If you are a Seller on Amazon, it’s important to monitor the health of your business and keep looking at the big picture. To sell successfully, you need to understand the data. More importantly, you need to act on it. But what are the most important metrics to achieve this goal?
Amazon provides Sellers with data and insights on everything from product pricing, marketing effectiveness, customer satisfaction, and more. That’s an awful lot of measures to monitor and manage.
To make this a little simpler, we are going to focus on the key metrics that affect sales and marketing decisions. So, we won’t be touching on metrics such as Buy Box occupation, the importance of reviews, or inventory and fulfillment here — although we do cover the wider picture in our ebook: How to make sense of your Amazon customer data. What we are going to explain here is how to think about the main metrics you can access and how they can be used to succeed in the competitive Amazon landscape.
The 7 fundamental metrics
There are many ways to improve your sales and profits on Amazon, but the most important areas of attention are keywords and bids; your pricing; and how much you want to make.
Most of the major advertising indicators are based on seven key fundamental metrics — keep an eye on those and you are well on the way to maintaining your account health.
To summarize, the success of your marketing depends on:
- Total sales/Organic sales
- Average order value (AOV)
- Average selling price (ASP)
- Click thru rate (CTR)
- Conversion rate (CVR)
- Cost per click (CPC)
Based on this data, you can then calculate and monitor six higher-level indicators such as:
- Advertising cost of sale (ACoS)
- Attribution %
- Return on marketing investment (ROMI)
- Customer acquisition cost (CAC)
- Cost per acquisition (CPA)
- Customer lifetime value (CLV)
We will go into these in more detail to explain the importance of each and how they interrelate. But something to keep in mind from the start is how interrelated these factors are. For example:
Sales related measures
A measure of total revenue from Amazon across all sources (advertising, organic, etc.)
Sales originating from sources besides Amazon Advertising.
Looking at how many units are ordered on a daily, weekly and monthly basis, you can monitor how effective your Amazon presence is.
Average Order Value (AOV)
This reflects how much customers spend for every order they make, sales per each order, not per customer.
This is a good indication of the head-room you have for your ad spend. For example, if you sell a very low price-point product (let's say $5), you don’t have very much room before your cost-of-sale becomes high, even with a high conversion rate, and even discounting inherent product margin.
AOV is a better metric than total orders, since many Amazon customers will purchase multiple units in a single order. A good way to increase your AOV is to look to include complementary products in your portfolio or by selling in bundles.
Average Selling Price (ASP)
ASP (average selling price) is the average amount of money you make in sales per item. ASP is calculated by dividing the dollar amount of sales by the number of items sold.
Some examples to increase average selling price include:
- Setting a minimum selling price limit for your product portfolio
- Selling bundles or multi-packs
- Sourcing higher-priced items
Click related measures
Click thru rate (CTR)
Anything around 0.5% and above can be considered a good CTR. CTRs below 0.3% require attention. However, a well-targeted campaign on Amazon can achieve 2-3% CTR or above.
With a listing that is optimized for both clicks and sales, your product is in the best possible position. Raising your CTR will help increase both your sales and profits.
Conversion rate (CVR)
This metric shows you how many sales your business is getting. You need a high conversion rate to demonstrate that customers are coming to your page and buying your products.
Cost per click (CPC)
Cost per Click and ad spend have a proportional association. If CPC increases, ad spend increases (and vice versa). You can affect CPC by changing your bid value or bidding strategy, but it’s often not totally in your control.
Gateway to higher measures
Of all the advertising metrics on Amazon, Advertising Cost of Sales (ACoS) is the most important metric. A ratio of advertising spend to total sales, it’s calculated by dividing revenue from Pay per Click (PPC) with PPC spend. ACoS is, therefore, a key measure to align conversion rates to the money invested into campaigns.
