, which sounds pretty decent. But you still have to account for Amazon’s cut (this differs on a case-by-case basis, but we’ll assume they take 33% in this scenario).
- Ad spend = $90
- Gross sales = $200
- Amazon’s cut = $66
- Net sales = $134
You can then calculate the advertising cost of your net sales, which is 67%.
Again, if you’re concerned with profitability, there are other factors to consider. More specifically, you’ll have to account for your Costs of Goods Sold (COGS) and other operational costs as well. Let’s break it down further:
- Ad spend = $90
- Net sales = $134
- COGS + operational costs = $49
- Profit = $85
You’ll realize that you’re spending $90 to turn a profit of $85, which means that you aren’t even breaking even. Now, see how using ACoS to assess the profitability of your ads is highly misleading?
If you find it a hassle to calculate the profitability of your Amazon Sponsored Ads, you can simply plug your numbers into our PPC Entourage software, and let it do the heavy lifting. More specifically, you only need to provide us with your manufacturing and shipping costs (per unit). Our PPC management software pulls the rest of your data from Amazon, and calculates all the metrics in order to tell you if you’re turning a profit. Alternatively, if you would prefer to try our Amazon seller consulting services, we’d love to help you grow your business.
Tracking the success of your Amazon Sponsored Ads
With more and more sellers jumping onto the Amazon Sponsored Ads bandwagon and pushing up the prices of those ads, you can’t afford to rest on your laurels. Make sure you keep an eye on your key metrics, and set aside a few hours each week to optimize and fine-tune your ads.