Kris and Dustin discuss Amazon ACoS and why sometimes it’s not a bad thing to have a higher ACoS for your products.
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– Hello everyone and welcome to episode 41 of Two Amazon Sellers and A Microphone. I’m Dustin Kane and with me is Kris Gramlich. What’s up Kris?
– Not much, just drawn in a way on a Tuesday, you know,
– I know, the day after a Cyber Monday sales through the roof, so that’s always a good thing for sure. I think it might’ve been a record-setting day yesterday. All right, so today we’ve got a good topic. I’m just gonna go ahead and say it right now. Sometimes a high ACoS is not always a bad thing. There, I said it.
– People’s minds just got blown.
– I said it. It’s not always a bad thing to have a high ACoS. I can’t tell you how many times we have this conversation with sellers. Obviously, working at Sellozo, we have an ad automation platform, optimizes your ads. A real common thing is, hey, I want my ACoS to go way down. Okay, well, your sales might stop. So, I mean, you hear that all the time and a high ACoS is just not necessarily bad. It’s just, it’s part of the business.
– Yeah. And we’ve touched on this a few times. It’s like if you have a product that’s a repurchase like constantly repurchasing. Sometimes you wanna maybe have a higher ACoS ’cause you’re acquiring that customer at the very beginning. Or if you’re launching a new product you’re trying to acquire as many sales as you can. And if you’re focused just on ACoS at the very beginning you could be missing out on some sales your rankings gonna not be as good as it can be. Your reviews are gonna be lower than what they should be. So, you know, sometimes at the beginning you may not wanna pay attention to so much to ACoS, especially if it’s gonna be high because you’re just trying to get that flywheel moving, generate sales, get some reviews. And then as you get that ranking, especially for your main keywords, as you get to page one or whatnot you can start to dial that back a little bit. So, yeah, you know, especially at the beginning when people come to us, they’re like, oh, you gotta get my ACoS low. I need to get my ACoS low. Okay. Where do you rank at three keywords? Oh, I’m on page five, but my ACoS is really high. It’s like, that’s fine. Your sales will even drop even further. But if you wanna try to get this moving back a little bit it’s gonna take a little bit more of investment. You’re gonna need to be okay with higher bids to get that product to, you know, page two at least, or page one, hopefully. And then, you know, focus on down a back a little bit get rid of some of the keywords that may not be profitable and put most of your budget towards those keywords that you do want to focus on that have a higher, or have a lower ACoS so you can kind of generate more sales through it. So, yeah, this is a term gets thrown around a lot at, ACoS. I think there’s gonna be a transition probably to ROAS moving forward, return on ad spend. So, you know, especially coming up I see a lot of people probably focusing more on the return on ad spend than their ACoS.
– Sure. And even that number might not be what you want it to be early on, but I think it’s important just to talk about also what ACoS is. What’s the calculation? I mean, the calculation is your ad spend divided by the revenue generated directly from those ads, all right? So it’s ad spend divided by revenue from ads as opposed to what we calculate a lot inside of Sellozo which is your TACoS which is your ad spend divided by all of your sales for that product in organic and paid. Which is a truer representation of what your ad spend is per unit. A lot of times we’ll see in our personal cases products that we sell, where we can’t get our ACoS below a certain level, just because of the competition level that exists in that category. But we have really favorable TACoS. So, we’ll keep that ball rolling forever. If you have a 40% ACoS and a 5% TACoS you’re only spending 5% per dollar on advertising across the board and that’s maintaining your ranking up there. So it’s really important to look at that metric also. Another thing that I like to point out is, the Amazon is a whole brand new world but if you go back in time, let’s say pre-Amazon, you came up with a product and you wanted to sell it in mass. Well, before you can do that, you have to advertise. You have to let people know your product exists. Those are just and back in the day when you did that those were sunk costs upfront with no idea of what the return is gonna be on those. And when you launch a product on Amazon, you have to have at least some initial advertising budget that you’re willing to sink to get your product shown around. At that point, the nice thing about Amazon is you have all the data about how effective your product does do on Amazon how well it sells, how well it converts, you know, what your typical spend is going to be and then you can make decisions about maintaining that product longterm or not. But I think a lot of people come on Amazon they think there’s free money involved and it’s not like a, you know, like a product launch like it used to be, but that’s just not the case. But the nice thing about Amazon is is the end result can be way bigger. So, I think it’s interesting.
– And it’s important to know the difference between the TACos and ACoS, you know you wanna make sure you’re focusing on both of those and have a metric to see both of those or have a both of those. Sellozo has those both inside the app so you can see your ACoS and your TACoS for each product at the product level. So that’s, that’s super helpful for sellers to look up.
