Articles

How to Reduce ACoS on Amazon (8 Proven Tactics)

Shivam Kumar

12 Oct 2023

Are you an Amazon seller looking to maximize your profits and minimize your advertising costs?

If so, you’re not alone. Many sellers struggle with high Advertising Cost of Sales, which can significantly impact their bottom line.

But fear not! In this blog post, we will unravel the mysteries of ACoS and provide you with practical tips and strategies to reduce it effectively.

Table of contents:

What is Amazon ACOS?

ACOS stands for “Advertising Cost of Sales,” and it is a key metric that indicates what percentage of ad sales you are spending on advertising in relation to the sales generated from that advertising.

It can be calculated using the following formula: (Ad Spend / Ad Sales) x 100

A lower ACOS is typically more desirable for sellers because it signifies that you are spending a smaller portion of your sales on advertising. However, the ideal ACOS can vary depending on the competition, stage of the business, and profit margins.

How to Reduce ACOS on Amazon

The Advertising Cost of Sales (ACoS) in your campaign depends on three key factors: the average selling price (ASP) of the product being advertised, the cost per click (CPC) you pay, and the conversion rate (CVR) of your ad campaign.

To achieve a better ACoS for your campaigns, it’s advantageous to have a higher ASP, lower CPC, and a higher conversion rate. These three factors working together can result in more favorable ACoS outcomes for your campaigns.

However, it’s important to note that influencing the ASP may be challenging in most cases, especially in a competitive category where your products are already competitively priced. Nevertheless, there are strategies you can use to influence both the CPC and the conversion rates, which can have a positive impact on your campaign’s ACoS. Let’s explore some tips and techniques to influence CPC & CVR and eventually Improve ACOS on Amazon.

1. Manage your bids effectively

Bid management plays a crucial role in achieving a low ACOS on Amazon. If you are not consistently increasing the bids for well-performing targets and decreasing them for high ACOS targets, then it is highly likely that you’ll have a high ACOS in your campaigns.

However, effective bid management is not as simple as it sounds. You need to consider different approaches for different types of targets (branded, generic, competitor), match types of targets (auto, broad, phrase, exact, product), and the stage of the target (newly added vs old ones).

We would highly recommend using a bid automation software like Adbrew that can help you in creating automated bid management rulesets for various types of targets.

2. Target less competitive long-tail keywords

Long-tail keywords are very specific phrases that generally have lower search volume but are often associated with higher intent. These keywords tend to have less competition, leading to lower CPCs and a higher conversion rate if they are closely related to your product.

Tailoring your campaign to include a mix of these keywords can help reduce overall CPC and improve CVR. An indicator of the level of competition can be obtained from the suggested bid by Amazon.

3. Switch to the “Down only” bidding strategy

Are you using the ‘up & down’ or ‘fixed’ bidding strategy in your high ACoS campaigns?

With the “up and down” strategy, Amazon can automatically increase your bid by up to 100% for placements at the top of the first page of shopping results and by up to 50% for other placements.

This strategy is more suitable for good-performing campaigns, as it can bring you additional sales that you might not get with the base bid alone.

However, for high ACoS campaigns, it is always recommended to use the “down only” bidding strategy, as it tends to perform the best among all three bidding strategies.

4. Leverage negative keywords

Negative keywords are keywords or ASINs for which you don’t want your ads to appear. When you add negative keywords to your Amazon PPC campaigns, you are telling Amazon not to display your ads when a user searches for those specific terms.

If you are running a lot of discovery campaigns, such as auto, broad match, phrase match, or category targeting, there is a high chance that your product might have a very low conversion rate or not convert at all for some search terms in those campaigns.

In such cases, by adding those terms as negatives, you can filter out such irrelevant traffic, which helps save ad spend.

5. Prioritize the best performing child ASIN

When you find that among the various child products of a parent ASIN, one variation is outperforming the others, consider focusing your advertising efforts primarily on that top-performing variation. Doing so is likely to result in a higher conversion rate and, consequently, a lower Advertising Cost of Sale in the ad campaign.

