Amazon ACoS (Advertising Cost of Sales) helps measure the effectiveness of an Amazon PPC campaign. It compares the total Amazon ad spend to sales, enabling you to figure out if you’re running profitable Amazon-sponsored ad campaigns.
The ACoS concept is straightforward — the more you reduce your ACoS, the more profit you can retain. However, things can get tricky when trying to determine a good ACoS for your campaign.
This guide shows you how to calculate your ACoS, what percentage you should aim for, best practices, why you shouldn’t always aim for a low ACoS, and more.
FREE BONUS: Use our FREE Amazon ACoS Calculator
- Understanding ACoS is crucial to running a profitable Amazon ad campaign.
- A low ACoS isn’t always ideal for Amazon PPC campaigns.
- ACoS compares your ad spend as a percentage of the sales generated to determine the effectiveness of your campaigns.
How to Calculate Amazon ACoS?
To calculate ACoS for a particular product, divide your ad spend by ad revenue, then multiply by 100 as shown in the formula below:
ACoS = Ad spend/Ad revenue x 100
Based on this ACoS formula, if you spend $100 on Amazon-sponsored ads and generate $200, your total ACoS would be 50%. In other words, you paid $0.5 for every dollar you made on that campaign.
What Influences Your ACoS on Amazon?
Calculating your Amazon advertising cost of sale is straightforward. Yet, if neglected, several variables may lead to a consistently high ACoS and eat into your profits.
Some factors that can affect your ACoS on Amazon include:
- Product Pricing: If your pricing is too high compared to similar products, it may deter potential buyers, resulting in fewer conversions and a higher ACoS.
- Bid Strategy: Bidding too high on PPC keywords can increase advertising spending without proportional sales, raising ACoS. Conversely, your ads could fade into the background if you bid too low, causing fewer conversions and a not-so-great ACoS.
- Keyword Relevance: Choosing keywords not closely related to your product can attract the wrong audience, lowering conversion rates while increasing ACoS.
- Competition: High competition might require running a more intensive PPC campaign, potentially raising ACoS.
- Product Lifecycle Stage: New products often have a higher ACoS due to the initial ad spend to gain visibility. On the other hand, established products might have a lower ACoS as they’ve accumulated reviews and history to gain customer trust.
What Amazon ACoS Range Should You Aim For?
Ideally, you want a low ACoS. However, “low” may vary depending on your product lifecycle and business goals.
A generally accepted strategy aims for an ACoS of 15% to 20%. However, you can go for an average of 30% or more, especially if you’re selling in a highly competitive category.
Nonetheless, finding a sweet spot for your Amazon ACoS starts by understanding the following concepts:
- Your Profit Margin: When running an Amazon PPC campaign, the goal is to break even or generate a profit. The better you can manage your ad spend to cover all expenses, the more you optimize your profit margin.
- Break-Even ACoS: Your Amazon ACoS must be lower than your profit margin to generate and maintain a profit.
Should You Always Target Lower ACoS?
Aiming for a low ACoS is generally the norm. However, there are specific situations where it might make business sense to tolerate a higher ACoS, such as
- Product Launches or Promotions: You may temporarily consider a higher ACoS when launching a new product or running a promotional campaign on Amazon to maximize visibility and sales. The approach can help quickly establish your product in the market.
- Brand Building: Gaining a foothold may need aggressive advertising to outshine competitors for businesses looking to build brand awareness. Hence, a higher ACoS could make sense for companies in the early stages of brand-building.
- Seasonal or Time-Limited Offers: During peak shopping seasons or specific time-limited sales events, you may want to take a higher ACoS to capitalize on increased consumer spending.
Best Practices to Optimize Your Amazon ACoS
You’ll want to reduce your Amazon ACoS if your ad spend exceeds your earnings.
Before you start, however, identify the reason for ACoS reduction. Optimization strategies may differ for a product launch and a low-converting item.
Once you’ve zeroed in on your ideal ACoS, you can start optimizing using the following strategies:
Optimize Your Ad Keywords
Keyword optimization is an ongoing progress to stay current with your advertising strategy.
Selecting the wrong keywords can negatively impact your impressions and conversions, leading to wasted bids.
Hence, set up negative keywords to ensure you’re not ranking for irrelevant phrases.
That way, you can optimize your advertising budget and impression quality.
You can get search term reports from Amazon Seller Central and filter those with the best results. And because keyword selection is integral to running sponsored ads on Amazon, you may consider working with an agency to optimize your advertising budget.
Optimize Product Listings
A hurriedly crafted or substandard listing won’t generate as many sales as you’d want.
Therefore, create trustable listings to reduce your ACoS. Remember, your target audience can’t feel or touch your product, so you’ll want to prioritize credibility over SEO-driven listings.
Some ways to optimize your product listings include:
- Using high-quality images and videos
- Leveraging Amazon reviews for social proof
Optimize Your Bids
Bidding is a delicate balancing act you must master to lower your Amazon ACoS.
To optimize your bids, determine your high and low-converting keywords. Then, increase bids for the best-performing phases and reduce or pause low-converting ones.
In addition, update your inventory as per the increasing bids. That way, you can accurately predict sales, bolstering your efforts to lower your ACoS.
Use Different Keyword Match Types
You can optimize your ACoS by adjusting keyword match types — exact for specific terms, phrases for targeted searches, and broad for various related queries.
Appropriately using different keyword match types based on your product helps avoid irrelevant searches, preventing a higher ACoS.
Furthermore, this precision ensures your ads reach the right audience, enhancing your overall Amazon PPC campaign performance.
Leverage Amazon's Automatic Campaign Insights
Regularly review the automatic campaign data provided by Amazon. Focus on metrics such as click-through rates (CTR), conversion rates, and cost per click (CPC) for the last 60 days.
Zero-in on high-performing keywords to allocate your ad spend efficiently.
Simultaneously, pinpoint underperforming elements of your advertising campaign and either optimize or exclude them.
Dayparting, or ad scheduling, can be a strategic and efficient approach to lower ACoS.
To implement dayparting, you need to analyze your Amazon PPC campaign data to identify peak performance times. The idea is to strategically apportion your advertising budget to ensure your ads are visible when the target audience is active.
As a result, you can increase your ad’s visibility during high-converting periods while conserving your budget during less active times. The ripple effect is a balanced and lower overall ACoS.
Frequently Asked Questions
Yes, there can be a difference in ACoS when selling via Amazon FBA versus FBM.
An FBA seller may experience potentially lower ACoS due to increased visibility from Prime eligibility. In contrast, while FBM sellers may have more control over fulfillment, they might not benefit from Prime, impacting visibility and affecting ACoS.
The importance of Amazon ACoS versus RoAS depends on your goals.
ACoS measures your ad campaign efficiency by showing the percentage of sales spent on ads, while RoAS measures revenue generated per ad dollar. Lower ACoS indicates cost efficiency, while higher ROAS signifies effective advertising spend.
Optimize Your Amazon ACoS
ACoS is an excellent tool to determine the success of your Amazon PPC campaign.
However, it isn’t the only metric you should focus on, but it should be a part of your overall advertising strategy.
It might seem daunting to optimize your ACoS at first. However, with time and experience, your strategy will take shape and deliver results.
While at it, you can sign up for Helium 10 (get discounts here) and use its specialized Amazon PPC tool (Adtomic) to ensure lower ACoS and other PPC best practices.