Advertising is a significant aspect of running any form of digital business. Indeed, Amazon is no exception to this rule. Amazon has its own business term that it utilizes when conducting online advertising: ACoS. But what does ACoS mean on Amazon?
Amazon ACoS is a critical indicator to consider in Amazon’s business. When it comes to an understanding and measuring the effectiveness of Amazon Sponsored Products campaigns, ACoS comes to the front.
In this informative blog, we explain how to calculate it, strategies to hit your ACoS goals, and more. Let’s dive below to learn more about this feature in further detail.
What Is Amazon ACoS?
ACoS stands for “Advertising Cost of Sale.” Amazon uses this term to describe its sponsored adverts. It’s a critical and widely used indicator for measuring the performance and achievement of your Amazon Sponsored Products campaign.
When doing business on the Amazon platform, you should learn about your ACoS percentage and place calculated bids for your search phrases. This measure can be found by going to Advertising and then Campaign Manager to evaluate your Amazon ad campaigns.
Why is ACoS important?
Amazon’s ACoS is a critical indicator of whether you chose an appropriate advertisement campaign technique. This PPC profit formula assists Amazon merchants in tracking all expenditures and determining how much they can spend on marketing their Amazon products.
There will be no profit if you overpay. Because aside from the advertisement, there are other additional things to consider, such as manufacturing costs, transportation, Amazon fees, etc. It would be helpful if you had a profit margin in this situation. Without it, your firm will not be profitable at all.
What is a Good Amazon ACoS?
There’s no optimal Amazon ACoS to aspire for; it varies by business, organization, product, and goal. So, how can you figure out which ACoS is suitable for your eCommerce campaigns?
Generally, you’ll want to maximize sales income while maintaining the lowest feasible ACoS. It would be great if you shot for an ACoS that falls between 15-20% as a good rule of thumb.
Because low ACoS equals high profitability and high ACoS equals low profitability. Sellers prefer low ACoS unless they are pursuing a special awareness or sell-out plan.
We’ve included a few of the criteria that can assist you in determining your ideal Amazon ACoS below:
- Understand Your Profit Margins
Your sponsored goods initiatives should ideally be profitable. However, your advertising budget should be less than your overall profit margin. Your profit margin is the amount that remains after you’ve deducted all operational expenses, such as production, shipping, worker pay, and any other fees.
It’s easier to decide how much money you can invest in advertisements while still making a profit if you are aware of your existing general operating expenses. Understanding your expenditures is also important for calculating your break-even ACoS.
- Determine the ACoS Break-Even Point
Your break-even ACoS is the maximum amount of money you can spend on Amazon advertising where;
– You will not lose money/profit
– You will not even make any money/profit either
It’s a zero-gain, zero-loss equilibrium that keeps your firm functioning but doesn’t allow growth. Your break-even ACoS isn’t always the metric you’ll use to measure the success of your efforts. However, it does assist you in determining if you have a net gain or loss.
- Examine the Appropriate Metrics
While your ACoS is critical, you must also consider a variety of additional metrics to obtain all of the information you require. ACoS is only one component in determining the effectiveness of your Amazon Advertising campaign. Other metrics to bear in mind are as follows:
Impressions: Having so many impressions on your products may indicate that it’s placed in a popular category on the Amazon platform. If your impressions seem low, Amazon may show your ad frequently, yet your product may be unpopular.
CTR (click-through rate): Several PPC advertisers are acquainted with the measure CTR. Suppose you have a poor click-through ratio. It could suggest that your ad isn’t operating properly or that Amazon users aren’t drawn to click on it. Adjusting your creativity, copy, and approach may help you increase your CTR.
Clicks ÷ Impressions = CTR
When considering all other kinds of ad placements, Amazon’s CTR averages out to approximately 0.4%.
Spend: Determine your advertising budget as well as your cost per click. You may watch the cost per click to ensure that it’s worth the revenue or profit you earn from the click. Your profit margin may fall if you overspend. Monitoring your expenses might also assist you in avoiding overpaying on advertising.
