5 Critical Amazon Advertising and PPC Reporting Metrics

Pay-per-click (PPC) advertising is critical to success on Amazon. To make sure that you are getting the ROI you need from your Amazon campaigns (and actually improving them), you need to understand what a good PPC campaign looks like, how to get the most from your PPC reports, and the critical metrics you can use to benchmark success. 

With a sales-packed Q4 around the corner, there has never been a more important time to make the right PPC choices. This article will help explain just that.

Additional suggested reading: 

• How To Master Amazon Sponsored Product Ads
• 4 Amazon Sponsored Brand Ads Strategy Tips
• New Amazon Sponsored Display Ads: 2020 Update

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1. Conversion rate (CVR)

Maybe the most crucial long-term metric. If you have ads that convert well, it shows a connection with your audience and relevant listings. If people click on your ad and then don’t buy your product, it may be a sign that your product content is not up to scratch and you should try to find areas to improve. 

Amazon also factors in CVR when determining your ad’s ranking — which, in turn, decides how often your ad will be displayed.

How to calculate: 

Conversion rate represents the percentage of shoppers who have clicked on your ad and then moved on to buy your product. The rate can vary significantly for different marketplaces and products.

Within your Amazon reports, the Detailed Page Sales and Traffic Report provides the basis of this information, including traffic and Buy Box percentage achieved. 

What you should use this metric to do:

Although conversion rate is a useful indicator, it’s also essential to consider the factors that influence it. For example, strong competition will lower conversion rates due to customers having more quality options to choose.

But no matter how impressive your conversion rate, it isn’t important unless you are making a profit. It’s always wise to check that higher conversion rates are pulling in enough revenue to offset any expenses. This is where break-even ACoS (or break-even RoAS)) comes into the frame, but more about that later.

General benchmarks: 

The average Amazon conversion rate is around 9.5%. Like all metrics, this average shifts by a large margin depending on category and product type. 

For example, more expensive products will typically have lower conversion rates due to customers comparing products before making their final decision. This percentage can vary all the way from 4% to 50%, depending on the category. 

2. Advertising Cost of Sale (ACoS)

Amazon has just announced a move away from ACoS and towards the more conventional RoAS (return on ad spend). This will make it easier for large advertisers to compare the success of their Amazon ads against those on Google Shopping and Facebook Store. After analyzing the impact on our campaigns, we will be writing more about this in the coming month.  

However, the Amazon-specific metric (ACoS) is still available, and brings a unique perspective that we think is worth considering. The inverse of RoAS, ACoS focuses users on the amount spent, rather than the amount returned, and is a critical indicator of the performance and general profitability of your PPC advertising.  

ACoS tells you how much you spent and how much you made. Basically, ACoS increases when spend grows faster than revenue and goes down when revenue grows faster than spend. The higher the ACoS, the less profitable your ads. The lower the ACoS, the more profitable your ads.

How to calculate: 

ACoS is simply ad spend divided by ad revenue (expressed as a percentage). 

Although ACoS is a pretty simple metric, it’s based on a range of interdependent and distinct metrics. Conversion rate and ACoS are inversely proportional. If CVR increases, ACoS decreases, and vice versa.

You can find more about the power of ACoS in our ACoS Strategy Guide. 

What you should use this metric to do:

When looking at ACoS, there are three main goals to consider: 

• Maximizing sales 
• Maximizing impressions 
• Maximizing profit

These goals will change based on the situation. For example, maximizing sales would seem sensible if you’re launching a new product and need to increase ranking by increasing sales velocity. 

General benchmarks: 

Many factors shape your ideal ACoS. Depending on your category, ACoS can range from 10% to 40%. 

As we have seen, when launching a new product, your ACoS could start very high. What a “good” ACoS figure looks like in the long-run depends on your product, its maturity, and how competitive the product category is.

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3. Break-even ACoS

Break-even ACoS is critical to understand your actual profitability point. It’s a target — rather than an active measurement — against which PPC marketers can compare actual ACoS or RoAS. No one wants to make a loss by spending too much on advertising. Break-even ACoS helps you prevent just that. 

Fundamentally, there are two approaches to break-even ACoS. 

1. Look at your advertising costs and compare that to the direct profits of making an individual sale — providing your a simple break-even ACoS figure on a product-by-product basis. 
2. The more complex perspective on break-even ACoS adjusts that target based on CLV (customer lifetime value) calculations for that given product — providing you with a long-term break-even point, and allowing you to be more aggressive with your ad spend. 

Both are valuable strategies for benchmarking the profitability of your advertising campaigns. Which one you end up weighting will depend on the time-horizon of your planning and the sophistication of your calculating capabilities. 

How to calculate: 

In order to calculate the simple break-even ACoS point for any given product, you just need three data points: 

• Revenue — income earned from selling your products 

• Cost of goods sold (COGS) 
• Gross profit — revenue minus COGS   

By dividing gross profit by revenue, you get your profit margin. If your ACoS exceeds your pre-advertising profit margin, you’ve passed your break-even point.

