Are you seeing a ROAS that’s too good to be true? Then you should be skeptical
When managing Amazon PPC campaigns, it’s important to understand the ROAS upper limit that you can realistically achieve. This “Maximum Achievable ROAS” is the highest ROAS possible for a product, based on the relationship between your bid cost and product price.
For example, if we’re selling a product at $10 with an average bid of $2, the theoretical maximum achievable ROAS is 5, assuming a perfect 100% conversion rate. This figure represents the ceiling of ROAS, a benchmark that helps us assess whether our campaign performance is reasonable or if it’s inflated by misleading data.
Now, imagine we’re seeing reports of a ROAS much higher than this Maximum Achievable ROAS, with a CVR > 100%. While it might seem like a dream performance, this can be a sign that the numbers are misleading. A ROAS significantly above this ceiling, without corresponding sales data to back it up, indicates that the attribution model is likely relying on impressions rather than actual clicks. This type of “Fake ROAS” often comes from campaigns like Sponsored Display or Sponsored Brands, where sales are attributed to views rather than clicks, inflating your numbers in a way that doesn’t align with true profitability.
What is this Fake ROAS, and why should we care?
This “Fake ROAS” refers to the inflated numbers often seen in VCPM campaigns (View-Through Cost Per Thousand Impressions), where sales are attributed to impressions, not actual clicks. These campaigns are designed to generate visibility, and while they play an important role in brand awareness, their performance doesn’t directly correlate to the profitability of our products. When these sales are attributed to impressions rather than clicks, it can lead to an inflated ROAS that doesn’t reflect real, scalable performance. This is why it’s crucial to differentiate between True ROAS (from CPC campaigns) and Fake ROAS (from VCPM campaigns).
Why a high ROAS can be misleading?
A ROAS much higher than the Maximum Achievable ROAS should raise some serious red flags. While these numbers may seem like a breakthrough in your advertising performance, they are often not scalable or sustainable. In many cases, they represent Ad Spend that doesn’t reflect the true profitability of our campaigns. Sales attributed to impressions in VCPM campaigns can give you an inflated ROAS that doesn’t represent actual conversions from clicks. These figures don’t accurately reflect our ad spend efficiency or profitability.
The Scalable ROAS we should aim for
When evaluating campaign success, focus on achieving a scalable ROAS, one that strikes a balance between our conversion rate (CVR) and bid price. In our example, with a $10 retail-priced product and a $2 bid, achieving a scalable ROAS means that as we see a good CVR, we can invest more aggressively in our PPC campaigns to generate additional sales without dramatically affect our ROAS or ACOS. The goal is not necessarily to hit the highest ROAS possible, but to maintain a sustainable level of performance that helps drive sales volume, rank our listings, and optimize our TACOS.
There’s often too much focus on achieving a “perfect” ROAS, but what matters most is the long-term profitability of our operation. PPC is just a tool to help improve our organic sales, not the end goal itself.
Exceptional Cases: Low Bids and Single Click with multiple units sales
Of course, there are exceptional cases where a low bid campaign might generate a super high ROAS, or when one click results in the sale of multiple units. However, these situations are rare and not easily scalable. Similarly, indirect attribution can temporarily inflate our ROAS but doesn’t reflect the actual click-to-sale conversion. These outliers can lead to false optimism and should not be relied upon for making long-term strategic decisions.
Conclusion: Beware of Fake ROAS and focus on Scalable Performance
In conclusion, if we’re seeing a ROAS that far exceeds the Maximum Achievable ROAS, it’s time to be cautious. Fake ROAS can give us a distorted view of our advertising effectiveness and lead to misinformed decisions. We should focus instead on a scalable ROAS that comes from real conversions, driven by actual clicks, and backed by solid performance data. This will give us a clearer, more accurate picture of our campaign’s profitability and help us build a sustainable, data-driven advertising strategy.
Reflection
If you’re seeing a ROAS that seems too perfect, don’t just accept inflated numbers at face value, question where they’re coming from. Focus on the metrics that truly reflect performance, and ensure your PPC strategy is built on sustainable, scalable success.