– The other thing you wanna know is if your ads aren’t showing, okay, then your bids are too low, okay. So you have to keep raising your bid until your ads start showing. That tells you right there sort of what your competitors are willing to pay, okay. If that’s pretty consistent then obviously they’re making that work, okay. Your competitors are making that ad spend or that per-click bid work for their business. Whether it’s because they’ve done that for a long time they’re so highly ranked organically that they’re generating an enormous amount of organic sales. And that’s why they can bid high to maintain that ranking or it’s because they’re a product that has a lot of repeat customers and they’re basing all their calculations off of lifetime customer value. So they’re willing to lose money on a sale. You have to know that because if that’s the case, you can’t compete potentially with a lower bid than that which may mean you can’t lower your ACoS. You could, by not having any sales or not showing up your advertising. So that’s when you have to make the calculation of am I willing to bid that? Am I willing to have an ACoS that’s potentially above my margins? And does that work because of the flywheel effect on what it’s generating? Or the repeat sales that are happening. So in those cases, if you’re talking to somebody and they say I wanna lower my ACoS, they’re essentially saying they don’t want to show up on Amazon. They don’t do a part of their products. And that’s why a high ACoS in that situation it’s not bad, it’s necessary to compete. Now, whether it works for you or not is a whole different story. Whether or not you have the ad budget to handle that, to rank, which goes into a whole nother rabbit hole of why we talk about how picking your product is so important.
– Yeah. Yeah. And to touch on this, like it’s also important to have the right campaign structure. So if you’re putting your keywords if you put all your keywords in one campaign, you know, different ACoS targets are gonna be achieved for each keyword. So, I’m a fan of like separating out keywords or putting like your top 10 keywords in one campaign or just putting single keywords in one campaign. That’s a new strategy or a newer strategy to play with is just take your, pick your top 10 keywords put them in their own campaign as an exact match, and have separate ACoS goals for those that way all that budget was thrown to just those individual keywords. And you’ll really know like what your ACoS is for those keywords and if you can achieve your goal or not. So, if your campaigns are set up the wrong way or you have all your keywords in one campaign you’re doing broad phrase exact and this is just a mess, may wanna revisit that structure and probably try to make it cleaner, easier to read. That is a great point that you bring up ’cause this is another thing that we talk to a lot of sellers about when we discuss their campaigns is you’re either testing a keyword or you’re testing lots of keywords which is expensive because you don’t know, number one, how well that keyword converts for you, or, you know, what the bids are gonna end up being on those types of keywords. If you’re doing that at scale that’s gonna cost a ton of money upfront. And you bring that up and your ACoS can be skewed obviously by all that testing that’s going on. ‘Cause, you hadn’t weeded out the stuff that doesn’t work yet. And so, you make a great point that your ACoS could be high because of bad campaign structures or you’re in the testing phase which is what we always call a launch phase as well as call it a more expensive because a launch is testing a lot of data points, a lot of keywords and where they operate. So you have to get through that. And to your point, just based on wherever you are based on your ad budgets and your strategy you’re trying to employ you can laser target your budget at more specific things like ranking for one keyword or a few keywords. And that can certainly, if the ACoS is unprofitable, you know, at first that can help allocate the budget towards getting you ranked instead of trying to rank for a thousand keywords at the same time where you may not have enough budget allocated to all those keywords. It’s an excellent point.
– Yeah. And a little trick that, you know, since we talk to sellers daily that use Sellozo is if you always wanna be aggressive for your bids and you always want your bids to like constantly get increased and always beat the competition, a way to do that inside Sellozo is just make your target make it something crazy, like 200% or add a multiplier on top of that. But you’ll never achieve probably 200% ACoS for a keyword. What you’re telling the tool is like my goal is 200. So, the software is always gonna raise your bid and always beat out the next person so that you always stay on top of page one or in the middle of page one so that you get more sales, so you start to improve your organic ranking. So, that’s like an easy, easy victory for people that are using any type of tool is, you know, put your ACoS higher than what it normally would be. That way your bids aren’t gonna lower and you’ll lose sales. You’ll still generate the amount of sales and your bids will still be highly competitive.
– And that doesn’t matter what type of campaign strategy you have. Whether it’s a few keywords or either an automatic targeting campaign that you’re mining keywords from. It doesn’t matter and that’s a great point as well. And so, typically when we talk to people we are talking about the different phases and what to expect. A launch phase, you just have to expect to not be profitable during that phase. I mean, if you are, that’s great your product research was spot on or you’re not in a super competitive category. But a lot of times you’re gonna break even or lose money while you launch, or while you do that product launch you try to rank. Once you get ranked organically you don’t have to be as aggressive to maintain that. You know, you’re there anyway, you’re getting organic sales. You’re gonna wanna protect it yet you don’t necessarily wanna turn your ads off once you rank completely. ‘Cause you know you could potentially start slipping, but you can lower your targets and that’s another nice thing about automation is your ACoS periodically, slowly, to find out if it has an impact on your sales. I mean, at some point you’re gonna cross the threshold where your sales start slipping. And that gives you a pretty good indicator, especially if you don’t have a thousand keywords in the campaign, but if it’s, you know, pretty well-focused campaign and you’re doing that, you’ll get a pretty clear idea of what your competition is willing to bid and where your sales are gonna slip off. So, that’s one way that I usually launch products, high target ACoS, once I’ve achieved where I wanna be ranked I start dropping my target ACoS down. My ideal goal is my margin. If I have a margin that’s where I’d like to get if I can’t get there, then I’m dealing in a category that people are willing to have higher bids. And you gotta work with that data. But that’s yeah. This is the other thing a real trick is you hear a lot of stuff out that we will grow your sales and lower your ACoS. And you just, that’s tricky. That’s misleading, to say the least coz that could take, if that happens it’s over a lot of time and you’ve invested money in testing for sure.
