The Amazon ACoS (Advertising Cost of Sale) is an important metric for determining the success of an Amazon PPC campaign. If you’re new to Amazon advertising, this guide will teach you all you need to know about ACoS, including what it is, how to calculate it, which metrics drive it, and how to improve it. Let’s get started, shall we
What Is Amazon ACoS?
Understanding and analyzing the effectiveness of your Amazon Sponsored Products campaigns is crucial for any company selling products on Amazon. This is why ACoS is important.
The percent of unit sales invested is known as the advertising cost of sales. This is one of the most significant ideas in PPC (pay-per-click) since it informs sellers about the effectiveness of their ad campaigns, whether they are profitable, and what optimum ACoS is needed for each product version.
How to Calculate ACoS on Amazon
The equation is straightforward. You only need to divide the ad spend by the number of sales multiplied by 100. An example would be an ad campaign that generated $500 in sales but cost about $100. So that’s 100 divided by 500 multiplied by 100 equals 20%. This means the cost of your ad sales that brings $1 is equal to $0.20.
The breakeven point for advertising is when the cost of advertising equals the profit margin. “At what ACoS does a seller generate zero profit and zero loss?” is a question that can be answered here.
If the selling price is $20, the Amazon charge is $3, and the cost of goods sold is $6, the merchant earns $11 before advertising costs. Suppose a seller uses that profit to pay for advertising. In that case, the calculation for determining the breakeven advertising cost of sales is as follows: $11/$20 = 55%. In this example, the breakeven ACoS is 55%.
Target Amazon ACoS
Another critical measure that all Amazon sellers should be familiar with is Target ACoS. If sellers truly desired revenue generation on Amazon, they would not spend all pre-advertising cash on sales promotion. Thus, the Target ACoS is the amount spent by the seller, and the profit margin is the amount not spent. If the ACoS at breakeven is 55%, the TACoS is 40%, and the profit margin is 15%.
To get the optimal Amazon PPC ACoS, a seller must first determine their desired profit margin and work backwards. For instance, the average ACoS for most brands is between 15% and 30%. However, it varies for each firm, based on the product offering and marketing approach.
What’s a Good Amazon ACoS?
ACoS is a statistic that measures advertising effectiveness; as such, it is critical for Amazon since it serves as a barometer of the performance of your advertising campaign. It’s worth noting that advertising costs as a percentage of sales are not a precise indicator of profitability. Sellers must consider the whole cost of the goods they are advertising.
The goal of a brand or seller on Amazon should be to develop the business over time through increasing profit. Thus, vendors should specify their advertising expenditure and net profit margin while aiming for a specified net profit margin.
Having all goals defined and each step planned out is the only rational method to be prepared for obstacles while operating an Amazon business. When developing an advertising campaign aim, such as introducing and marketing a new product, the purpose is to increase brand awareness, sales, and/or return on investment (ROI). The more succinctly you outline your objectives, the easier it is to choose the goods to include in your campaigns, structure them, and track their results.
Best Tips on How to Improve Amazon ACoS
Concentrate on the Appropriate Keywords
If you want to attract qualified leads who will convert, you must optimize your listing’s keywords. Keywords will assist you in attracting better leads to your advertisement.
By selecting the appropriate keywords, you may generate more leads interested in your items without increasing your advertising budget. A single advertisement may generate dozens of leads by using the appropriate keywords.
So, how do you choose the best keywords for your advertisement?
The initial stage is keyword research. Suppose you’ve ever conducted keyword research for search engine optimization (SEO). In that case, it’s critical to understand how Amazon keyword research and optimization differ somewhat.
You’ll want to undertake Amazon keyword research using an Amazon-specific keyword tool. Keyword tools like Sonar can assist you in determining the most relevant keywords for your product listing.
After choosing your keywords, you’ll include them in your listing. It’s critical to realize that, unlike general SEO, Amazon does not need you to combine your keywords several times. Once is sufficient for your Amazon product to rank for that keyword.
By selecting the appropriate keywords, you may increase the number of leads generated by your sponsored content. This results in more conversions and less money spent on lead generation.
Optimize the Content of the Page
When you drive leads to your page, you want to provide them with relevant information to your keyword selections. If someone searched “fuzzy holiday socks,” your listing should contain information relevant to fuzzy holiday socks.
Amazon determines relevance based on your product information. If your information isn’t relevant to the product, you won’t earn as many conversions. Amazon’s objective is to link users with relevant listings that encourage conversion.
