Selling on Amazon doesn’t always give you a cut, you need to measure your performance, which involves paying attention to the “advertising cost of sale” or Acos. It’s an important metric that shows how well your advertising campaigns are working and affects your progress toward your business goals.
Here’s a simple guide on what ACoS means, how to figure it out, and steps to reduce it, making your ads more efficient.
What is Amazon ACoS?
ACoS stands for Advertising Cost of Sales, which measures advertising campaigns on Amazon. In simpler terms, you divide the total amount you spent on advertising by the total sales those ads generated.
For instance, if you spent $150 on ads and made $300 in sales, your ACoS is 50%.
Lower the ACoS, the better it is as you are spending less on ads to make the same amount in sales. However, the right ACoS depends on the product costs, advertising goals, and budget.
Factors that influence your ACoS, include:
How competitive your product category is
The quality of your product listings, which affects how often people buy after seeing your ad. The suitability of the keywords you’re using in your ad campaign.
Use relevant keywords, enhance your product listings to improve your ACoS. You may also experiment with different bidding strategies to find out what works the best for your products.
How to calculate ACoS on Amazon
To put it simply, you figure out ACoS by using this formula:
ACoS = 100 x (total ad spending ÷ total sales)
So, if you spend $50 on ads and make one sale worth $100, your ACoS would be 50%:
100 x (50 ÷ 100) = 100 x 0.5 = 50%
There are various analytical tools available on the internet that can keep an eye on the important metrics like total sales, ACoS and TACoS. Which helps you understand how your ads impact your natural sales.
ACoS only sees the sales directly linked to your ads, while the TACoS takes into account all your Amazon Sales, including ad-driven sales and natural sales. As a result, your ACoS will always be higher than TACoS since it only looks at a small portion of your overall sales.
What is considered a good ACoS?
A low ACoS is considered to be good, but that low depends on your product and goals. Low ACoS means you are spending less on advertising for each sale, indicating efficient campaigns and targeting. On the other hand, a high ACoS suggests inefficiency, possibly due to irrelevant keywords or campaign structure.
The general ACoS benchmarks are:
ACoS under 25% means that you are getting a lot of conversations for that keyword or product. You can consider increasing your bid to get more clicks and traffic.
Average ACoS ranges between 25% to 40%.
High ACoS is above 40%. It could be due to a keyword with lots of traffic but few conversions, signaling a need to rethink your bidding strategy.
High ACoS does not mean that your business isn’t profitable. You should also take a look at the TACoS (total advertising cost of sale) to assess how effective your ad campaigns are, both ad-driven and natural sales.
How to lower ACoS
Many of the sellers aim for both increased sales and improved Return of Investment(ROI), but these goals can sometimes conflict with each other. Determine if your main goal is to increase sales or to optimize efficiency (ROI).
Take for example, when you launch a new product, you would want that it gets widely known and get that exposure, even if it comes with the drawback of less profits, which results in higher ACoS. And on the other hand if you work with limited funds and aim to meet revenue targets, your primary aim would be to lower ACoS and use your advertising budget on Amazon as efficiently as possible. Your goals should match your existing business requirements and available resources.
More ways to lower your ACoS on Amazon:
- Check and adjust your keyword bids to avoid overpaying for clicks.
- Make sure your product or keyword targeting is reaching the right audience.
- If some keywords aren’t performing well, remove them and mark them as “negative keywords” to prevent your product from showing up in searches related to those words.
- Improve your product listing text and images to boost your conversion rates.
What is your ACoS on Amazon?
ACoS is a key measure to check how well you are performing on Amazon ad campaigns. Apart from that you should consider it in relation to your larger objectives. If you want to see rapid growth which means going global, people are aware of your product by bringing traffic to it, it may end with a higher ACoS. That is how it works.
However, if your aim is to cut down on ads and meet your ROI goals, you can lower your ACoS. You can do so by adjusting the bids for keywords or product targeting that aren’t bringing in conversions efficiently, which helps in cutting your costs.
Conclusion
In the end, total profitability is more important than having a lower ACoS. If you’ve found effective ways to lower your ACoS on Amazon, please share them in the comments below. We’re interested in hearing from you!
Successful ACoS depends on what you want to achieve with your marketing and business. If your aim is to achieve rapid growth, then having a high ACoS is completely fine. However, if your goal is to be efficient, then you should reduce your ACoS by adjusting the bids for keywords that aren’t converting well. For either, you can avail the amazon PPC management services by MMF Infotech Technologies, where our experts put in the extra hours of research to identify which keywords would work the best for your product based on relevant searches.