Amazon is the biggest online marketplace in the world. Unfortunately, it’s also one of the most heavily saturated. The competition is fierce, and every Amazon seller must be working to build powerful advertising strategies. These strategies ensure their products are reaching the right buyers at the right time and standing out from the crowd.
The problem? It can sometimes be challenging to fully understand just how well your marketing campaigns are working; to see how your efforts translate to tangible results.
Of course, with the built-in Amazon reports offered by the platform, it’s easy to see core statistics such as impressions, clicks, conversions, cart additions, sales, and so on. That part we know. But how does that all translate into financial language?
Essentially, how can you be sure that the money you’re putting in aligns with the results you’re getting out? How can you be sure that your Amazon advertising efforts make sense from a financial perspective? The answer is simple: Amazon ACoS.
What is Amazon ACoS?
ACoS stands for Advertising Cost of Sale, a standard Amazon tool available to sellers through their Seller Central interface. As the name suggests, ACoS tells you the advertising cost of a sale; how much you spend on PPC ads to generate a sale.
At its most basic, ACoS is a way of saying, ‘if I spend this much, then I’m getting this much back’. Or ‘for every X I spend, I’m driving X much in revenue’.
ACoS is simply a way for Amazon sellers to determine whether or not their ad campaigns are making money, breaking even, or losing money.
ACoS vs RoAS
If you think ACoS sounds an awful lot like RoAS (Return on Advertising Spend), you’d be right. In fact, the two pretty much tell you the same thing.
The only real difference between the two is in how they produce that information. The two metrics are calculated in different ways. ACoS, as we’ve already discussed, tells you what you’re spending on advertising – what you’re putting in – to get something out of it.
RoAS, on the other hand, calculates it in a reverse way; it tells you what you’re earning – what you’re getting out – based on what you’re putting in (your spending on advertising).
Ultimately, they both do the same thing; they both help sellers to better understand the relationship between their Amazon PPC efforts and their on-Amazon sales. Both are excellent metrics to explore if you’re interested in finding out more about selling in a way that’s both efficient and profitable. However, as Seller Central has a dedicated column for ACoS, it’s usually the preferred calculation for Amazon sellers.
Why is ACoS Important?
Amazon’s ad platform has been steadily growing for years. However, because of the global health crisis – a time when business as a whole underwent a significant shift from in-person to online – Amazon has become more and more competitive. As more sellers shift their retail arm to Amazon, businesses are finding that they have to pay more to advertise, especially if they want prominent positions in the SERPs.
This means that sellers need to ensure they’re advertising more efficiently.
Amazon Ads can be powerful. But they’re not free. PPC ads cost money. And while you can take complete control of costs through Amazon’s array of bidding options, from a financial perspective, there’s no point paying out for ads that aren’t generating the financial results you’d hope for from such an investment. Otherwise, you’re just throwing money down the drain, money that could be poured into advertising methods that *do* work for your brand. That’s what ACoS helps with.
ACoS is all about insight; it’s a way of understanding your campaigns and seeing that line between what you’re putting in and what you’re putting out. Insight like this is key to ensuring you make the best advertising decisions for yourself, your brand, your business, and your customers.
What is a ‘Good’ ACoS?
The truth? There’s no such thing.
That may sound like a strange statement. After all, if ACoS looks at how much you need to spend to generate a sale, shouldn’t a lower ACoS be better? A low ACoS would mean sellers pay less to drive a sale than a business with a high ACoS. And that’s correct. But that doesn’t necessarily mean a low ACoS is ‘good’.
What it means is that sellers with a low ACoS are advertising efficiently because a smaller percentage of sales is being driven into advertising efforts. But sometimes, we don’t want to be advertising ‘efficiently’. We want to be advertising with power.
Sometimes we want to act as frugally as possible, generating as much potential output with the least possible input. But there are also times when we’re willing to accept direct financial losses if these losses have broader positive impacts.
Let’s break it down. ACoS can either be average, low, or high:
Average ACoS – The Everyday Approach
The average ACoS across most categories and product types is between 30% and 35%. This figure is what the majority of Amazon sellers will be aiming for. This sort of ACoS means you’re generating a profit, spending less on advertising than the revenue generated. This is a good benchmark to aim for if you’re new to ACoS or want to ensure your online Amazon business keeps ticking along nicely.
