What is a good conversion rate on Amazon? What percentage of sales should I be spending on advertising? And what kind of click-through rate can I expect on my ads on Amazon?
Many of the nearly 2 million brands selling on Amazon.com Inc.’s online marketplaces around the world no doubt ask themselves these questions about performance. And now there’s a report that provides them benchmarks on 18 key performance metrics.
The report comes from Fortunet Partners Ltd., an investment bank that specializes in deals involving Amazon sellers and other ecommerce companies. Fortunet says its report, “Benchmark Guide for Amazon Private Label,” reflects data it’s obtained through its engagement with more than 150 Amazon-focused merchants in the United States, United Kingdom and Europe.
Fortunet assists Amazon sellers, direct-to-consumer brands and ecommerce technology providers with selling their businesses, and this guide focuses on how each of the 18 metrics impacts how potential buyers view an Amazon brand.
For example, the report says that the average star rating of a seller’s products is “a pivotal metric” for investors.
“A superior rating signals customer satisfaction, top-tier product quality, and a favorable brand image,” the report says. “Consequently, businesses boasting high review ratings are often more enticing to prospective buyers.”
What’s a high average rating for Amazon product reviews, which range from one to five stars? Fortunet says an average greater than 4.6 is high, 4.4-4.6 moderately high, 4.1-4.3 fair, 3.8-4.0 moderately low and under 3.8 low.
Amazon aggregators have less cash to spend
What matters to potential buyers of Amazon businesses has been very much on the minds of Amazon marketplace sellers in the past few years as so-called Amazon aggregators — firms that raise venture capital to buy Amazon brands — raised some $7 billion, according to Crunchbase, and acquired scores of Amazon-focused brands.
That frenzy has tailed off dramatically, as funding for those firms dried up rapidly last year. In part, that’s because some aggregators struggled to make good on their promise that they could leverage economies of scale to operate many Amazon businesses more effectively than an entrepreneur could operate a single, small brand. Rising interest rates also contributed to the decline, as many of the roll-up firms now face higher costs to pay off the money they borrowed to make acquisitions.
Nonetheless, Amazon marketplace sellers can benefit from understanding how investors analyze their advertising, operations and how their performance compares to that of competitors.
The Fortunet report divides the metrics into four categories: Amazon advertising, market and business performance, sales and financial, and operational complexity. For each of the 18 data points, it provides high to low scores and, in most cases, advice on how a seller can improve its performance.
Here is a brief summary of Fortunet’s assessment of the most important Amazon marketplace advertising metrics.
Read summaries of Fortunet’s assessments of operational complexity, sales and financial metrics, and market and business performance.
Amazon marketplace advertising metrics
Advertising Cost of Sales
ACoS, advertising spend divided by ad-related sales, measures advertising efficiency. Potential buyers generally prefer sellers with low to moderate ACoS, though some might seem those with higher scores as presenting an opportunity to improve results.
- Benchmark: High >60%, Fair 33-45%, Low <25%
- Fortunet suggestions: Experiment with various types of Amazon ads and adjust bids and ad spend in accordance with seasonality of your products.
Total Advertising Cost of Sales
TaCoS, ad spend divided by total sales, is a way buyers assess the extent to which ad-driven sales lead later on to organic sales, for example, when shoppers click on listings in Amazon search results. Buyers also view TaCoS as an important gauge of advertising efficiency, with a low score indicating “well-executed advertising campaigns that contribute to favorable profit margins.”
- Benchmark: High >35%, Fair 20-25%, Low <15%
- Fortunet suggestions: If TaCoS is too high, try to increase organic sales through improved SEO and higher brand awareness.
Ad sales %
Ad sales as a percentage of total sales. A high percentage could lead to lower margins. But a low figure could suggest the potential to increase sales with more advertising.
- Benchmark: High >60%, Fair 35-45%, Low <25%
- Fortunet suggestions: Aim for a stable, moderate percentage, especially for established products. If percentage is too high, consider lowering bids and budgets for low-performing ad types.
Click-through rate
Percentage of consumers who click on an ad after seeing it. Buyers prefer businesses with a high CTR as it suggests effective ad campaigns are engaging shoppers.
- Benchmark: High >0.6%, Fair 0.25-0.4%, Low <0.15%
- Fortunet suggestions: Use high-quality product images to capture shoppers’ attention. Use Amazon’s “Manager Your Experiments” feature to A/B test images and titles to find the best combinations.
Cost per click
Ad spend divided by number of clicks. Buyers generally prefer a lower CPC as it indicates efficient ad spend and possibly higher profit margins. But a high-priced keyword that drives sales at an acceptable cost would not be a drawback.
- Benchmark: High >$2, Fair $0.9-1.4, Low <$0.6
- Fortunet suggestions: Research relevant, long-tail keywords as these typically have a lower CPC. Use negative keywords to prevent clicks from unrelated search terms.
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