The Advertising Cost of Sales, or ACoS, is the amount of money you spend on advertising for every dollar of revenue you generate. It can also be thought of as the ratio of ad spend versus target sales.
In Amazon PPC, your Advertising Cost of Sales (ACoS) is crucial. It’s an important indicator for determining your Amazon advertising strategy. Your ACoS is a shaky metric for success that determines how you bid on search terms. ACoS is everything in Amazon PPC advertising.
A decent example of an ACoS computation is as follows: If your ACoS is 25%, you paid $0.25 for every dollar you made, or $25 for every $100 you made (we’re only looking at Ad Spend here, not production costs, Amazon fees, or anything else).
Amazon ACoS is a crucial metric for determining the success of your campaign.
If you’re a seasoned PPC marketer, you’ll see that Amazon borrowed this concept from Google Ads, which use Return on Ad Spend (ROAS). Here are some more Amazon PPC vs. Google Ads pointers.
But how do you tell if you have a good or bad ACoS? Well, that’s where break-even and target ACoS come into play.
How do you Calculate Break-Even ACoS?
The point at which your advertising cost equals your profit margin (you have a net loss / gain of $0) is called break-even ACoS. It provides an answer to the issue, “At what ACoS do you make no profit and no loss?” Let’s have a look at an example:
Let’s imagine we had a toy vehicle with a $20 sale price and were paying $3 in Amazon fees on it. Let’s say the cost of goods to manufacture the product is $6.
When 20 minus 3 minus 6 is subtracted, what do we get? Our Pre-Ad Profit per Sale is $11 in this case.
Now, if we spent all of those $11 on paid traffic to drive sales, we’d do $11/$20, or 55 percent, according to our ACoS calculation.
As a result, our break-even ACoS is 55%. We’ll be profitable if we don’t do more than 55 percent. We’ll be unprofitable if we do more than 55 percent.
It’s crucial to understand how to determine your break-even ACoS before deciding on your Target ACoS. Remember that a successful ACoS is determined by various things prior to your ad campaign, such as your profit margin and brand visibility.
What Does An Average, Low, And High Amazon ACoS Mean?
The Ideal Benchmark is Average ACoS.
Since the beginning of 2019, the average ACoS per user per day for Sponsored Product Ads has been 34.42 percent, and it will continue to be such until 2022. This is an useful reference point because it lies in the centre of a high and low ACoS.
April is generally the most profitable month for our advertisers, with the biggest amount of sales and the lowest ACoS (20%).
A low ACoS indicates a high profit margin.
In general, sellers agree that lowering your Amazon ACoS is a good idea. However, it is dependent on your product selling approach as well as your profit margin. We regard 15-25 percent to be a low ACoS and a decent place to start if you want to achieve one.
However, you’ve undoubtedly heard the phrase “LOWER YOUR ACoS!” a lot. It’s true that lowering your Amazon ACoS can be beneficial, but only if it’s in line with your goals.
It’s also a good idea to set a low ACoS if your aim is:
- Making the most money possible
- Selling a product with a low conversion rate
- You have a product that doesn’t require a lot of attention.
Let’s say your TACoS is ten percent and you make $200 in sales. You made a profit of $180 after spending $20 on advertisements (before the cost of goods).
Reduced ad spending can also have a detrimental impact. The visibility of the product is harmed by a low ad spend budget. Because you bid for keywords in Amazon PPC, if you set your bids too low for a competitive term, you risk losing the auction.
A high ACoS indicates a high level of visibility.
The old adage “You have to spend money to create money” is the best approach to explain high ACoS.
To enhance their selling potential, great Amazon sellers use multiple TACoS for different sorts of products. While a low ACoS is good for profit, a high ACoS can help you gain more attention, dominate a niche, and make more money in the long run.
Setting a high ACoS is a smart move for sellers who:
- Are trying to get rid of a product that isn’t selling well
- Attempting to run a product sell-out
- Attempting to raise brand awareness
- Want to dominate a specific niche.
- Want their product to get a lot of attention
Advertisers who buy a large Times Square ad or develop a Super Bowl commercial can be compared to those with a high ACoS. The marketer is investing a significant sum of money, but the likelihood of a positive return is very high.
Consider the following scenario: your TACoS is 40% and you sell 1,000 units. You made a $600 profit on a $400 investment (before cost of goods).