When you post your sponsored products on Amazon, ensure that your product information is relevant and helpful for your audience. Distribute information to persuade them to convert. Whether it’s a product guarantee or a special feature, you want to provide your audience with information that convinces them to choose your business.
With more relevant information in your listings, you drive more traffic and keep people engaged on your page. They will learn more about your product and decide if they want to purchase it. You’ll obtain conversions if your product is relevant and at a good price point.
Improve the Quality of Your Titles
When your audience discovers your sponsored product listing, one of the first things they notice is your title. If you want to attract more qualified leads, you must improve your title.
The title should emphasize your keywords and any supporting information. Let us return to the example of the fluffy Christmas socks. What information would you expect to see in the title if someone searches for such socks?
Material, design, and size information would all be essential. This content may even attract someone to your listing due to its apparent relevance to their search query.
You may get more people to click on your ad by creating a relevant headline. It will assist you in generating more qualified leads for your organization.
Determine the Appropriate Bid Amount
The most common error is setting the incorrect bid amount. Users either bid too cheap or excessively high. To maximize your ROI and minimize your ACoS, you must determine the optimal bid amount for your adverts.
Choosing the Appropriate Amazon ACoS for Your Needs
Your Amazon ACoS approach is entirely reliant on the objectives of your PPC campaign. Therefore, establish your objectives first and focus on either breakeven ACoS or goal ACoS.
Suppose you’re ready to introduce a new product to get immediate feedback and sales and to raise your organic rankings. In that case, you may be focused on maximizing your sales while maintaining a breakeven point. You should strive for Amazon ACoS breakeven.
Impression optimization can increase brand recognition and provide you with a competitive edge. With this in mind, you may consider concentrating your efforts on increasing the number of impressions while maintaining a breakeven point. As a result, you should concentrate on the breakeven Amazon ACoS.
Numerous marketers are concerned that their Amazon ACoS is too high. However, depending on your category, season, and product portfolio, a high ACoS approach for Amazon advertisements is not always a negative thing.
For instance, if your advertising objective is to extend your reach by acquiring as many impressions as possible or optimizing sales for a product launch, efficiency and profitability may be secondary concerns.
Notably, there is a trade-off between ACoS and sales or impressions in general.
In many circumstances, when your bid and cost per click (CPC) are lower, your Amazon ACoS is lower, and your profit per unit is larger as a result of the lower cost per unit. A low bid, on the other hand, results in fewer impressions and hence fewer clicks and purchases.
In general, while optimizing ACoS for Amazon advertisements, you should consider efficiency, profitability, and sales, as well as the number of impressions received.
Additional ACoS Metric: Total ACoS (TACoS)
Your ACoS for Amazon PPC is calculated solely on the basis of sales generated through advertisements. As a result, ACoS may not be the most trustworthy statistic to use when determining the optimal way to expand your business, introduce a new product, or attempt to improve keyword ranking.
Before attempting to complete any of the above-mentioned objectives, it is prudent to assess your TACoS. TACoS accounts for both ad and organic sales, providing you with a complete view of your advertising spend.
What Is the Difference Between an Average, Low, and High Amazon ACoS?
The average ACoS on Amazon is an excellent point of reference. The typical ACoS is around 30%, although it will vary based on your approach and objective. Generally, you should strive for an ACoS of between 15-and 20%. To maximize your profits, the cost of your items must be more than the cost of advertising.
In 2019, the average ACoS on Amazon (more precisely, the ACoS for Sponsored Product Ads) was roughly 34% for Ad Badger.
A lower ACoS indicates a more successful PPC campaign. As a result, you should seek to reduce your ACoS in order to enhance revenues. On the other hand, it depends on your product’s sales strategy and profit margin.
While a low ACoS might be advantageous for a firm, a high ACoS can help a business establish a strong market position by improving exposure, dominating a niche, and generating long-term income.
PPC Metrics That Are Essential to Know
There are several key metrics that drive the Amazon advertising cost of sales, such as:
Advertising Spend or Advertising Costs (ASP)
Ad spend refers to the amount of money spent on certain advertisements within a campaign. It is often included in web, broadcast, print, outdoor, and direct mail advertising. Ad revenue is the amount of money allotted for an ad.