To maximize profit, you need to work on your target ACoS. While having a low ACoS is great for profitability, a high ACoS can increase visibility, dominate a niche, and lead to more profit in the long run. Different products should have a specific target ACoS to maximize their selling potential. Both average order value and CLV (customer lifetime value) — which we will get to — are critical metrics to use in order to put your ACoS strategy in context, and understand the viability of your approach.
The ratio of revenue attributed to successful Amazon Advertising. Understanding sales attribution on Amazon will show which specific ads are driving sales. You can then optimize your ad strategies for the future.
Return on Marketing Investment (ROMI)
Return on marketing investment (ROMI) is a metric that is used to measure the effectiveness of a marketing campaign, or a combination of marketing campaigns. Long term ROMI models often draw on CLV models to demonstrate the long-term value of customer acquisition or reduced churn rate. Some more sophisticated Marketing Mix Modeling approaches include multi-year long term ROMI by including customer lifetime value analysis. However, this is not a perspective you will get by default out of Amazon.
Cost per acquisition (CPA)
CPA can be calculated at various levels, all of the way from Campaigns to the Keywords. It’s always good practice to look at all these levels to understand whether your Campaign/Ad Group or Keyword is profitable to you or not.
The formula for CPA is Total Cost of (Campaign/Ad Group/Keyword) divided by the Total Number of converted clicks. CPA = Total Cost/Total Number of conversions.
Given AOV (average order value) and CLV (Customer Lifetime Value), you can also determine an acceptable CPA for acquisition.
Conversion rates are a primary indicator of marketing success, but CPA provides the business perspective by which to gauge campaign success.
Customer Acquisition Cost (CAC)
Every brand’s growth depends on its ability to attract new customers and drive sales from existing customers. Customer acquisition cost (CAC) is the cost of convincing a potential customer to become an actual customer.
If this sounds a little like cost per acquisition (CPA) — the two are related, but are not the same.
CPA can be considered as a campaign-level metric, whereas CAC as a more overarching, business-level metric. CAC encompasses the cost of acquiring business across all your marketing efforts — organic and paid — and can also include the result of ads directing traffic to your pages from social or other platforms.
You should always be aiming to reduce the cost of customer acquisition — not just to recoup revenue, but because it's a sign of the health of your sales, marketing, and customer service programs.
Customer Lifetime Value (CLV)
CLV represents the estimated amount of total purchases a customer will make from your brand. In many ways, CLV is the holy grail of Seller metrics. It provides the best benchmark by which you can analyze CAC and CPA, and then feedback through to optimize your ACoS strategy. The challenge is getting a robust and accurate CLV metric.
Amazon will not provide you with a CLV score. But, through Amazon MWS, Amazon does provide all of the pieces required to estimate CLV for different customer profiles — if you have the analytics capabilities required to put it all together. This is where third-party analytics software really comes into its own. By cross-referencing granular purchase histories, AI-driven analytics tools can pull data from across the Amazon ecosystem (attributing profit to a customer over their entire lifetime), and generate robust CLV estimations based on customer profiles and the product ranges being purchased.
The outcome of modern CLV analysis is a set of “buying trajectories” based on the first product purchased. This will not only tell you that customer’s likely next purchase, it tells you the likely total value of acquiring a new customer based on the product they buy first. This kind of long-term analysis not only helps you target ads, it lets you deploy aggressive ACoS strategies with far longer-term goals than a single purchase in mind.
KPIs are subjective and depend on the data captured and how it is interpreted. It’s crucial that you determine what those KPIs are and have a foolproof way of gathering and monitoring the metrics that generate them. Amazon is constantly changing, and so are your competitors. To stay ahead, it’s important to review some combination of the metrics listed above regularly, and experiment with them to uncover opportunities and test assumptions. Analytics tools can help you uncover hidden metrics (such as CLV), they can also help you get realtime and centralized updates on all your metrics at a glance.
Whether you choose to monitor your KPIs on your own or invest in an analysis software tool to bear the load for you, one thing remains true — the power is in the numbers.