Amazon ACoS is something most sellers base their ad campaign success on. If you run ads on Amazon, or have done any research into how it works, you’ve probably come across the acronym ACoS.
If you haven’t heard of it, ACoS, or advertising cost of sale, is used to measure how well your advertising campaigns on Amazon are performing.
How do you calculate ACoS?
Thankfully, ACoS is an easy enough formula to calculate.
Amazon ACoS is calculated like this:
(Ad Spend ÷ Sales Revenue)
For example, if you spend $10 to advertise Product A and the advertisement gained you a single sale of $50, then your Amazon ACoS would be calculated like this (10 ÷ 50) x 100 = 20.
What’s a good Amazon ACoS?
But what is considered good Amazon ACoS? Determining what is a good or bad ACoS is not as simple. You’ll need to take into account the whole cost structure of your product in order to figure out what is good ACoS. In order to not experience a loss on your Sponsored Product Listings, you’ll need to spend less than your profit margin on your advertising campaigns. Profit margin is the amount you make after all costs (cost of production, shipping, general costs like employee salaries, storage fees, etc.) and fees paid to Amazon are subtracted from the price the product is sold at. An example of what cost structure might look like is pictured on the right.
When trying to gauge how profitable your Amazon Sponsored Product Listings are, you also need to take into consideration some other metrics, along with ACoS, in order to make a clear determination.
Impressions: Determine how popular the product is. If impressions are high, then the product is in a popular category so the ad is being shown a lot. If impressions are low, then even though the ad is being displayed often, the product may not be as popular.
Total Clicks: If your click-through-ratio is low, the ad may have no had a good position or Amazon users may have not been drawn to click on the ad.
Total Spend: Consider how much you spent on the ad and what the cost per click was. It’s important to ensure you are not overspending on your ads based on your product’s price. If you spend too much, you’ll lower your profit margin considerably.
Overall Sales: Look at how many clicks there were versus how many sales resulted from those clicks. If clicks are high and sales are low, the content of your ad may need to be changed.
When is a higher ACos Acceptable?
Even though you usually want to shoot for at least breaking even on Amazon ACoS, there are some instances when it may be beneficial to choose more aggressive strategies that will result in a higher ACoS. For example, if you are launching products within an especially competitive niche where it is too competitive to generate sales at a break even ACoS, or you want to sell excess inventory because your goal is to clear inventory as fast as possible even at a loss rather than having to pay additional storage fees to Amazon. You might also just want to raise your brand awareness, with a goal of being ranked on the first page for all important keywords in a specific product category. Accepting a higher ACoS in these scenarios makes sense, because the value of the visibility generated for your brand is more than the loss taken on the products you sell.
Choose the ACoS strategy that works for your business
Speaking of marketing strategies, determining whether ACoS is good or bad is also dependent on the goals of the strategy you choose for each campaign. You could use Sponsored Product Listings to increase sales velocity, which will help improve organic rankings, in which case an ACoS of 20% might be good. This strategy prioritizes selling as many units through the ads as possible, while not incurring any losses. Amazon sellers usually utilize this strategy when launching new products without a proven track record on Amazon. If you are wanting to maximize profits, this strategy is probably not one you want to employ. Using Sponsored Product Listings to maximize profits as much possible is best suited for products that already have good organic rankings.
When trying to interpret how successful your campaigns are, especially based on ACoS, it’s best to remember that patience is key. When first launching campaigns, ACoS may look terrible. Preferably you should let campaigns run for two weeks at least, with a month being ideal, so that enough data can be collected. Data within Amazon doesn’t start to become reliable until around 100-200 clicks have been received, and even then, you should still let your campaign run for a few weeks, without touching it, and gather as much data as possible.
If you are looking to get the best Amazon ACoS possible, automating and optimizing your Amazon Sponsored Product ads could help tremendously.