CPC (Cost Per Click) (CPC)
There is a statistical association between cost per click and ad expenditure: when CPC increases, ad spend increases (and vice versa). While increasing the bid value or modifying the bidding technique may have an effect on the CPC, sellers frequently have little control over these rates.
How can I improve my cost per click (CPC)?
- Establish your advertising objective and ACoS target. Is your objective to increase sales or impressions (higher target ACoS or breakeven ACoS) or to operate a profitable campaign (lower target ACoS)? Establish a target ACoS for each campaign/ad group to serve as a guide for CPC optimization.
- Regularly optimize bids. The appropriate CPC for each keyword in your campaigns will vary depending on the goal ACoS, competition, and conversion rates. And these circumstances evolve throughout time. That is why it is critical to alter your bids on a regular basis in order to attain and maintain an appropriate cost per click (CPC) for each keyword.
Rate of Click-Through (CTR)
CTR has an effect on ACoS only when conversion rates fluctuate. To increase CTR, a seller must guarantee that the traffic is of good quality (organic) since this will drive conversion and eliminate the risk of a higher advertising cost per sale.
What is the best way to maximize my click-through rate?
Fine-tune your campaign targeting. Conduct keyword research on Amazon (e.g. using Sonar) to determine the most relevant terms. Utilize negative keywords to ensure that your adverts are not displayed for irrelevant queries.
Optimize your product photographs to ensure they stand out from the competition and meet Amazon’s specifications for quality, backdrop, angle, and perspective.
Increase your star rating by carefully monitoring customer reviews and making necessary changes to your product and product description page in response to unfavorable customer feedback.
Through expertise or the use of an app, you may automate keyword research (keyword harvesting) to save time and effort.
The rule sets will automatically add negative keywords to those that receive clicks but do not convert. Additionally, they may include search phrases from your automated marketing into your manual efforts as keywords. In this manner, you can narrow down your list of suitable prospects and avoid spending on ineffective terms.
Rate of Conversion (CVR)
Regardless of how relevant your advertisement is to your business, it will create leads only if the people who come on your product page are interested in your product. The seller’s task is to convince visitors to their page that their product is superior and that they should purchase it.
When a seller’s bid for a certain keyword is successful, the seller’s listing appears at the top of the search results page. Utilize auto-bidding solutions to control your bids for critical keywords, ensuring that you never miss an impression.
A high impression rate may be obtained by placing the goods in a popular category on Amazon. Amazon may continuously display an advertisement for a certain product, but sellers may lack true interest in that product, resulting in low impressions on Amazon.
FAQs on Amazon ACoS
What is a decent Amazon ACoS?
While there is no universally accepted standard for a successful Amazon ACoS, there are a few guiding principles to follow. To begin, a lower ACoS results in greater returns — you spend less on each sale on advertising.
Second, your breakeven ACoS is equal to the profit margin on your product. This indicates that if your ACoS exceeds your profit margin, you are paying more for advertising than you are profiting from the sale of the product. Clearly, this is not a viable long-term approach.
Additionally, it is worthwhile to examine comparable items in your category and compare your ACoS to theirs. Often, the average ACoS is governed by the market and is not consistent throughout eCommerce. As a result, by studying your rivals, you may determine whether your ACoS is adequate.
Where can I locate my ACoS on Amazon?
Calculate your Amazon ACoS by dividing your ad expenditure by the income earned from your ads. This may be done at any level, from the account as a whole to individual searches for a particular product.
Amazon is unmatched in terms of data clarity when it comes to calculating your ACoS, as all purchases produced by Amazon advertisements are clearly attributed. They take place within Amazon, and the buyer journey is fully traceable. This degree of cohesiveness is difficult to establish in other channels, as consumer interactions take place across several platforms (or offline channels).
Any firm with more than a few goods rapidly realizes that manually tracking their ACoS on Amazon becomes prohibitively time-intensive, which is why professional Amazon advertisers opt for automated software solutions to track the ACoS of all their ad campaigns.
You can grasp your Amazon ACoS by solving a set of basic arithmetic problems. As you study what is generating changes in your Amazon ACoS, examine each indicator individually and search for outliers.
There is no such thing as a perfect or failing Amazon PPC ACoS. While you may have heard the expression “reduce your advertising cost of sales,” it is entirely dependent on your marketing approach and objectives. When a firm or individual pursues a plan aimed at achieving a “good ACoS” or a “poor ACoS,” it often entails maximizing their company’s profitability.