Low ACoS – The Profitable Approach
A very low ACoS is around 15% – 25%. This figure is what most sellers consider to be a ‘good’ ACoS because they’re spending the least amount of money on advertising to drive real, tangible results. This profitable approach is often taken by sellers when they know that their products are in very high demand and are essentially ready to sell themselves; festive decor during November, for example.
High ACoS – The Awareness Approach
A very high ACoS is considered to be anything more than 40%. This is typically seen as ‘bad’ because you’re spending more money to drive a sale. However, for sellers that are keen to raise awareness of a particular product and boost visibility, a high ACoS can work. While you may not be generating the sales you want, driving more into advertising can get your products in front of more potential buyers.
Before we go any further, one essential thing to remember about ACoS is that it’s not the ‘be-all and end-all of campaign efficiency and effectiveness. It is, of course, an excellent measure of whether your advertising efforts have the desired effect. But several factors can influence the ACoS figure, making it appear to be better – or worse – than what’s going on behind the scenes.
For example, the age of a product in the inventory can have a massive influence on ACoS. As most sellers know, the sort of reports we get from new products tends to be skewed because they don’t yet have the same level of exposure and familiarity as similar products that have been browsed thousands of times. As a result, a new product may show a very high ACoS, even though it’s performing very well.
At the same time, best sellers, branded products, and remarketing campaigns tend to be naturally associated with a lower ACoS because ‘these products sell themselves’; it may not be an accurate representation of your advertising efforts.
Many factors can influence ACoS, so don’t treat this figure as the Holy Grail of Amazon Advertising. Instead, use it as a guide to shape your advertising strategy rather than as a mould that forces you to take a specific approach.
Calculating Amazon ACoS
There’s a straightforward calculation that’s used to determine ACoS. But first, Amazon sellers need to calculate their total ad spend and their total ad sales.
- Total ad spend is just what it sounds like; it’s the full amount that you’re spending on an Amazon Advertising campaign across every single area. You’ll need to look closely at your cost per click (CPC) and a number of clicks to generate a total.
- Total ad sales is, again, just what it looks like. It’s the number of sales you’ve made of a product that you can directly – and indirectly – attribute to that product’s ad campaigns. You should include both instant conversions and delayed influences.
Once you have these figures, you can use the following calculation:
ACoS = Total Ad Spend / Total Ad Revenue *100
This calculation will provide you with your ACoS as a percentage. For example, if your outcome is 35%, it would signify that 35% of what you earn as revenue is being spent on Amazon Advertising efforts.
This calculation provides you with your actual ACoS. However, there are two other calculations you can work through to gain even more insight into your activities:
1. Break-Even ACoS
Break-even ACoS shows you what you should be spending on advertising to break even, to generate just enough sales and drive just enough revenue that you don’t lose money, but you don’t gain money, either. This can be a good measurement for ensuring that your advertising activities are always having a positive financial effect.
The calculation for break-even ACoS is:
Break-even = sales price – Amazon fees – product/purchase cost
This means that you need to subtract any sales fees charged by Amazon and the cost of acquiring or manufacturing the product from the amount you’re charging.
For example, imagine that you’re selling a lamp for $10. Amazon may charge you $1 to sell on the platform. And you may spend $4 buying the product from the wholesaler. Your profit, therefore, would be $5. You’d break even if you spent the full $5 on advertising. So, in this scenario, your break-even ACoS is $5.
2. Determining Your Target ACoS
Target ACoS is the ACoS you’re striving for. Unfortunately, many sellers are unsure what their target ACoS is. The best way to determine it is to consider your desired profit margins.
If we carry on from the above scenario, for example, you may decide that, from that $10 lamp, you want to make $3 in profit. Amazon charges $1 to sell. And you pay the wholesaler $4 to buy the lamp, leaving you with a $5 profit pre-advertising. To make $3 in profit, your target ACoS would need to be 40% (equivalent to $2).
The calculation for target ACoS is this:
Target ACoS = Profit margin (pre-advertising) – Target profit margin (post-advertising)
To get your target ACoS, you must work backwards, first considering your desired profit margin and then calculating how much you can afford to spend on advertising activities. This is a good calculation to do to ensure that, whatever approach to advertising you take, you’re constantly generating some profit.
