Everything You Need To Know About ROAS & How To Improve Yours

Table of Contents

What Is ROAS?

ROAS is an acronym used in marketing, most commonly in ecommerce including selling on Amazon.

how to calculate roas

What does ROAS stand for?

ROAS is a shortened version of: Return On Advertising Spend.  

What Does It Measure?

It is a financial metric which measures the effectiveness of a marketing campaign, relating the cost of a promotional activity, for example advertising, to the revenue that advertising has generated.

So the higher the ROAS the better, as a rule. 

And a ROAS of below 1 means that the advertising cost more than the revenue that it generated. 

How Do You Calculate Amazon ROAS?

To calculate Amazon ROAS, you need to divide the revenue generated from Amazon advertising by the cost of those advertisements. Here’s the formula:

ROAS = (Revenue from Amazon advertising / Cost of Amazon advertising)

How is ROAS Calculated?

Here’s an example to help illustrate the calculation:

Let’s say you spent $500 on Amazon advertising, and as a result, you generated $1,500 in revenue.

To calculate your ROAS, you would divide the revenue generated by the cost of advertising:

ROAS = ($1,500 / $500)  = 3

So in this example, your ROAS would be 3. This means that for every dollar spent on Amazon advertising, you generated $3 in revenue. Sounds good.

Some methods quote the ROAS as a percentage, so in this case the ROAS would be 300%.  But Amazon does not add this additional step.

It’s important to note that this is just an example and your actual results may vary.

The ROAS calculation can provide valuable insight into the effectiveness of your Amazon advertising campaigns and help you optimize your spending and targeting to achieve better results.

How Can You Calculate Break Even Amazon ROAS?

You may well be thinking that’s a simple question to answer.  

Surely a ROAS of 1 means that the advertising has earned exactly the same as it has cost? 

That is 100% true and if that’s your definition of break-even then 1 is your answer.

But the revenue figure that Amazon uses in the ROAS calculations that it shows you for your advertising is the price that is displayed on the Amazon product page…

It’s the price that the customer pays.

To calculate the REVENUE that you receive you then need to subtract:

  • Sales taxes
  • Amazon commission
  • Amazon fulfilment fees

There may be other, or different costs, that you need to take into account depending on how you sell and fulfil your products on Amazon.

Amazon Breakeven ROAS Calculator

In this example you spent $1,000 on Amazon advertising, and as a result, that generated $1,000 in revenue:

ROAS = ($1,000 / $1,000)  = 1 (which looks like it’s breakeven).

Let’s say 40% of that figure is taken by sales taxes, Amazon commission & fulfilment fees etc.  That means that the revenue that you receive will be:

Your Revenue = $1,000 – 40% = $600

This means that the ROAS that YOU actually earn from your ad campaign will be:

Your ROAS = ($600 / $1,000)  = 0.6 

Your revenue is less than the ad cost. Not so good.

Calculate The Revenue You’d Need For Break Even ROAS

Based on those figures: 

Your $1,000 advertising would need to generate $1,666.66 (Amazon revenue) to achieve break even. 

After the 40% taken by sales taxes, Amazon commission & fulfilment fees etc:

Your Revenue = $1,666.66 – 40% = $1,000

So Your ROAS = ($1,000 / $1,000)  = 1

What Is A Good ROAS on Amazon?

Surely anything above 1 means that your ad campaign is making money?  

So any ROAS value that’s higher than 1 means that the advertising is generating more than it costs?

Not necessarily.

Remember that these figures above are based on REVENUE not PROFIT. 

A ROAS > 1 Is Not Always Good

So even with a “Your ROAS” figure of 1 (apparent break even) you will actually be losing money on your advertising after you take into account the costs of the product that you are selling.

For example:

If we continue the example above where $1,000 advertising generated $1,666.66 of revenue for Amazon and you received $1,000 of that:

If your product costs are 60% of your revenue, you are actually making:

Profit = $1,000 – 60% = $400

Spending $1,000 on advertising to generate $400 in profit does not appear to be a good long term strategy.

So you need to treat ROAS with caution.

A ROAS < 1 Is Not Always Bad

Is a ROAS <1 always bad? Not necessarily.

You can only decide how bad, or good, a ROAS figure is by comparing it against your objectives for the campaign.

There are many situations when you are prepared to lose money on your advertising in the short term in order to generate additional sales:

  • New product launch
  • Increasing the number of reviews
  • Boosting sales for a product which has been out of stock
  • Positioning a product before a key selling period
  • To dispose of excess stock quickly

How Can You Increase ROAS?

All things being equal, improving ROAS is generally something that you want to try to do.  But not at any costs, as you will see.

Given that ROAS is the ratio between the revenue earned from advertising, and the cost of that advertising, the 2 most obvious ways to increase ROAS are:

  • Increase the revenue generated by the advertising
  • Reduce the cost of the advertising

How To Increase The Revenue from the Advertising

  • Increase the sales price
  • Convert more clicks to sales by improve the conversion rate of the listing:
    • Title
    • Image
    • Bullets
    • Rating
    • Number of Reviews

How To Reduce the Cost of the Advertising

  • Add the following as negative keywords:
    • Keywords which generate clicks but zero sales
    • Keywords which generate sales too expensively
  • Reduce bids

Should You Always Try To Increase ROAS?

Not necessarily.

While higher ROAS is generally preferable to lower ROAS it is important that you evaluate your campaigns against their objectives.

Overly focusing on ROAS could mean that profitable ads or keywords are stopped in order to increase the ROAS value.  It is rarely a good idea to sacrifice profits for ROAS, unless that is your objective for some reason.

Best practice is to treat ROAS as a guide in making your Amazon business decisions.


Some people prefer using ROAS, others prefer ACOS. Which is better?

What Is ACOS?

how to calculate acos

ACOS is another acronym used in Amazon advertising.

It’s a shortened version of Advertising Cost Of Sale.

Again it compares the return earned by an advertising campaign with the cost of that campaign.

What’s the difference between ACOS and ROAS?

roas vs acos

As you can see, if you divide 1 by ROAS you get the ACOS… and vice versa. They are 2 sides of the same coin.

ACOS vs ROAS – Which Is Better?

It’s very much down to personal preference. As you can see, both ACOS and ROAS give you the same information but in a different way:

  • With ROAS, higher is generally better
  • With ACOS, lower is generally better

And since they use the data they share the same weaknesses when you see them shown on your Amazon screens or reports:

  • They are both calculated using the the revenue figure that Amazon receives, not what you receive
  • They are both revenue based not profit based