Amazon ACoS: What It Is and How to Calculate It
Advertising is crucial to running a successful online business, and Amazon is no exception. The meaning of ACoS is Amazon Advertising Cost of Sales. It’s a metric used to measure the profitability of your advertising campaigns on the retail giant’s website. Take a look at your ACoS to understand and measure the success of your sponsored advertising campaigns.
Whether experienced or starting out, this guide will show you all you need to know about what is ACoS Amazon. How do you calculate it? What factors influence the metric? What’s a good ACoS value? And how do you improve it? This post will answer all your questions on Amazon ACoS.
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What Is Amazon ACoS?
Amazon ACoS, meaning Advertising Cost of Sales, is a crucial metric in Amazon Pay-Per-Click advertisement. It measures the performance and profitability of sponsored product campaigns. You can determine the answer to two key questions:
- How much did you spend to generate sales from your advertising campaigns?
- Was the advertising campaign profitable?
To calculate Amazon ACoS, divide the total advertising cost by the total sales generated from the advertising. The resulting percentage represents the cost of sales attributed to advertising. A lower percentage indicates a more profitable campaign.
Benefits of Tracking Your ACoS
Tracking your Amazon ACoS holds several benefits for your business, such as
One benefit of tracking your ACoS is that you increase the profitability of your business. With proper tracking, you identify ways your advertising spend yields more sales. For example, you optimize campaigns, choose better keywords and optimize your bid strategy. Increased ad efficiency lowers marketing spending and increases profitability.
By tracking your ACoS, you identify which campaigns, ad groups, and keywords drive the most sales. This information helps you decide which campaigns to invest more in and which to reduce or stop. You identify which audiences, placements, and targeting options are the most profitable. You can adjust your targeting accordingly. This helpx you reach the right people and increase their chances of purchasing.
Data-Driven Insights for Future Campaigns
The data you get from tracking your ACoS allows you to better forecast your advertising spending and sales, and make better business decisions. Using the data, you can plan your budget, allocate resources, and make informed decisions about future investments.
How Amazon Calculates ACoS
For advertising on Amazon, you have to create ad campaigns in your Seller Central account. You configure the campaign with the search keywords you want to target. You also enter the bid amount, the amount you are willing to pay for your ad to show up in a particular search. When customers search for the words on the platform, your products show up under sponsored ads in search listings and you pay per click.
For the most part, Amazon automatically calculates the value across four levels.
At the campaign level, Amazon calculates ACoS by dividing the advertising cost by the campaign's total sales. Amazon considers all the charges incurred by the campaign over a given time. It also considers the corresponding sales generated you can attribute to that campaign. You get an idea of which campaigns are effective and which are not.
Ad Group Level
Ad groups let you group together common products so they share the same target keywords and bid values. Amazon calculates ACoS at the ad group level by dividing the total advertising cost for all grouped products by the total generated sales across all. Calculating the metric at the ad group level over a timeframe gives you a more detailed view of a campaign’s performance. It also reveals underperforming ad groups.
Amazon calculates ACoS on the keyword level by dividing the advertising cost by the total sales generated for a particular keyword. It can show how each keyword performs within a timeframe. But it is less accurate than ACoS at the ad group or campaign level.
At the account level, you can determine your ACoS by dividing the total advertising spend by the account's total sales volume for all ads. In doing this, Amazon considers all the charges incurred by your ad account across all campaigns, ad groups, and keywords. It also finds the corresponding sales generated by that account during that timeframe.
Account level ACoS gives you an overall understanding of your advertising account's performance. It also helps you identify the ad groups, campaigns, or keywords that need optimization. With this information, you can make better-informed decisions on allocating your advertising budget to improve your campaigns.
General ACoS values for Amazon
As a rule of thumb, you should aim to keep the metric lower than your profit margin. Let’s look at different value ranges and where you fit in.
Average ACoS value
Across Amazon, the metric varies depending on the industry, product category, and advertising budget. However, a good benchmark is between 20% and 30%. This means that for every $1 in sales, you should spend between $0.20 and $0.30 on advertising. This is just the average benchmark or point of reference. Your average ACoS may vary depending on competitiveness, product category, and stage in the product lifecycle.
A low value means that your advertising costs are low relative to the sales generated from your advertising campaigns. Generally, you should always aim for a lower percentage. It indicates that you are spending less on advertising to generate a certain amount of sales, typically between 10% and 20%.
For example, if your ACoS is 10%, it means that for every $1 in sales, you are spending $0.10 on advertising. This suggests that you’re getting a good return on your advertising investment. It also means that your advertising campaigns are efficient and effective. You are targeting the right audience, using relevant keywords, and having a high conversion rate. A low ACoS may also indicate that your product has a high-profit margin. Keep up the great work!
A high Amazon ACoS (more than 35%)means that your advertising costs are high relative to the sales you generate from your campaigns. High values are less desirable because it shows that you're spending more on advertising. It may mean your campaigns are less efficient. You’re probably targeting the wrong audience, using irrelevant keywords, or getting a low conversion rate. It could also be a sign that your product has a low-profit margin.
However, it's important to note that a large ACoS value isn't always a bad thing. Sometimes, your marketing strategy may require it. For example, you may consider increasing ad spend if your goal is to increase business visibility and dominate your niche.