– Yeah. Yeah. There’s gonna be a testing phase. And this is where it’s also important to keep track of your total ACoS or your TACoS as some people refer to. ‘Cause if that’s decreasing or it’s flat, that means your organic sales are improving. So, it’s important to know the difference like TACoS and ACoS track both of them ’cause you know, one’s gonna give you a different metric than the other. So, definitely important, definitely important.
– Let me add on to it. You can, and we see it quite often, if you’ve got an ACoS, let’s say on your campaign right now, that’s, let’s say it’s 40% and that’s roughly what you’ve set your target ACoS at inside an automation tool like Sellozo. And your TACoS is well below that. Let’s say you’re TACoS is 10%. You can raise your target from like 40% to 50% and now you’re aggressively advertising, your bids are gonna increase and you potentially show up on more keywords. It’s possible that your total ACoS goes down even though your ACoS goes up. And, or your total ACoS stays the same, but your sales grow. And so I think if you start treating your ACoS metric as you know, the more, the higher it is, you know, potentially or the more aggressive you are with it, the more you’re trying to show your product around and how it can actually have an impact on your top line big time then you’ll have a better understanding of that metric as opposed to just, oh, it’s not gonna work or my ACoS is higher than my margins. That’s always what gets people, I feel like when they’re doing this.
– Yep. And so again, it’s important to know both of them and we’re kinda talking about two different things but ACoS and TACoS, they kind of go hand in hand. So, it’s important to know both.
– Yep. Yeah. You wanna look at them in conjunction not together because yeah, for sure. If you see revenues rising and your total ACoS dropping, you’re doing your ad campaign structures properly. There’s no question about it and in that situation doesn’t matter what your ACoS is. You can wanna keep being more and more aggressive. So, I think this is a really good topic to bring up because the fear of a high ACoS is real. I feel it, I get, bothers me but sometimes when the ACoS high, but it’s a tool. I mean, it’s a tool and it’s an advertising plan that you’re trying to get, remember you’re trying to get your product in front of people. So, and it’s competitive out there but if you can get that organic ranking, it’s great. And I just wanna reinforce, don’t put a lot of weight on your ACoS. Look at it as just an indicator of how your ads are doing not necessarily your overall goal. So, I think it’s important, it’s a great topic. Certainly, if you’re gonna use a tool to automate anything, any automation ad automation tool can really hurt you if you don’t understand ACoS very well. If you just go in there and you set unrealistically low target ACoS, your sales are gonna stop and you’re gonna blame the tool and it was a lack of understanding of what ACoS is. That really hurts you there.
– Well said, well said.
– Well, I think that covers it. Hopefully, everyone is less scared of ACoS now. If you want to implement this, if you’d like to instead of going into all of your search term reports and your campaign manager and making all these adjustments yourself, instead of doing all that busy work if you’d rather just set a target ACoS and let a system do all of the work for you to get you to your target ACoS, that’s what Sellozo’s for. Kris and I would love to talk to you. You can go to www.sellozo.com book a time with either Kris or myself. We’ll spend 30 minutes with you. We’ll give you a demo of Sellozo’s platform, show you how it’s doing, what it’s doing. And also just talking about your category, your niche, what to expect, you know, competitive levels, what campaign structures we would set up if we were you, we love talking about it. So we’d love to do that. Just go to www.sellozo.com and book a time with either Kris or I plus we’ll give you a 14 day free trial of Sellozo. So that’s, you’ve got nothing to lose.
– Yeah. Guarantee you’ll learn something.
– Exactly. He’s gonna guarantee you’ll learn something for sure. So, we’d love to be talking to you real soon about this. Again, if this content is valuable for you you can find us all over the place. You can go to the Sellozo Facebook page, the Sellozo YouTube channel, Sellozo on LinkedIn. You can find Kris or myself on LinkedIn as well and you can subscribe to the podcast. We’d love to see you there. Finally, don’t be scared of ACoS. It’s not your enemy. We’ll be back at this tomorrow, everyone have a great day. See ya.