Optimising ACoS on Amazon
Regardless of what you’re aiming for – an average ACoS for day-to-day business management, a high ACoS that boosts visibility, or a low ACoS that maximises profitability – there will always be ways to optimise your ACos to ensure you’re getting the best results. Ultimately, that means you’re taking measures to derive as much value from your ads at all times, no matter what.
Here are some ways to achieve this:
Clickthrough rate, or CTR, refers to the number of users that click on an ad. It’s closely aligned with page views. When CTR is low – when fewer people are clicking on an ad – ACoS will usually be higher as fewer people visit a product listing and, therefore, fewer people buy. Increasing your CTR – through improved ad content, for example – can help drive more traffic and sales and improve ACoS.
CPC, or Cost Per Click, is the amount you pay every time your Amazon PPC ad is clicked by a user, regardless of whether they make a purchase or not. As you may expect, better ACoS figures are typically associated with lower outgoings, so minimising your CPC as much as possible can help create a sense of balance. You can lower your CPC by bidding strategically and reviewing keywords regularly.
Conversion rate refers to the number of visitors on your product listing page who take some action towards making a purchase. And so, while your CPC may be low and your CTR high, it all comes down to conversion rate, making this one of the most critical areas of optimisation. Buyers need to have a positive experience to convert, which means focusing on customer service and more.
If you’ve read our guide to Amazon bidding, you’ll already know that we recommend using Amazon tools such as Dynamic Bidding. However, this can cause you to spend more than your cost-per-click bid. When optimising for ACoS, try to stick to manual targeting, which puts you entirely in control of your bid setting, ensuring you’re constantly bidding in a way that aligns with your ACoS goal.
Average Sales Price
A simple – yet often overlooked – way to optimise ACoS is to adjust your pricing strategy. Ultimately, if every other metric remains the same, upping your average sales price by just a tiny amount should help to improve your ACoS. Pricing products is undoubtedly one of the most challenging parts of selling on Amazon, so it’s always worth conducting a competitor analysis to find that ‘sweet spot’.
From a visibility perspective, broad match and phrase match keywords are preferred. Of course, they are. These match types mean that more people see your products. But from an ‘optimising for ACoS’ perspective, the trickier exact match keyword type may be better. Will your ads be as visible and widespread? No. Will they better connect with your highest qualified leads? They will.
Just above, when discussing conversion rate, we briefly mentioned providing a positive buying experience for customers. A huge part of that is ensuring that the product listing page tells potential buyers everything they need to know. Consider building A+ content pages that enhance the Amazon experience and encourage leads to take the next step in the process of becoming a customer.
Optimising for ACoS isn’t just about selling… It’s about selling at the right time. Remember that Amazon uses an attribution window to determine whether or not a sale is considered to be the result of an ad, or not.
Amazon Attribution is usually seven days or 14 days for Sponsored Products. So it’s important to take measures to shorten the buyer journey to make sure all relevant sales align with your PPC ads.
Amazon PPC Tools
As you may already have discovered, Seller Central is a treasure trove of tools. It includes many PPC tools that can help you optimise your ACoS to best align with your goals… whether that’s visibility, profitability, or anything in between. There are also plenty of third-party tools that can help, too. We explored some of the best options in a previous post.
Getting started with Amazon ACoS couldn’t be simpler. When you log in to your Seller Central account and visit the main dashboard, you should see a column on the right-hand side of each campaign which provides a breakdown of your ACoS.
But remember, ACoS is just *one* possible metric to consider when building a robust, results-driven Amazon sales strategy. And as we already explored, many factors can influence your ACoS beyond sales and ad spending.
ACoS is important in ensuring your advertising efforts succeed from a financial performance perspective. It shows how cost-effective your PPC ads are. But ACoS isn’t everything. For best results, it’s always worth tracking and monitoring various metrics that provide a ‘big picture’ overview of how well you’re connecting with your Amazon audience.
At ClearAds, we’re pleased to be your ultimate resource for all things ACoS-related. Whether you’re searching for ACoS optimisation guides, want to know how to lower your ACoS or find a better balance between profitability and visibility, or you’re searching for tailored advice for succeeding in Amazon’s ever-increasing competitive landscape, we’re here to help.
Find out how ClearAds reduced ACoS from 37% – 22% in 2 months whilst increasing sales by 220% in this case study!
Get in touch with our team today to find out more about advertising with efficiency, with effectiveness, and with confidence.