Amazon ACOS lets sellers measure the impact of their advertising efforts on Amazon.
In this quick guide, we’re going to cover what ACOS is and how it can benefit sellers.
Introduction to Amazon ACOS
Definition of ACOS (Advertising Cost of Sales)
Amazon ACOS, or Advertising Cost of Sales, according to Amazon, is “…A metric used to measure Amazon pay-per-click (PPC) advertising campaigns.”
Importance of ACOS in Amazon PPC
ACOS helps sellers determine if their sponsored ads were cost-efficient and compare the money spent on PPC ads to the money earned.
Calculating Amazon ACOS
Classic ACOS formula: Total Ad Spend / Total Sales
The classic ACOS formula divides ad spend by sales then converts that number into a percentage.
The formula is as follows:
ACOS = (ad spend ÷ ad revenue) x 100
Relationship between ad spend and target sales
The average conversion rate is 14% for Amazon PPC ads, which is a decent conversion rate.
New ACOS Formula
Introduction to the updated formula developed in 2023
The new ACOS formula is a forecasting formula developed by Elizabeth Greene from Junglr.
New formula: ACOS = (Avg CPC * (1/CVR)) / Average Order Value
This formula is designed to identify fluctuations in Amazon ACOS. The higher your ACOS, the more valuable this new formula is for finding out how to bring it down.
Breakdown of components and significance
Let’s take a closer look of the formula and what each part signifies and how to use it.
ACOS = (Avg CPC * (1/CVR)) / Average Order Value
- Input the ACOS you want to achieve in the forecasting part of the formula.
- Type your average CPC times 1 divided by your CVR.
- Then divide by your Average Order Value.
A formula may look like this for someone who wants to lower their ACOS from 40% to 35%:
.35 = (1 * (1/.10)) / 25
Once calculated, the seller would discover that in order to lower the ACOS, they would need a conversion rate of 11.43% and a CPC of $0.88.
Impact of Conversion Rate on ACOS
The conversion rate is the percentage of clicks that result in a sale. It is a key metric to measure the performance of an advertising campaign. The ACOS, or advertising cost of sales, is the ratio of ad spend to sales revenue. It indicates how much it costs to generate a sale from an ad.
The conversion rate and the ACOS are inversely related. A higher conversion rate means that more clicks are converting into sales, which lowers the ACOS. A lower conversion rate means that fewer clicks are converting into sales, which increases the ACOS.
Therefore, improving the conversion rate can help reduce the ACOS and increase the profitability of an ad campaign.
Influence of Amazon PPC on Conversion Rate
Amazon PPC and the conversion rate share a symbiotic relationship in which both parties benefit indirectly.
Amazon PPC gets your products in front of potential customers, but may not increase conversion rates if the product isn’t a good fit.
On the other hand, a high-converting product will positively impact Amazon ACOS, and therefore, Amazon PPC performance.
Using ACOS on Seller Central
Accessing ACOS data on Seller Central dashboard
Find the ACOS column in Seller Central. It’s located after the Orders and Sales columns.
Segmenting data at different levels: account, campaign, ad group
There are a few levels that Amazon automatically calculates ACOS data for:
- Account: ACOS is calculated within a specific period for every campaign.
- Campaign: ACOS for ad groups and keywords are calculated for a campaign over a certain time period.
- Ad Group: A campaign ad group ACOS is calculated.
Importance of data segmentation for analysis
With these segments, sellers can breakdown data to see where they are performing the best and the poorest and capitalize on the positive feedback.
Calculating Break-Even ACOS
To calculate your break-even ACOS, you need to know your profit margin, which is the difference between your selling price and your cost of goods sold (COGS). The formula for break-even ACOS is:
Break-Even ACOS = Profit Margin / Selling Price * 100%
For example, if you sell a product for $20 and your COGS is $10, your profit margin is $10 / $20 = 0.5 or 50%. Your break-even ACOS is 0.5 / 20 * 100% = 2.5%. This means that if your ACOS is lower than 2.5%, you are making a profit from your ads. If your ACOS is higher than 2.5%, you are losing money from your ads.
Importance of Target ACOS (TACOS) for budget control
TACOS, short for Target ACOS, is a metric that assesses the relationship between advertising expenditure and total sales. It is derived by dividing the amount spent on advertisements by the combined sales generated from both organic and paid traffic.
TACOS plays a role in evaluating the effectiveness and profitability of advertising campaigns while also providing insights into the well being of a business. A low TACOS indicates that the advertising spend is well-optimized and contributes to a higher profit margin.
A high TACOS suggests that the advertising spend is too high or ineffective, and may erode the profit margin. Therefore, it is important to monitor and adjust TACOS according to the business goals and budget constraints.
Understanding ACOS Benchmarks
Interpreting average, low, and high ACOS values
- Low ACOS: Generally between 15%-30%. Best for highest profitability.
- Average ACOS: Around 30%.
- High ACOS: 40% or higher. Best for greater visibility.
Case study: April as a profitable advertising month
According to Emplicit, the best days to advertise on Amazon are Wednesday and Sunday, “The best month to advertise is April, and the best times of the day to run ads are 8-10 a.m., 2-4 p.m., and 6-10 p.m.”
Optimizing Product Pages and Ad Timing
Optimizing product pages and ad timing is a crucial strategy to improve the advertising cost of sales (ACOS) for e-commerce businesses. A well-optimized product page can increase the conversion rate of visitors who click on the ads, while a smart ad timing can reduce the wasted ad spend on irrelevant or low-intent audiences.
By combining these two factors, e-commerce businesses can achieve a higher return on ad spend (ROAS) and lower ACOS.
FAQs
What is a good ACoS for Amazon?
A good ACoS for Amazon is around 15%-30% if you want to maximize your profit on a product that’s otherwise difficult to sell. 40% or higher ACoS is best if you want to increase your brand awareness.
Is a low ACoS good?
A low ACoS of between 15%-30% is a good range for higher returns and less spend on ads.
Is RoAS the same as ACoS?
RoAS monitors the impact of your ad spend on your profit, while ACoS measures the affect of your ad spend on your Amazon ad sales.
Conclusion
Amazon ACOS helps sellers determine the effectiveness of their advertising efforts. By finding the sweetspot on your store’s ACOS, you can maximize profits.
