Meet John, an Amazon seller who used to run ads blindly, hoping for the best. He spent heavily without understanding where his money was going. One day, a friend introduced him to Amazon ACoS (Advertising Cost of Sales). It was a game-changer. By tracking his advertising expenses through ACoS, John could finally see how his campaigns performed.
He shifted from wasting money to making smart, targeted decisions. Profits started to soar, and he was able to refine his strategy based on real data. But what exactly is Amazon ACoS, and how can understanding it transform your Amazon business?
Let’s find out in this guide.
What Does Amazon ACOS Mean?
ACOS is an acronym for Amazon Cost Of Sale (ACOS) measures the amount of advertising spend required to generate one unit of sales from an ad.
If you are considering using Amazon Advertising like Amazon Sponsored Ads to increase your reach and sales, you need to understand the Cost Of Sale (ACOS) metric used within the Amazon Advertising platform. Understanding ACOS is important as it impacts how successful your Amazon Ads are.
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Relationship Between ACoS and Profitability
The relationship between advertising cost of sales and profitability is like walking a fine line. A high ACoS can eat into your profits, while a low ACoS can mean more efficient ad spending. But how do you strike the right balance?
Well, the sweet spot is the break-even ACoS. It’s the point where your ad spend equals your profit margin. For example, if your profit margin is 40%, you’ll want your ACoS at or below that number to remain profitable.
A high ACoS is usually alarming. Let’s say you run a campaign with a 60% ACoS. This means 60% of your revenue is going toward ads, leaving you with slim margins. You should certainly try to lower it.
Conversely, when ACoS is lower than your profit margin, you’re in the green. Imagine John, our seller from the earlier example, who managed to reduce his ACoS to 20% while selling his product at a 40% margin. This left him with a healthy 20% profit on each sale after advertising expenses.
Factors That Impact ACoS
Understanding the factors that drive Amazon ACoS can be the difference between a successful campaign and one that burns through your budget.
Here are some of the critical factors that can push your ACoS up or down:
1. Bid Amount
Your bid directly influences the ACoS calculation. The higher your bid, the more you pay for each click, which can increase your ACoS if those clicks don’t lead to conversions.
For example, if you’re bidding $2 per click and only converting 1 in 10 clicks, you’ll be paying $20 just to make one sale.
2. Keyword Relevance
Targeting irrelevant or overly booked keywords can quickly inflate your ACoS. If your product is a luxury handbag and you’re bidding on generic keywords like “bag,” you’re likely to attract clicks from shoppers who aren’t looking for your specific product, leading to wasted ad spend.
Instead, focus on more targeted keywords like “leather handbag” or “luxury handbag.”
3. Conversion Rate
A low conversion rate can drive your Amazon ACoS through the roof. If people click your ad but do not purchase, you’re spending money without seeing results. The better your product page converts, the lower your ACoS.
You should run an Amazon listing audit to find the gaps in your product description, images, and customer reviews. Optimizing all of these can boost your conversion rates. Aim for a figure of at least 10% because 9.96% is the average conversion rate on Amazon.
4. Product Ranking
If your product ranks well organically on Amazon’s search results, it can lower your ACoS. The higher your organic rank, the less you need to rely on paid ads to generate sales. When your product naturally appears in search results through effective Amazon SEO, it increases overall sales and helps offset the cost of ads.
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How to Calculate Amazon ACOS
It is calculated by dividing ad spend by ad revenue during a given period and multiplying by 100. For example, if you’ve spent $200 on ads this month and generated $1000 in sales your ACoS score would be 20% for the month. 200 / 1000 x 100 = 20%
How to Find the Break-even ACOS
We touched on break-even ACoS a bit in the earlier section. It’s the point where your advertising expenses equal your profit margin – essentially, where you’re neither making a profit nor a loss on your ads.
Knowing your break-even ACoS gives you a clear target to keep your Amazon PPC campaigns profitable. It helps you monitor when you’re spending too much on ads. Now, how do you calculate it?
Here’s the formula:
[(Sale value – Cost of Goods Sold)/ Sale value] x 100
Suppose you sell a product for $100, and your cost to produce and ship it (including Amazon fees) is $60.
Break-even ACoS = (100-60)/100 = 0.4 x 100 = 40%
In this case, if your ad spend is 40% or lower, your ACoS matches your profit margin.
How to Find Your Target ACOS
While the break-even ACoS helps you understand the point at which you’re not losing money, your target ACoS is the percentage that aligns with your business goals.
To calculate your target ACoS, you’ll need to factor in your desired profit margin percentage from each sale after advertising costs are deducted.
Target ACoS = (Profit margin – Desired profit %)
If we consider the above example and say that you want to maintain a 20% profit margin after accounting for your ad spend, your target ACoS would be:
40% – 20% = 20%
This metric serves as a benchmark for optimizing your ad campaigns.
If your ACoS exceeds this target, it signals that your ad spend is eating into your profits. If it is well below your target, it indicates opportunities to scale your ads without sacrificing profitability.
What is the Difference Between ACOS and ROAS?
Return on ad spend (ROAS) is the inverse of Amazon ACOS: instead of calculating ad revenue by ad spend you calculate ad ad revenue by ad spend. 1000 / 200 = 5
ROAS, or return on ad spend, and ACOS, or advertising cost of sale, are two metrics that measure the performance of your Amazon ad campaigns.
