You are spending money on ads. You are also making sales from those ads. But here is the big question. Are you actually making a profit?
This single question can be hard to answer. To find the truth, you need to look at two important numbers: ACoS and RoAS. These words might sound confusing, but they hold the keys to your success.
This article will make these terms simple. We will look at what they mean and how they relate to your profit. By the end, you will know exactly when to use ACoS and when to use RoAS to grow your business the smart way. Understanding both is the first step to mastering your PPC performance.
What is ACoS (Advertising Cost of Sale)?
ACoS stands for Advertising Cost of Sale. It is a very common metric on Amazon. It tells you how much you spend on ads for every dollar you make from those ads.
ACoS is always a percentage. It makes it easy to see how much of your revenue is going back into advertising costs. The formula is simple.
- Formula: ACoS = (Ad Spend ÷ Ad Revenue) x 100
So, what does this number mean? A lower ACoS is almost always better. It means your ads are very efficient. You are spending less to make more.
For example, let’s say you spend $20 on ads. Those ads bring in $100 in sales. Your ACoS would be 20%. This means you spent 20 cents for every dollar you earned.
What is RoAS (Return on Ad Spend)?
RoAS means Return on Ad Spend. This metric is used everywhere in digital marketing. You will see it on Google Ads, Facebook, and many other platforms.
RoAS tells you how much money you get back for every dollar you put into ads. It is a ratio, not a percentage. It directly measures the return from your ad spend.
- Formula: RoAS = Ad Revenue ÷ Ad Spend
For RoAS, a higher number is what you want. A high RoAS means your ads are working very well. They are bringing in a lot of money compared to what they cost.
Let’s use the same example. You spend $20 on ads and make $100 in sales. Your RoAS is 5. This means you earned $5 for every $1 you spent on your advertising.
Now you can see that ACoS and RoAS are connected. They are just different ways of looking at the same information. This brings us to our next point.
ACoS vs RoAS: The Direct Comparison
ACoS and RoAS are like two sides of the same coin. They measure the same things, ad spend and ad revenue. They just show you the result in a different way.
Imagine you buy a pizza. ACoS is like looking at the single slice you paid for. It focuses on the cost of that one slice.
RoAS is like looking at the whole pizza you got for your money. It focuses on the total return you received. Both views are useful. They just highlight different things.
One tells you about cost efficiency. The other tells you about your overall return. Let’s break it down even further in a simple chart.
| Feature | ACoS (Advertising Cost of Sale) | RoAS (Return on Ad Spend) |
|---|---|---|
|
Format |
Percentage (%) |
Ratio or Currency ($) |
|
Focus |
Cost-centric (Efficiency) |
Revenue-centric (Effectiveness) |
|
Goal |
Lower is Better |
Higher is Better |
|
Platform |
Amazon-native |
Industry Standard (Google, Facebook) |
|
Question Answered |
“What percentage of my sales is going to ad costs?” |
“How much revenue am I getting for each dollar spent on ads?” |
This chart makes the key differences very clear. You can see how ACoS is focused inward on your costs. Meanwhile, RoAS is focused outward on your returns.
Now you understand what they are and how they differ. But a big question remains. What is a “good” ACoS or a “good” RoAS? The answer is not as simple as you think. It depends on something even more important.
Beyond the Metrics: Profit Margin and the Break-Even Point
ACoS and RoAS are just numbers. They do not mean anything by themselves. To make them useful, you must connect them to your business’s health.
The Most Important Related Entity: Your Profit Margin
The most important number you need to know is your profit margin. Your profit margin is the money you have left over from a sale after all costs are paid. This does not include your ad spend yet.
If you sell a product for $100, and it costs you $60 to make and ship, your profit is $40. Your profit margin is 40%. This number is the key to everything. It tells you how much room you have to spend on ads and still make money.
Calculating Your Break-Even ACoS
Your break-even ACoS is the highest ACoS you can have before you start losing money on a sale. The calculation is incredibly easy. Your break-even ACoS is your profit margin.
That’s it. If your profit margin is 40%, your break-even ACoS is 40%. If your ACoS is 30%, you are making a 10% profit on that sale. If your ACoS is 50%, you are losing 10%.
Knowing your break-even ACoS turns a simple metric into a powerful tool. It helps you set a clear target ACoS for your PPC campaigns.
Calculating Your Break-Even RoAS
You can also find your break-even RoAS. This is the lowest RoAS you can have before you lose money. The formula is a little different but still simple.
- Formula: Break-Even RoAS = 1 ÷ Profit Margin
Let’s use our 40% profit margin example. First, turn the percentage into a decimal, so 40% becomes 0.40. Then, divide 1 by that number.
So, 1 ÷ 0.40 = 2.5. Your break-even RoAS is 2.5. If your RoAS is higher than 2.5, you are profitable. If it is lower, you are losing money.