6. Optimize the placement modifier of the campaign

Amazon provides you placement-level data and bid control for all three placements within each Sponsored Products campaign: Top of search, Product page, and rest of search. Using the placement modifier strategically can help you improve the ACOS of your ad campaign.

If you observe a particular placement within your campaign exhibiting a low conversion rate and a high ACoS, reducing the placement modifier can help you lower your CPC and minimize your ad spend on that specific placement.

Conversely, if you identify that one of the three placements significantly outperforms the others in terms of ACoS, increasing the placement modifier for that particular placement will enable you to drive more sales with a better ACoS.

In the first campaign, the “top of search” placement is performing worse than both the “product page” and “rest of search.” However, the brand is currently using a higher placement modifier for the “top of search” compared to the other two placements. Reducing the placement modifier for “top of search” could potentially help reduce wasted ad spend.

Conversely, in the second campaign, the “Top of Search” placement is performing significantly better than the other two placements. Nevertheless, the brand isn’t utilizing any placement modifier for “Top of Search.” Implementing a placement modifier can help drive more orders from the placement with a better ACOS.

Ready to get started with Adbrew?

Rest of search placement bid modification is only available via API. Leverage Adbrew to adjust all three placement modifiers for your campaign.

7. Utilize dayparting based on hourly performance data

If you have access to ‘marketing stream data,’ you can identify the low-converting and high CPC hours and days of the week for your ads.

Here is an example of the hourly performance trends for a brand using Adbrew:

In the above example, the brand has either no sales or very high ACOS during the first 7 hours and the last 5 hours of the day.

In this case, brands have an opportunity to set up a dayparting strategy to decrease bids during these specific hours, with the aim of reducing wasted ad spend.

Furthermore, marketing stream data and hourly control are not limited solely to bids. You can also similarly analyze the placement and budget data of your ad campaign at an hourly granularity to adjust placement modifiers and budgets based on the hourly trends.

8. Optimize your product listing

Your product listing plays a crucial role in your product’s conversion rate. Here are some tips to help you optimize your product listings:

High-Quality Images & Infographics: Use high-resolution main images that accurately showcase your product, and include multiple supporting infographics to help customers visualize the product better.
Compelling Titles: Craft clear, concise, and keyword-rich product titles that include key product features, benefits, and relevant keywords that potential buyers might use in their search.
Informative Bullets and Descriptions: Use bullet points to highlight the most important features and benefits of your product. In the product description, provide detailed information, specifications, and explain how the product solves a problem for customers.
Clear and Accurate Information: Be transparent about your product’s specifications, dimensions, materials, and any potential limitations. Avoid exaggerations or false claims that could lead to negative reviews and returns.
Compelling Product Story: Create a unique and engaging brand story that resonates with your target audience. Highlight what sets your product apart from competitors and why customers should choose it.
Competitive Pricing: Research your competitors’ prices and set your product’s price competitively. Highlight any discounts, promotions, or value-added bundles in your listing.
Variation Listings: If applicable, create variation listings for different product options (colors, sizes, etc.). This streamlines the buying process for customers looking for specific variations.
Use of Enhanced Brand Content (EBC): If you have a registered brand on Amazon, take advantage of Enhanced Brand Content to add more detailed product information and engage customers with your brand story.

Final thought on how to reduce ACOS on Amazon

In conclusion, while optimizing your campaign to improve ACOS on Amazon might seem like a daunting task, it’s a critical element for success in the highly competitive world of e-commerce. By carefully monitoring your campaigns, conducting thorough keyword research, carefully calibrating the bids and targets, and refining your product listings, you can steadily bring your ACOS down and improve the overall profitability of your Amazon business.

Remember that reducing ACOS is an ongoing process that requires patience and persistence. Continuously test and adjust your strategies, and be prepared to adapt to changes in the marketplace.