Sales: Examine how many clicks you received and how many transactions were generated due to such clicks. Conversion rates may be an issue if your ad isn’t related to your goods. That’s why your advertisement should be both interesting and relevant.
How to Calculate Amazon ACoS?
To calculate ACoS, you must compare your ad spend with your desired sales. Using the formula below, you should be able to determine your Amazon ACoS:
Suppose; If you spent $50 on advertising, and that advertising led to a single sale of $100, then your average sale cost would be 100 (50/100), which is equal to 50%.
How To Use Amazon ACoS On Seller Central?
To use Amazon ACoS on Seller Central, you must first navigate to Seller Central and locate the ACoS column.
Photo Credit: Adbadger
The ACoS data in Seller Central can be segmented by account, campaign, or ad group when viewed in Ad Badger or Seller Central. Because of this, you’ll constantly be able to measure your Amazon ACoS and determine whether or not you’re on the right route.
But how can you determine whether you have a good ACoS or bad ACoS? It’s where the concepts of break-even and the target ACoS come into consideration.
How to Calculate Break-Even ACoS?
The point at which your advertising costs equal your profit margin is the break-even point (ACoS). In other words, you will make neither a profit nor a loss during the transaction.
- Suppose we owned a toy vehicle that sold for $20, and we were charged $3 in Amazon charges on that merchandise. Let’s say the cost of products to manufacture that product is $6, and the labor cost is $0.
- What do we have left when we subtract 3 and 6 from 20? Our Pre-Ad Profit per Sale is $11, an $11 profit margin.
$(20-3-6)= $11
- We’d need to spend all of that $11 on paid traffic acquisition to create sales. According to our ACoS calculation, we would make $11/$20, or a 55% return on our investment.
- As a result, our break-even ACoS is 55%. We’ll get a profit if our failure rate is less than 55%, which is now the case. It is unprofitable for us to do more than 55% of what we are now doing.
- It’s critical to understand how to estimate your break-even ACoS to identify your target ACoS for your business.
- Keep in mind that a good ACoS depends on various elements, including your profit margin and your brand visibility, before your advertising campaign.
How to Hit Your Amazon ACoS Goals?
We need another metric called Target ACoS because nobody wants to generate a zero profit (TACoS), right? So, if you desired to earn a profit on the Amazon marketplace, you wouldn’t use up all of the Pre-Ad Profit to drive sales, as this would be counterproductive.
The amount of money you spend is known as your Target ACoS, and the amount of money you don’t spend is known as your profit margin, as demonstrated in the diagram below:
Many other techniques can assist you in achieving your target ACoS on Amazon. Whenever you optimize your Amazon product pages, discover the optimal times to advertise, and then use an Amazon PPC tool, it’s simple to achieve the ACoS targets you have set for yourself.
Optimize Your Product Pages
Your product price and product page together make up one-half of the equation for converting website visitors into customers.
You can have an excellent product ranking, and done a great job on your Amazon PPC campaign, but if your product page is not excellent, the prospective customer will move on to another similar product.
Make sure that your product listing on Amazon is appealing to the a-9 algorithm. Determine whether or not your product page properly answers questions about; what the product is, who the product’s clear target audience is, and how to purchase your product.
Photo Credit: Adbadger
An excellent product page should have:
- Product title that is both factual and enticing
- A detailed explanation of the product
- Images and videos of the product that are of a high quality
- A significant quantity of positive testimonials
- Eligibility for membership in Amazon Prime
For the best possible ACoS outcomes, you should ensure that your organic product listings have been optimized for SEO and PPC.
Find Out The Best Time to Advertise
Based on the data we’ve been collecting since 2017, the best days to advertise are Sunday through Wednesday, and the best time/month to post is April. When deciding on TACoS, Amazon sellers can get a lot of value from using this data. Here’s an image for better understanding.
Photo Credit: Adbadger
Make Use of an Amazon PPC Tool
There are a lot of different Amazon PPC tools available, and some of them let you automate your bidding to make sure you always hit your TACoS.