What Is the Best Value ACoS on Amazon?
At this point, one question you may have is, "what is a good ACoS on Amazon? Although a low value is generally a positive sign of the performance of your advertising campaigns, remember that the ideal target varies depending on your business and goals. Your advertising objectives typically determine what is the best value of the metric for your brand.
For example, if your goal is to sell a poor-converting product you may tolerate a higher ACoS value. After all, a higher marketing spend is helping you release cash locked into items just lying in the warehouse. If your goal is to maximize earnings, you want to focus on lowering your ACoS and maximizing efficiency. For high visibility and awareness, your ACoS will again be more as you spend more to raise brand awareness and get those initial reviews.
Consider your profit margins, sales goal, and efficiency when determining your best ACoS for Amazon ads.
What Is Break-Even ACoS and How Can You Calculate It?
The definition of Break-even ACoS is the point at which advertising costs equal the revenue generated from the ad campaign. In other words, it’s the point at which your business is not making a profit or loss from advertising. You can calculate break-even ACoS using your profit margin. You're at break-even ACoS when your ACoS equals your product’s profit margin. After that, every additional dollar spent on ads is going out of your own pocket!
What Factors Influence Your ACoS Value?
Several factors can influence your ACoS value.
The cost of your advertising campaigns directly impacts your ACoS. This includes cost-per-click (CPC) and automatic targeting costs. The higher your advertising cost, the higher the ACoS will be. So, track your ad costs and adjust as needed to keep them as low as possible. Thankfully, with a tool like the PPC Optimizer for Amazon tool by Semrush, you can easily optimize your ad campaigns even further to minimize your spending.
You calculate Click Through Rate(CTC) by dividing the impressions or ad views with the number of clicks. It indicates the relevance of your ad for particular keywords. For example,let’s say you sell a peeler and you target the term gifts for mothers. However, your CTC is low—buyers searching for mother’s day gifts are not looking for peelers. A low CTC automatically increases your ACoS. You need to find better keywords to target. A tool like Keyword Wizard for Amazon will help you find more relevant words for your product listing.
Return on Advertising Spend
You can determine your Return on Advertising Spend (RoAS) by dividing your ad revenue by your expenditures. This ratio describes the profit you make per dollar of advertising expenditure. As RoAS increases ACoS decreases. A higher RoAS is possible by improving your target keywords and product listings. Listing Quality Check for Amazon is an amazing tool to automatically check and improve your product pages on the platform.
How to Reduce the Value of Your ACoS
There are several ways to reduce the value of your Amazon ACoS:
Choose the Right Keywords
Using relevant keywords in your campaigns increases the chances of the right audience seeing your ads. You must:
- Research keywords relevant to your products
- Monitor search terms reports
- Adjust your keywords regularly to reflect changes in consumer behavior.
One way to determine the right keywords is to research your competition. Search Insights for Amazon is a tool that shows you how competitors are benefiting from specific keywords. You can pick the best words for yourself based on their results! Instant Keyword Research for Amazon is another tool that lets you collect your competitors' top keywords in a click.
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Optimize Page Content, Including Headings
Optimizing your product page listing increases your conversion rate and generates more sales on less budget. Some tips include:
- Use relevant and descriptive headings to optimize your product page.
- Include keywords in your titles that accurately describe your products.
- Write clear, concise, and persuasive product descriptions.
- Include information about the product's features and benefits
- Create videos showing real customers using your products to solve their problems.
Your listings will attract more traffic and retain visitors on your page longer if they contain relevant details. This will lead to more conversions and reduce your ACoS value.
Set the Right Rate
Setting the right rate for your bids is another way to reduce the value of your ACoS. Several businesses often bid either too high or too low, affecting ad campaigns. Amazon offers several bid strategies like dynamic bids, fixed bids, and bid+. Choose the right bid strategy to achieve your desired ACoS. Be mindful of your budget and adjust your bids accordingly. If you have a limited budget, you may need to bid lower on keywords to ensure you spend your money wisely.
Find the Best Time for Your Ad
Some products have higher demand during certain times of the year. You can use seasonal sales to your advantage. For example, gardening items sell more in spring, while back-to-school items sell better in July-August. Also, ads perform better on some days of the week than others Weekend ads tend to be more effective. Finding the best time to run your ads effectively reduces the value of your Amazon ACoS. Some ideas to keep in mind:
- Review previous campaign data to understand when your ads have performed best.
- Look for patterns in the data, such as which days of the week, months, or times of day have the highest conversion rates
- Regularly track your campaign performance and make adjustments to your ad schedule
By running your ads when they are most effective, they’ll convert better. Then, you can spend less on advertising and reduce your ACoS.
The Amazon ACoS metric is straightforward. Lower it to ensure your advertising campaigns are most effective and yield the maximum possible sales. While the average value ranges from 20-30% your target may change based on immediate marketing goals. However, you don't want to go above your profit margin to increase sales. Instead, you can study other metrics like CTC, CPC, and RoAS. Constantly look for ways to lower ACoS and get the most out of your ad spend!
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ACoS is just one of the advertising metrics on the platform. To understand advertising campaigns in detail, read The Complete Beginners Guide to Amazon Advertising in 2023.