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Every Amazon Seller has heard the buzzword “Amazon ACoS,” but what is ACoS? ACoS, or “Advertising Cost of Sale” is a performance metric provided by Amazon for ad campaigns in the Amazon Advertising console. In 2021, Amazon Pay-per-Click (PPC) advertising is used by over 75% of Amazon Sellers, and so knowing what all the key performance metrics mean, how to calculate them, and most important of all, knowing how to optimize them is vital.
We will tell you what Amazon ACoS is and how it can be analyzed and how you can find your own perfect target ACoS benchmark.
What is Amazon ACoS?
What is Advertising Cost of Sale, or ACoS meaning for short? Quite simply, ACoS is the ratio of your total ad expenditure to your total sales revenue. In essence it tells you for every dollar you spent on ads, how many dollars revenue you made.
ACoS can be calculated at basically every level of an ad campaign.
You can enable it by going to Amazon Seller Central -> Advertising -> Campaign Manager -> Click the “Columns” button -> Customize Columns -> Check the Advertising Cost of Sale box.
Amazon automatically calculates your ACoS on 4 levels:
- Account level – average ACoS for ALL campaigns over a specified period of time (as shown in the graph)
- Campaign level – average ACoS across all keywords and ad groups in an ad campaign over a specified period of time
- Ad group level – average ACoS for an ad group (a group of keywords) in a campaign over a specified period of time
- Keyword level – total ACoS for one individual keyword over a specified period of time
To see ACoS on ad group and keyword level simply click into the campaign and enable the column as mentioned previously.
What is MY AcoS?
Amazon ACoS calculation is simple, the formula to calculate is simply a ratio of spend to sales, like mentioned before.
For example, if you spent $1.5 on a keyword and received $5 in sales, then your ACoS is (1.5/5)*100 =30%.
You may infer from this formula that a lower percentage of ACoS is preferable. A lower ACoS means your numerator, aka your total ad spend – is lower compared to how many sales you’re getting. That inference isn’t accurate because that would make the ideal ACoS as low as 1%, which is basically impossible!
Therefore, a low ACoS is good, but it might not be the best ACoS for you. So what is a good ACoS on Amazon?
Sounds confusing doesn’t it? Think of it in terms of these scenarios:
- Scenario 1: You spent $100 in ad spend and received $250 in sales, getting you an ACoS of 40%.
- Scenario 2: Your competitor spent $10 in ad spend and received $40 in sales, getting an ACoS of 25%.
Given only the ACoS percentage as a performance metric, you may think your competitor is doing better than you… Yet, take a closer look at the sales revenue. You’re making $250 on the same product they only made $40 for in the same period of time. This is why even if you have a higher ACoS, it doesn’t mean it’s bad.
Many “Amazon Gurus” will tell you the lower ACoS is, the better, but it’s a lot more complicated than that. It’s important not to generalize what’s arguably the most important Amazon PPC performance metric. ACoS can’t be generalized across accounts! It depends on many factors including your product category, your profit margins, and your target sales. This is why every seller should calculate their own personalized Amazon ACoS, and we’ll tell you how to do it.
Step 1. Calculate your Breakeven ACoS
Before you can calculate your true target ACoS you have to find your breakeven ACoS. Your breakeven ACoS is the ACoS percentage you need to “break even” in your profits. To “break-even” means that your revenue can cover your costs, so breakeven ACoS is the percentage beyond which you will start losing money.
For example, if your total profit margin is 30%, then your breakeven ACoS will also be 30%.
Your breakeven ACoS is essentially your total profit margin before you account for ad spend. So if your breakeven ACoS is 30%, if you don’t go over that mark, you won’t be losing any money, because your ad spend was taken out of your profits.
This is a useful metric for product launches. During the first stage of your product lifecycle, you can maintain breakeven ACoS to maximize ad impressions without losing any money. Later on, you can gradually decrease ACoS so you begin making profits on those products which you pushed to the top rankings during your product launch.
Step 2. Decide Your Target Profit Margin
After finding your breakeven ACoS, you need to decide your target profit margin. This is NOT the same as the total profit margin mentioned in step 1! This is the margin that determines your net profit after you have already accounted for ad spending.
For example, your breakeven ACoS is 30%, and you want to at least have a net profit of 15% after ad spend.
Then, your target profit margin is 15%. This margin depends entirely on how much you are willing to spend on ads.
Step 3. Find your Target ACoS
The final step is to find your target ACoS using your target profit margin and your breakeven ACoS. This is easy, it’s simply the difference between the two values. Your target ACoS is the percentage that allows you to hit your target profit margin.
For example, your breakeven ACoS is 30%, and your target profit margin is 15% like mentioned before.
Target ACoS = 30% – 15% = 15%
Therefore, you need a target ACoS of 15% or lower to achieve your target profit margin.
What is the “Perfect” ACoS?
This is a trick question, because there are no “perfect” ACoS. ACoS depends on too many account-specific and product-specific factors for there to be an overarching target ACoS for EVERYONE.
With enough data you can calculate the average ACoS for sellers in a certain product category and use that as a benchmark. Still, we advise against doing this! Other sellers may already be established brands, and thus need to spend less on ads than you. This will skew your benchmark and make that “perfect” ACoS unachievable.
Still, if you are truly lost on what is a good target ACoS, we recommend anywhere between 30-40%.
Go for a higher target ACoS if your product is being launched and is in “Growth Mode.” You can always optimize later on, once you have enough reviews and rankings to invest less in ads.
How do I reduce my ACoS?!
ACoS is a complicated and finicky metric, it’s hard to pinpoint when you’re doing well especially if you have varying targets for different ad campaigns. For instance, you may have 5 ad campaigns for product launches, and another 15 that are existing products. The ACoS for the launch campaigns will be high and skew your total average ACoS for your seller account.
An OBVIOUS indicator of a bad ACoS is anything above 80%, especially if your ACoS is 100% or more. At that point, you need to start thinking of ways to reduce your ad spend.
Some strategies to reduce your ad spend include:
- Optimize your product listings with backend search terms
- Improve the quality of your product photos and videos
- Find the best times to advertise and utilize dayparting or weekparting strategies
- Find better keywords, and let go of the underperforming ones
- Optimise your bids, are you bidding too high? Or too low?
- Use Amazon PPC Management Software to optimise your ACoS for you
Other Performance Metrics
Other than ACoS, there are other key performance metrics that you can analyze to optimize your Amazon PPC Campaigns, these include impressions, clicks, clickthrough rate, conversion rate, and cost per click. ACoS is unique in that it provides an overall view of your ad expenditure compared to sales, but solely using ACoS to optimize campaigns is not enough.
Cost per click, clickthrough rate and conversion rate are 3 extremely valuable metrics that all sellers should be tracking for their ad campaigns on a keyword level. We recommend using Amazon PPC tools like our very own to keep track of these performance metrics.
In conclusion, advertising cost of sale is a complicated but vital Amazon PPC performance metric. All sellers should set themselves unique target ACoS for each ad campaign, and consistently analyze changes in ACoS over time. We hope you found our article helpful for your future ad campaigns!
If you have questions or insights to share, please feel free to post them via the comments section. Please also consider joining our Facebook Group where we discuss any questions you may have about running an Amazon business.
We are SellerMetrics, our Amazon PPC Software helps Amazon sellers, brands, KDP Authors and agencies navigate Amazon Advertising PPC via bid automation, bulk manual bid changes, and analytics.