Ecommerce Marketing: Calculating Minimum ROAS and maximum ACOS
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The document discusses the relationship between Return on Ad Spend (ROAS) and Ad Cost of Sales (ACOS), emphasizing their inverse nature and the significance of calculating minimum ROAS and maximum ACOS to determine breakeven points. It provides examples of how to calculate these metrics based on revenue, costs, and desired profit margins, illustrating how to set targets for ad spend. Additionally, it suggests practices for managing multiple products by grouping them for efficiency in performance tracking.
Ecommerce Marketing: Calculating Minimum ROAS and maximum ACOS
- 1. WITH CALCULATING MINIMUM ROAS CALCULATING MAXIMUM ACOS
- 2. Roas & acos?
- 3. roas RETURN ON AD SPEND OR REVENUE OVER AD SPEND REVENUE: 100 AD SPEND: 20 ROAS: 5x or 500%
- 4. ACOS AD COST OF SALES AD COST OVER SALES AD COST: 20 REVENUE: 100 ACOS: 20%
- 5. THEY ARE THE INVERSE OF EACHOTHER ROAS 5X 1/5 = 20% ACOS ACOS 20% (1/.20) = 5X
- 6. CONCEPT OF “MINIMUM ROAS” or “maximum acos” The breakeven point Where you start losing/making money
- 8. Breakeven Point Variable Revenue $100 COGS $20 Other Fees (i.e. amazon or merchant fees) $15 Profit per Sale $65 Break even ad spend $65 Min ROAS 1.53x Max ACOS 65%
- 9. Things you need to calculate Variable Revenue COGS Other Fees (i.e. amazon or merchant fees) Profit Per Sale % of Profit You Want to Spend on PPC Amount You Want to Spend Per Sale Target ACOS Target ROAS
- 10. example Variable Value Revenue $100 COGS $20 Other Fees (i.e. amazon or merchant fees) $15 Profit Per Sale $65 % of Profit You Want to Spend on PPC 50% Amount You Want to Spend Per Sale $32.50 Target ACOS 32.5% Target ROAS 3.07x
- 11. In practice If you have a few products this is easy. If you have 100’s this becomes challenging. So what can you do?
- 12. Run through that exercise on all your products GROUP THEM
- 13. Example: group by highest ROAS
- 14. Be clear with labels EVERY CAMPAIGN SHOULD HAVE A KPI ON IT. EXAMPLE: Water Bottles + Search + Cold Traffic + ROAS 4x Target + USA