Hardly anyone doubts that advertising can be a powerful tool for generating sales. However, to run your ads wisely, you must be sure they bring value for money. As an Amazon seller, understanding your advertising performance is crucial to the success of your business. One critical metric helping you identify that is the Advertising Cost of Sales, which measures the effectiveness of your advertising campaigns. In this post, we will delve deeper into what ACOS is, how it is calculated, and provide tips for improving your ACOS to help you achieve your advertising goals on Amazon.
What Is Amazon ACOS?
Amazon ACOS stands for Advertising Cost of Sales, a metric used to measure the performance and effectiveness of advertising campaigns on Amazon. ACOS is the ratio of ad spend to revenue generated from the ads.
ACOS is a crucial metric for sellers who use sponsored ads to promote their products on Amazon. By monitoring ACOS, sellers can determine the profitability of their advertising campaigns and adjust their ad spending to optimize their return on investment (ROI). It helps allocate advertising budget, identify which advertising campaigns are performing well and which are not, and adjust advertising strategies.
How to Calculate ACOS?
ACOS is the ratio of advertising spend to advertising sales, expressed as a percentage.
ACOS formula
In simple terms, ACOS indicates how much an Amazon seller spends on advertising to generate one unit of product sales revenue. For example, an ACOS of 20% means that for every $1 spent on advertising, the seller generates $5 in sales revenue.
What Is Good ACOS?
In general, a lower ACOS is better because it means you are spending less on advertising than the revenue generated. The average ACOS for Amazon sellers is around 30%. Overall, you may target an ACOS of approximately 15-20%.
However, the optimal ACOS for your business will depend on several factors, such as your profit margins, the competitiveness of your industry, and your advertising goals. For example, if you have high-profit margins and focus on brand awareness, you may be willing to accept a higher ACOS in order to reach a larger audience. On the other hand, if you have lower profit margins and focus on maximizing revenue, you may aim for a lower ACOS to ensure that your advertising spend generates a positive return on investment.
What Is Break-even ACOS?
Break-even ACOS refers to the point at which your advertising spending neither results in profit nor loss. If your ACOS exceeds your profit margin prior to advertising, you have surpassed the break-even level. That means you will lose money on advertising if your ACOS is higher than your profit margin. Conversely, advertising becomes profitable if your ACOS is lower than your profit margin.
Note: Maintaining a profit requires a lower Amazon ACOS than your profit margin. If your advertising cost surpasses your earnings, you will end up spending more than you are making.
How to Calculate Your Target ACOS?
Target ACOS represents the target percentage of sales revenue spent on advertising. To calculate your Target ACOS, you must deduct your target profit margin after advertising from the profit margin before advertising.
Target ACOS formula
Your Target ACOS can vary depending on your business goals and advertising strategy. For example, if you launch a new product, you may want a higher Target ACOS to increase visibility and generate sales. On the other hand, if you are trying to maximize profits, you may want to have a lower Target ACOS.
How to Improve Your ACOS?
To ensure your ad campaigns work effectively, you must reach your Target ACOS. Below you can find several ways to do it.
Optimize your keywords
Use relevant keywords in your product titles, descriptions, and backend search terms. That will help your products to appear in relevant search results, leading to higher click-through rates (CTRs) and conversions.
Optimize your bids
Review your bids regularly to ensure you are bidding on the right keywords and not overspending on less relevant or profitable ones.
Improve your product listings
Your product listings should be informative, engaging, and persuasive. Use high-quality product images, detailed descriptions, and customer reviews to highlight the benefits of your products and differentiate them from competitors.
Monitor your campaigns
Monitor your campaigns regularly to identify areas of improvement. Analyze your campaign data to determine which keywords, ads, and targeting strategies drive the best results and adjust your campaigns accordingly.
Use negative keywords
Use negative keywords to exclude irrelevant search terms and reduce wasteful spending on non-converting clicks.
Consider different ad formats
Experiment with various ad formats, such as Sponsored Products, Sponsored Brands, and Sponsored Display, to see which ones work best for your products and target audience.
Test different strategies
Test different bidding strategies, targeting options, and ad creatives to identify the most effective approach for your business.
Related: How to Create an Amazon Best Product Description that Ranks High in Search
Why Shouldn’t You Focus on ACOS Only?
Although ACOS is a valuable metric for evaluating the effectiveness of ad campaigns, it should be considered in conjunction with other relevant factors. While it clearly indicates how well your campaigns have generated sales over a specific timeframe, it is essential to view ACOS in context. By examining ACOS alongside other performance indicators, you can determine where to allocate, maintain or reduce advertising spending.
Even so, relying solely on ACOS without considering other metrics can be misleading and fail to provide a comprehensive understanding of your advertising's overall impact. For instance, campaigns with higher ACOS can work better for generating new customers, subscriptions, and detail page views or help lower return rates.
Therefore, when analyzing the outcome of your ad campaigns, in addition to ACOS, you must focus on their type and goals and add to the assessment other metrics, including impressions, conversion rate, click-through rate, ROAS, and more.
ACOS and ROAS: What Is the Difference?
ACOS and ROAS are both important metrics used in digital advertising to measure the effectiveness of ad campaigns. ACOS is commonly used in Amazon advertising, while ROAS is used more widely across various digital advertising platforms.
ROAS stands for Return on Advertising Spend, representing the revenue generated for each dollar spent on advertising.
ROAS formula
For example, if an advertiser spends $100 on an ad campaign and generates $500 in revenue, the ROAS would be 5:1.
The main difference between ACOS and ROAS is that ACOS focuses on the percentage of ad spend attributed to generating sales. In contrast, ROAS focuses on the return on investment of advertising spend. In other words, ACOS measures how efficient ad spend is at generating sales, while ROAS measures the revenue generated for each dollar spent on advertising.
Final Thoughts
ACOS is one of the critical metrics helping Amazon sellers measure the efficiency of their ad campaigns and timely optimize them. It shouldn’t be underestimated since the effectiveness of your ad campaigns influences your sales, while proper ad spending allocation helps avoid overspending.
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Originally published at https://www.sellerassistant.app/blog/amazon-acos-all-you-need-to-know
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