What Is Amazon ACOS and How to Calculate It?
In the fierce Amazon advertising domain, where competition rises and costs increase, understanding and keeping track of the right metrics for your Amazon ads is crucial.
One essential metric for your Amazon ads is the Advertising Cost of Sales (ACOS), which tells you how effective and ineffective your ad campaigns are based on business objectives.
In this blog post, we will discuss what ACOS is on Amazon, how to calculate ACOS, how to improve it, and more.
What is Amazon ACOS?
ACOS stands for Advertising Cost of Sales. It’s a metric that is used to measure the performance and effectiveness of advertising campaigns on Amazon, particularly within Amazon Sponsored Products, Sponsored Brands, and Sponsored Display ads. ACoS calculates the ratio of advertising spend to the attributed sales generated from that advertising spend.
How is ACOS Calculated?
Amazon Advertising Cost of Sales (ACOS) is calculated by dividing the advertising spend by the attributed sales and multiplying the result by 100. In mathematical terms, ACOS is expressed as (Advertising Spend ÷ Sales from Advertising) x 100.
For example, if you spent $50 to generate ad sales worth $100, your ACOS would be 50%.
A lower ACOS indicates higher efficiency, suggesting that a smaller percentage of the sales revenue was used to drive sales.
What Impacts ACOS on Amazon?
1. Competitiveness (CPC): Competitiveness in a category plays a big role in the ACOS of your product. If a lot of brands are aggressively bidding in your category, that would drive the CPC up and eventually lead to a high ACOS due to the higher costs incurred to drive an order.
2. Conversion Rate: The conversion rate is another crucial factor that influences your product’s ACOS. A higher conversion rate typically means a better ACOS because you need fewer clicks to drive an order.
3. Relevancy of Keywords: The more relevant keywords your product is advertised for, the better conversion rate and eventually ACOS you can expect. For instance, if you are selling gluten-free white bread, then the conversion rate for the most relevant term, “gluten-free white bread,” is going to be much better than for “white bread,” as the first keyword’s relevancy closely matches the advertised product.
What is the difference between ACOS and ROAS?
A universally accepted definition of an ideal Advertising Cost of Sales (ACOS) doesn’t exist, as its assessment depends on several influencing factors. When determining the optimal average ACOS for your brand, consider the following factors:
- Profit Margins: ACOS should align with your profit margins. A “good” ACOS differs based on the product’s profitability. Higher-margin products can afford a higher ACOS compared to lower-margin ones.
- Product Lifecycle: A new product might have a higher ACOS initially as you invest in advertising to gain visibility. Over time, as it gains traction and organic sales increase, a lower ACOS might be achievable.
- Competitive Landscape: ACOS varies across categories and depends on the competitiveness within each. Highly competitive categories might have higher ACOS benchmarks due to increased ad costs.
- Advertising Strategy and Goals: The ACOS may vary depending on the campaign objective. In instances where the primary goal is to raise awareness, the ACOS is likely to be higher. Conversely, campaigns focused on maximizing efficiency tend to yield better ACOS.
- Seasonality and Trends: ACOS can fluctuate based on seasonal demand and trends. What might be a good ACOS during peak seasons could vary significantly during off-peak times.
- Target Audience and Product Demand: Understanding your target audience and their demand for the product influences what constitutes a good ACOS. High-demand products might justify a higher ACOS.
- Campaign Type and Goals: Different ad campaign types (such as Sponsored Products, Sponsored Brands, or Sponsored Display) might have varying ACOS thresholds based on their specific goals and performance metrics.
What is the difference between ACOS and ROAS?
ACOS (Advertising Cost of Sales) measures what percentage of sales revenue you have spent on Ads to drive those sales.
On the other hand, ROAS (Return on Advertising Spend) measures how much revenue you make in sales for each dollar you spend on ads.
For instance, if you spent $50 to drive $100 in sales, ACOS would be 50%, and ROAS would be 2x.
Both metrics are essentially used for the same thing, measuring the effectiveness of your ad spend.
What is a Good ACOS on Amazon?
A universally accepted definition of an ideal Advertising Cost of Sales (ACOS) doesn’t exist, as its assessment depends on several influencing factors. When determining the optimal ACOS for your brand, consider the following factors:
- Profit Margins: ACOS should align with your profit margins. A “good” ACOS differs based on the product’s profitability. Higher-margin products can afford a higher ACOS compared to lower-margin ones.