Now you have the power to understand your ad performance deeply. The next step is to use this knowledge to make smart decisions for your business.
Strategic Application: When to Prioritize ACoS vs. RoAS
So, we come back to our main question. ACoS Vs RoAS: Which should you look out for in practice? The answer is it depends on your goal.
You need to decide if you want to protect your profits or grow your sales. Each metric helps you focus on one of these goals.
When to Focus on ACoS (The Profitability Guardian)
ACoS is your best friend when you need to watch every penny. It helps you protect your profit margins and control your spending.
You should focus on ACoS when your main goal is advertising efficiency. This is perfect for businesses with thin profit margins. If you only make a little profit on each sale, you need to keep your ad costs very low. ACoS helps you do that.
It is also useful when you are running campaigns for specific products. You can set a target ACoS for each product based on its unique profit margin. This makes sure every ad you run is making you money.
When to Focus on RoAS (The Growth Engine)
RoAS is the metric you watch when your goal is to grow as fast as possible. It helps you see the big picture of your revenue growth.
You should focus on RoAS during a product launch. At this stage, you might be willing to spend more on ads to get your product in front of lots of people. A high RoAS shows you that your message is working and sales are pouring in.
RoAS is also essential for brand awareness campaigns. Here, the goal is not immediate profit. It is about capturing market share. RoAS measures the effectiveness of these campaigns.
Finally, RoAS is the best tool for comparing different marketing channels. You can compare the RoAS from your Google Ads to your Amazon Ads. This helps you decide where to put your marketing budget for the best overall marketing ROI.
The debate of RoAS Vs ACoS: Which should you look out for? is not about picking a winner. It is about knowing which tool to use for the job at hand. But there is one more metric that can give you an even clearer view.
Expanding Your View: Introducing TACoS (Total Advertising Cost of Sales)
Once you have mastered ACoS and RoAS, you can move on to a more advanced metric. This is called TACoS. It stands for Total Advertising Cost of Sales.
The Holistic View: Why TACoS is a Crucial Related Entity
TACoS gives you a complete view of your business health. It compares your ad spend to your total sales. This includes sales from ads and organic sales.
- Formula: TACoS = (Total Ad Spend ÷ Total Revenue) x 100
So why is this so important? TACoS helps you see if your advertising is helping your brand grow overall. Good advertising does not just lead to ad sales. It also boosts your organic ranking and brand recognition. This leads to more organic sales over time.
For example, imagine your ACoS stays the same at 25%. This is good. But at the same time, you notice your TACoS is going down, from 15% to 10%. This is great news.
It means that for the same advertising costs, your total sales are increasing. Your ads are creating a “halo effect.” They are making your brand stronger and driving more free, organic sales. This is a key part of a smart e-commerce advertising strategy.
Frequently Asked Questions(FAQs)
We’ve unpacked the big ideas, but we know some questions might still be bubbling up. Let’s clear up the details with quick answers to the most common questions we hear.
Usually, yes. A lower ACoS means you are spending less on ads to get a sale, which is more efficient. But sometimes a higher ACoS is okay, like when you are launching a new product. The main goal is to keep your ACoS below your break-even point to make sure you are profitable.
A good RoAS depends entirely on your profit margin. A common benchmark many businesses aim for is a RoAS of 4 or higher, which means you get $4 back for every $1 spent. However, if you have very high profit margins, you could be profitable with a lower RoAS. Always calculate your break-even RoAS to know your specific target.
You shouldn’t. While RoAS is great for seeing the big picture of your returns, ACoS is better for managing the day-to-day profitability of your campaigns. Successful brands use ACoS to control costs and RoAS to measure overall growth. They work best when used together.
They are simple opposites. ACoS is your Ad Spend divided by your Ad Revenue, shown as a percentage (Ad Spend / Ad Revenue x 100). RoAS is your Ad Revenue divided by your Ad Spend, shown as a number (Ad Revenue / Ad Spend).
Amazon added RoAS to align with the rest of the digital advertising world. Platforms like Google and Facebook have always used RoAS, so adding it makes it much easier for brands to compare the performance of their advertising across all their different marketing channels.
Not always. A high RoAS looks great, but it does not account for your other business costs, like the cost of your products. If you have a very low profit margin, you could have a high RoAS and still not be making much money. This is why knowing your break-even point is so important.
Ready to Build a Profitable Brand?
Stop the ACoS vs. RoAS debate. The most successful brands know the secret: it’s not about choosing one. It’s about mastering both.
Use ACoS to guard your daily profits and ensure tactical efficiency. Use RoAS to fuel your high-level growth strategy and scale with confidence. This is how you move from simply selling products to building a powerful, resilient brand.
If you’re ready to implement a strategy that drives real profit, our team is here to build your roadmap.