In order to CLV adjust this figure, you will need to undertake far more complex CLV calculations. Ultimately, this will require help from analytics tools. Either way, for a more in-depth explanation of these two calculations and their relationships to your advertising strategy, check out our article how to calculate break-even ACoS. 

What you should use this metric to do:

On a fundamental level, you have to keep your ACoS less than your pre-advertising profit margin. The greater the gap, the higher your profit margin. 

Your target ACoS represents how much below your break-even ACoS you want to spend to generate sales. You can set different target ACoS for different types of products to maximize selling potential. 

While having a low ACoS is excellent for profitability, a high ACoS can increase visibility, dominate a product category, and generate more profit in the long run — exploiting CLV.

4. TACoS

Another way to look at ACoS is TACoS, or “total ACoS”. This is a metric derived by dividing your ad spend by your total sales revenue, and is used to quantify the impact of ads on organic sales. Amazon does not report this metric directly. But it’s easy enough to calculate, and provides a valuable context for understanding the wider business ramifications of your PPC campaigns.  

How to calculate: 

To get TACoS, you need your total spending and total sales figures. Both of these can be pulled on a campaign, portfolio and product-specific level. By matching these metrics accordingly and following the formula below, you can generate product-specific, campaign-specific or total TACoS figures. 

TACoS = Ad Spend / Total Revenue

What you should use this metric to do:

A low TACoS is a good sign, while a high TACoS indicates that your advertisements may be under-performing. Similarly, a flat or declining TACoS is a good sign, while an increasing one should cause concern. However, like ACoS, there are exceptions to this. For example, when launching a new product or doubling-down on PPC to increase market share, seeing both of these figures rise should be part of your strategy. 

Although TACoS is valuable on its own, where it adds real value is when viewed in conjunction with straight ACoS figures. If TACoS is decreasing faster than ACoS, or accompanied by a flat or increasing ACoS figure, you know that organic sales are playing an increasing role in your total sales. 

Conversely, a decreasing ACoS and increasing TACoS shows a greater dependence on PPC sales. This is almost certainly a negative scenario to watch out for, providing very valuable context to what might otherwise seem like a positive shift in ACoS.  

General benchmarks: 

A healthy TACoS figure is hard to pinpoint, and will massively depend on your market and the maturity of your products. You should expect to see massive differences between new and established elements of your portfolio, and your overall PPC strategy will greatly impact TACoS.

Fundamentally, benchmarking TACoS is more about watching for movement (and comparisons to ACoS) than aiming for specific figures. You want a decreasing (or flat) TACoS, and a correlated relationship with ACoS. An increasing TACoS is only positive if it’s planned and part of a PPC expansion strategy. In this context, you should also expect to see ACoS rise in tandem. Generally, you never want to see TACoS rise while ACoS is falling.  

5. Click-Thru Rate (CTR)

Click-thru rates are one of the most revealing metrics that you can monitor on Amazon. Increasing your click-through rate can help you increase both sales and profits.

Everything a shopper sees impacts CTR. This is why CTR helps reveal the relevancy of your products. It can also help you work out the best position for your ad.

To improve your Click-Thru Rate, you’ll want to consider optimizing:

• Content
• Price 
• Reviews
• Fulfillment
• Ad Placement 

But remember, while Google ads rank their ads based on the click-through-rate of the ad, Amazon ranks ads based on their total profit (among other things). So, you can’t just assume that a high CTR will increase search rankings on Amazon.

How to calculate: 

CTR is the total number of clicks divided by the total number of impressions. For example, if you get 500 clicks on your ad per 5000 impressions, you’ll have a 10% CTR.

What you should use this metric to do:

Each of your campaigns and keywords has its own CTR, and each one is an indicator of the success of your ad relevance and ad placement. Low CTR means either your product offering isn’t compelling to the consumer or it’s not relevant to what they seek. 

In the case of the latter, your search term report can help you. Scan your search term report for terms with less than 0.3% CTR, They are likely to be irrelevant.

To filter out irrelevant clicks, you can identify negative keywords from campaigns by combing through your search term reports.

The key factor affecting CTR is usually ad position. It‘s a given that most people click on ads on the top of the page. Over 60% of all clicks on Amazon are attributed to the top of the search results page. If your ad is at the bottom, this could be a significant reason your CTR is poor.

General benchmarks: 

The average CTR on Amazon is approximately 0.4%. That includes all ad placements, the majority of which tend to be on Product Pages. 

Anything around 0.5% and above can be considered as a decent CTR. CTR below 0.3%, as we have shown, requires attention. However, a well-targeted campaign on Amazon can achieve 3% CTR or above.

Data delivers more effective advertising  

Used well, PPC reports ensure your marketing team is getting a real insight into your ad performance. Analytics tools automate these reports and take them to a higher level. Rather than sifting through reports supplied by Amazon, analytics software will save time, and do the heavy lifting for you. It can also present data like customer-lifetime value, buyer personas and buying trajectories not found in standard reports. If harnessed correctly, this customer data can be used to gain a competitive advantage. If you want more information on how this can be done, check out our eBook - Differentiating Amazon Merchant Strategies

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