How To Calculate Your Target ROAS And ACOS For PPC

​

Just think. There are 1,000’s of advertisers running ads right now without knowing what their ROAS or ACOS targets are.

They operate on feelings: “it FEELS like things are improving.”

They are then doomed since their optimization can’t be centered around a target. Don’t be doomed. Calculate your minimum ROAS and maximum ACOS with this video.

How To Find Your Target ROAS & ACOS

[embed]

Video Summary

Calculating Minimum ROAS and ACOS Video Notes

ROAS: Return on Ad Spend AKA Revenue over Ad Spend

• Spend 100, Make 20 = 5x ROAS
• (Revenue / Ad Spend)

ACOS: Ad Cost of Sales AKA Ad Cost over Sales

• (Ad Spend / Revenue)
• Spend 100, Make 20 = 20% ACOS

These represent the same thing: the relationship between your spend and your revenue

ROAS = 1/ACOS

ACOS = 1/ROAS

This is very important: the breakeven point

• Minimum ROAS & Maximum ACOS

To Calculate breakeven:

• Need revenue, cost of goods sold, any other fees (like Amazon Fee)

Example:

• If you generate 100 dollars of revenue, with COGS of 20 dollars, and other fees of 15 per sale.
• Profit per sale: $65
• If you spend $66 on Ads, you will lose 1 dollar.
• If you spend $64, you will make 1 dollar
• Your Minimum ROAS is 100/65 = 1.53
• Your Maximum ACOS is 65/100 = 65%

You need to decide what percentage of your profit you spend per sale

Some advertisers are very aggressive, others are much more conservative

• Example: “I want to spend 50% of my profit on ads”
• Example: I want to spend 80% of my profit on ads”

After you establish how much you want to spend per sale, you can calculate your target ROAS and target ACOS

This is very easy with 1 product, but it becomes a lot more challenging when you have dozens of products

Group products in ROAS target-groups.

Example:

• If you have two products with an ROAS of 4x and 5x, you can put them in the same ad group targeting 5x.

This allows you to have a starting off-point to easily organize your campaign.

Be sure to label or title your campaigns with the target KPI inside of it.

• Example: “Water Bottles + Target ROAS 4.5x + USA + Search + Cold Traffic”

Originally published at www.searchscientists.com on May 26, 2017.