Which Metrics Drive ACoS on Amazon?
Let’s begin by looking at the most crucial Amazon PPC metrics:
- Bid: Your goods will appear in position #1 if your bid wins the advertising auction. If your bid is lower, your ad may still be placed in one of Amazon’s numerous other ad places.
- Impressions: the more people who see your ad, the more likely someone will buy your product.
- Click: If your ad is related to their search, Amazon shoppers will click it.
- Click-through rate: The click-through rate (CTR) is a metric that determines how interesting and relevant your ad is. Calculation of (clicks / impressions).
- CPC (Cost per Click): The true price of the ad auction is the cost per click (CPC), which is what you pay each click. Your cost per click (CPC) is determined by your bid, the competition, and your quality score. Your CPC will always be lower than the actual bid since the bid auctions are second-price auctions, where you pay $0.01 more than what would be required to beat the bidder in front of you.
- Orders: the number of times a shopper has bought your goods after seeing it advertised on a website.
- Conversion Rate: The persuasion power of your offer and product detail page is measured by the conversion rate, which is calculated as (orders divided by clicks).
- Ad Spend: To get the total ad investment, multiply (clicks x cost per click).
- Ad revenue: Calculated by multiplying (orders x average selling price) to determine how much revenue is generated by adverts.
- Amazon RoAS (return on ad spend): Ratio that calculates how much income is earned for every dollar spent on advertising.
- Amazon ACoS (advertising cost of sales): a percentage calculation of (ad expenditure / ad revenue) to see how much of each dollar of revenue is spent on advertising.
How to Hit Your Target ACoS on Amazon ?
Make Your Product Pages More Effective
Your product page and price are only half of the converting equation. If your product ranking and Amazon PPC campaign are both excellent, but your product page isn’t, the potential customer will move on to another related product.
Ensure that your Amazon product listing appeals to the A10 algorithm by determining whether your product page effectively explains what the product is, who it is intended for, and how to acquire it.
The following are characteristics of a great product page:
- A detailed description of the product
- High-quality photos and videos of products
- A large number of positive reviews
- Eligibility for Amazon Prime
For the best ACoS results, make sure to optimise your Organic Product Listings for SEO as well as PPC.
Make sure your titles are optimised.
When people come across your sponsored product listing, one of the first things they notice is your title. You must optimise your title to attract more relevant leads to your page.
The title should be focused on your keywords and the content that surrounds them. Let’s consider the example of the fluffy holiday socks. What relevant information would you expect to see in the title if someone is looking for those socks?
Material, pattern, and size information would all be important. This type of content might even lead someone to your listing because it appears to be relevant to their search query.
You can attract more visitors to your ad by using a relevant headline. It will assist you in capturing more qualified leads for your brand.
Concentrate on the right keywords
You must choose the proper keywords for your listing if you want to attract relevant leads who will convert. Keywords will assist you in attracting more leads to your advertisement.
You may attract more customers who are interested in your items without spending more money on advertising if you choose the proper keywords. Simply by selecting the right keywords, one ad can get dozens of prospects.
So, how do you go about selecting the best keywords for your ad?
The very first thing you should do is perform some keyword research. If you’ve ever done keyword research for search engine optimization (SEO), you should know that keyword research and optimization for Amazon is a little different.
Determine the appropriate bid amount.
The most common blunder made by businesses is establishing the wrong bid amount. They were either too low or too high in their bids. You must choose the proper bid amount for your adverts if you want to get the most bang for your buck and decrease your ACoS.
So, how do you figure out what your ideal bid amount is? Here’s a formula to get you started in the right direction:
You multiply the average order value by the conversion rate. You will divide this amount by 1 divided by the Target ACoS.
(Order Value * Coversion Rate)/(1/TACoS)
You’ll get your projected bid amount after plugging this information into the equation. This will assist you in staying on track with your bid amounts and determining the amount that will produce the best outcomes for your campaign.
Conclusion
The bottom line is that because it relates to personal strategy and revenue, there is no actual definition of a “good” or “bad” ACoS. When someone mentions “excellent ACoS,” they’re usually referring to a low ACoS for maximum profit.
At the end of the day, a series of simple math calculations can help you comprehend your ACoS on Amazon. Approach each statistic one by one as you explore what’s producing changes in your Amazon ACoS, and look for disproportionate changes.