- Product Lifecycle: A new product might have a higher ACOS initially as you invest in advertising to gain visibility. Over time, as it gains traction and organic sales increase, a lower ACOS might be achievable.
- Competitive Landscape: ACOS varies across categories and depends on the competitiveness within each. Highly competitive categories might have higher ACOS benchmarks due to increased ad costs.
- Advertising Strategy and Goals: The ACOS may vary depending on the campaign objective. In instances where the primary goal is to raise awareness, the ACOS is likely to be higher. Conversely, campaigns focused on maximizing efficiency tend to yield better ACOS results.
- Seasonality and Trends: ACOS can fluctuate based on seasonal demand and trends. What might be a good ACOS during peak seasons could vary significantly during off-peak times.
- Target Audience and Product Demand: Understanding your target audience and their demand for the product influences what constitutes a good ACOS. High-demand products might justify a higher ACOS.
- Campaign Type and Goals: Different ad campaign types (such as Sponsored Products, Sponsored Brands, or Sponsored Display) might have varying ACOS thresholds based on their specific goals and performance metrics.
How to Find the Break-even ACOS?
Break-even ACoS (Advertising Cost of Sales) on Amazon is the point where your advertising costs are covered by the revenue generated from your sales, resulting in neither profit nor loss.
To calculate break-even ACoS, add the Amazon fees per sale, product cost per sale, and desired profit margin to the revenue per sale. Divide the total by the revenue per sale and multiply by 100 to get the percentage.
This percentage represents the maximum ACoS you can afford without operating at a loss. By monitoring and adjusting your advertising strategy based on this metric, you can ensure a sustainable and profitable campaign.
How to Optimize ACOS on Amazon?
There’s always continual scope for enhancing your campaign’s ACOS, regardless of your current ACOS. Here are some of the most popular ways to optimize your ACOS:
- Keyword Optimization: Refine and optimize your keyword strategy by focusing on high-converting, relevant keywords. Regularly review and adjust your keyword selection to target more specific, less competitive, yet converting terms. This enhances the relevance of your ads to potential customers, potentially lowering ACoS by improving ad performance.
- Optimize Bids: A proper bid management system is super important to optimize the ACOS of your campaigns. You need to adjust bids for high-performing keywords to enhance visibility and sales while reducing bids for underperforming keywords to minimize costs.
- Product Listing Optimization: Enhance your product listings by improving product images, descriptions, titles, and bullet points. A compelling and informative product page increases the likelihood of conversions, potentially reducing ACoS by improving the conversion rate.
- Negative Keyword Implementation: Utilize negative keywords to filter out irrelevant searches triggering your ads. By excluding irrelevant or non-converting search terms, you can focus your ad spend on more relevant and potentially higher-converting searches, thereby reducing wasted ad spend and improving ACOS.
What is TACOS (Total Advertising Cost of Sales)?
While ACOS measures the correlation between ad spend and ad revenue, TACOS (Total Advertising Cost of Sales) offers a broader perspective by illustrating the correlation between ad spend and overall revenue, combining both organic and ad-attributed sales. It is calculated by dividing the total ad spend by total sales and multiplying by 100.
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Conclusion
In conclusion, understanding and managing ACOS (Advertising Cost of Sale) is crucial for assessing the effectiveness of Amazon’s PPC campaigns. While there’s no one-size-fits-all definition of a “good ACOS,” various factors like profit margins, competitive landscape, and advertising strategy influence its evaluation. Employing strategic approaches such as keyword optimization, ad campaign refinement, product listing enhancements, and negative keyword usage can help optimize ACOS.
Frequently Asked Questions:
What is the difference between target ACoS and break-even ACoS?
Break-even ACoS is the point where your ad spend just covers your costs, while target ACOS is your spot for making a profit. Break-even is your minimum goal, but your target aims for both growth and profitability based on your business needs.
What does low ACOS mean?
Low ACOS means you’re spending less money on ads to generate the same amount of sales, translating to a higher profit margin.
What are some common ACOS mistakes?
- Focusing solely on ACoS: Don’t neglect other important metrics like sales volume and profit margin.
- Setting unrealistic ACoS goals: Aim for a realistic ACoS that aligns with your business goals.
- Ignoring negative keywords: Don’t let irrelevant searches drain your ad budget.
- Not tracking your ACoS: Regularly monitor your ACoS and make adjustments as needed.
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