ROAS is a calculation of how much money you’ve earned from an ad campaign in comparison to the amount you’ve spent on it. This will help you determine whether a particular campaign has been successful and profitable or not.
ACOS on the other hand is a percentage that tells you how much increase there has been in your Amazon sales relative to the amount of money you have spent on ads for that product. It can give insight into how effective your ad strategy is for selling a specific product or group of products.
When analyzing these two metrics together, it can give marketers a comprehensive view of their Amazon ad campaigns.
ROAS helps focus in on overall profitability while ACOS can hone in more closely to which products are performing well and how effective those campaigns were at increasing sales.
Understanding the difference between these two metrics and looking at both when analyzing your advertising efforts can provide valuable information needed to inform future decisions regarding your advertising strategy.
You want a lower ACOS but a higher ROAS
What is the Difference Between Amazon ACOS vs. TACOS?
ACOS only includes sales generated from ads TACOS includes total sales, paid and organic. You calculated the same way as ACOS you just include organic sales as well. It gives you an overall picture about a products performance.
What is a Good ACOS on Amazon?
The average ACOS is 30 percent however it depends a lot on the category of items you are selling.
You should try to aim to lower your ACOS to 15% / 20% but of course it also depends a lot on your campaign initiatives for instance a new product you might want to spend more to increase visibility but later on once it already has organic Amazon sales on their own you will lower your ACOS.
Why is Calculating ACOS Important?
By calculating ACOS on a regular basis, you can track whether your ads are generating revenue or losses.
If your ACOS figures are consistent or rising over time, then this could be a sign that something needs fine tuning within your campaigns – such as readjusting bids and keywords or tests different types of creatives.
Simply put, understanding and tracking ACOS will give you insights into how profitable your ads are and provide insight into areas that need improvement.
How to Lower ACOS on Amazon
Here are 4 tips to optimize your ACOS percentage and reduce Amazon ad spending.
1. Monitor Bids– Monitor the bids across all keywords and ensure they remain at the correct levels so money isn’t wasted on impressions or clicks from irrelevant users who aren’t likely to buy something from you.
2. Re-Audit Keywords – Regularly audit keywords for relevancy in order to find new ones that may boost performance and get rid of any nonperforming words which don’t bring in customers or sales.
3. Utilize Negative Keywords – Implement negative keywords which prevent irrelevant searches coming up in campaigns traditionally more expensive windows of potential buyers such as coupon sites or already loyal customers who already bought from .
4. Focus on Product Listing Content Quality – Create high-quality content with descriptive copy around products being offered so customers know exactly what they’re buying.
Help optimize images & videos used within campaigns can help draw attention away from competitors with better visuals than yours help improve conversion rates greatly when clicked through too often times improving overall acos.
In conclusion with these tips as well as keeping an eye on competitive trends, businesses using Amazon Ads will be able to make informed decisions about their ad budgets and reduce their cost per sale significantly.
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Amazon ACOS Strategy for Better ROI
Here’s a step-by-step strategy to help you optimize your Amazon ACoS for better results:
- Set a clear target ACoS: Identify your target ACoS, which is the ideal percentage that aligns with your profit goals.
- Optimize keyword targeting: Are you bidding on the right keywords? Targeting broad keywords can skyrocket your ACoS without boosting sales. Focus on long-tail keywords that match buyer intent. Dan Rodgers, an experienced Amazon seller, explains one effective keyword research method in this video.
- Adjust bids based on performance: Regularly monitor your keyword performance and adjust your bids accordingly. If a keyword drives high sales but also increases your ACoS, consider lowering the bid to balance cost and conversion. Conversely, for high-performing keywords with a low ACoS, you can raise the bid to capture more profitable traffic.
- Improve product listings for higher conversion rates: A well-optimized product listing helps lower ACoS by increasing conversion rates. This includes high-quality images, engaging product descriptions, and positive customer reviews.
- Leverage dayparting to optimize spend: Dayparting allows you to schedule your ads during peak shopping times. If you notice that most of your sales happen in the evening or on weekends, set your ads to run during those times.
- Regularly review your campaigns: A set-it-and-forget-it approach doesn’t work with Amazon advertising. Regularly monitor your Amazon ads, test new keywords, and tweak the bids to lower the ACoS while improving your ROI over time.
Frequently Asked Questions (FAQs)
Before signing off, let’s look at some of the common questions we get regarding Amazon ACoS.
What is a Good ACOS Percentage?
An average ACoS on Amazon is 30%, but a good ACoS typically ranges between 15% and 30%, depending on your product’s margin.
Lower ACoS usually indicates better profitability. It suggests that you’re spending efficiently and generating profit. However, an ideal ACoS varies based on business goals, market, and pricing strategy.
How Do I Track and Monitor ACOS on Amazon?
You can track and monitor your Amazon ACoS directly in Amazon’s Campaign Manager under the advertising dashboard.
Navigate to your campaigns to view real-time metrics such as ACoS, sales, cost-per-click, etc. You can also download detailed reports for deeper analysis.
What Are Common Mistakes that Increase Amazon ACOS?
Common mistakes that raise Amazon’s ACoS include targeting irrelevant keywords, overbidding ads, and failing to optimize product listings. All of these contribute to low conversion rates, which can unnecessarily increase your ACoS.
Conclusion
Reducing Amazon ACoS lowers your advertising expenses, leading to profitable ad campaigns. By understanding its relationship with profitability, identifying key factors that influence ACoS calculation, and setting the right targets, you can amplify the profits of your campaigns.
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