When placing bids, these systems can take into account both your conversion rate and your total acquisition cost of sales (TACoS) for each campaign. Additionally, they are able to achieve maximum sales while reducing unnecessary spending.
How to Improve ACoS on Amazon?
You can improve your ACoS by focusing on the optimization of your listing’s information. The greater the number of conversions you complete, the greater your ACoS will be. Here are six suggestions to help you improve it.
1. Choose the most relevant keywords for your product listing
Amazon keyword optimization or research should carry out, and keywords should integrate into your listing. This will assist you in finding the appropriate clients for your products without having to spend a lot of money on advertising.
2. Observe and evaluate the performance of your keywords
Concentrate on keywords that have a high conversion rate. Make a list of non-productive keywords and research the keywords that your competitors are employing.
3. Make use of the only product information that is relevant
Improve the quality of your listing by limiting the use of irrelevant keywords. Product information that is useful and easily applied attracts relevant conversions. Amazon uses a unique search algorithm to find relevant results for customers.
4. Create a headline that is both informative and attention-grabbing
Products should have titles that include their keywords and any pertinent information surrounding those keywords. The title should be written in such a way, that it catches the attention of buyers and draws them in.
5. Determine the appropriate bid amount
You should think about your conversion rate, success pathway to massive sales, estimated sales profitability, and how much you want to spend on ad sales before you start. Calculate the right-click price for you. Create an algorithm to determine the ideal bid depending on your ACoS target.
6. Concentrate your efforts on your best-selling items
Make a concentrated effort to promote the best-selling items. They would make up for any “downs” in sales that you might have due to less sellable SKUs or sales declines during the low season.
What is Amazon RoAS?
Return on Ad Spend (RoAS) is another metric that evaluates how successful your pay-per-click (PPC) campaigns are. The Amazon RoAS can be determined by dividing total advertising income by total advertising expenditures. It provides information on how much money you make for each dollar you spend on advertising.
Amazon ACoS vs Amazon RoAS
In point of fact, the ratio of ROAS to ACoS is denoted by RoAS. In essence, it’s just a new way to look at the same data.
- ACoS is the ratio of how much money you would have spent on advertising to how much money you make from advertisements.
ACoS = Ad Spend / Ad Revenue
- RoAS is the ratio of the amount of advertising revenue generated to the total amount of dollars spent on advertising.
RoAS = Ad Revenue / Ad Spend
As an example, if an Amazon marketing campaign has generated;
Advertising sales= $400
The cost of advertisements for the campaign is $100.
The RoAS is computed as follows:
RoAS = $400 / $100 = $4.0
This formula indicates that you will make four dollars in additional revenue for every dollar that you spend on advertising.
FAQs
Why do you get different ACoS figures and what influences it?
Several important parameters heavily impact ACoS:
- Cost Per Click (CPC)
- Conversion Rate
- Product Sale Price.
If your CPC isn’t too high, your conversion rate is satisfactory, and your listing is set up correctly. On the other hand, if the unit sale cost/price is high enough, the ACoS percentage would be at its best.
Why might ACOS data be unavailable from Amazon?
There is no specialized tool for calculating ACoS within your Amazon Seller Central account. To compute it, you could follow our given formula, or you could use specialized selling tools available now on the online market.
Is having a low ACoS good?
If your ACoS is high, then your visibility will be high. To make the highest sales potential on Amazon, successful sellers utilize a variety of TACoS for each category of product they sell. When a low ACoS is beneficial for profitability, getting a high ACoS can enhance awareness, allow you to dominate a niche, and ultimately lead to more profit over time.
Final Words
The ACoS division of Amazon’s business is one of the company’s most intriguing facets.
One of the most essential variables to monitor when evaluating how well your business is doing on Amazon is its advertising cost of sale, abbreviated as ACoS for short.
This can influence how well you are progressing towards your online business goals and decide whether or not your advertising campaigns are productive. It can also determine whether or not your advertising campaigns are ineffective.
We hope this helped answer your questions about ACoS!
