As an Amazon seller, you may have heard about the term “ACoS” or Advertising Cost of Sale. It’s a crucial metric for understanding the profitability of your advertising campaigns on Amazon. In this blog post, we’ll explain what Amazon ACoS is, how to calculate it, and provide tips for optimizing it to improve your sales and profits.
What Is Amazon ACoS? How to Calculate It?
Amazon ACoS is a metric that measures the ratio of your advertising spend to your total sales revenue. It’s calculated as follows:
ACoS = (Ad Spend ÷ Total Sales) x 100%
For example, if you spent $100 on Amazon ads and generated $1,000 in sales, your ACoS would be 10%:
ACoS = ($100 ÷ $1,000) x 100% = 10%
Amazon ACoS vs. Amazon RoAS
Amazon RoAS (Return on Advertising Spend) is another metric that measures the effectiveness of your advertising campaigns. RoAS is calculated as:
RoAS = Total Sales ÷ Ad Spend
The main difference between Amazon ACoS and RoAS is that ACoS measures the cost of advertising relative to sales, while RoAS measures the revenue generated by advertising relative to the cost. Both metrics are important, and it’s recommended to use them together to evaluate the performance of your ads.
What Is a Good ACoS on Amazon: Benchmarks across Industries
The ideal ACoS on Amazon varies depending on your industry, product, and advertising strategy. However, there are some benchmarks you can use as a reference. Here are the average ACoS ranges by industry:
- Apparel: 25% – 40%
- Automotive: 15% – 25%
- Beauty: 20% – 35%
- Electronics: 10% – 20%
- Home & Kitchen: 15% – 30%
- Sports & Outdoors: 15% – 30%
Note that these are just averages, and your target ACoS may be higher or lower depending on your profit margin and goals.
Choosing the Right Amazon ACoS Based on Your Goals
To determine the right ACoS for your Amazon ads, you need to consider your profit margin, advertising budget, and business goals. Here are some scenarios and their corresponding ACoS targets:
- High-profit margin products: Aim for a low ACoS (e.g., 10% – 20%) to maximize profits.
- Low-profit margin products: Accept a higher ACoS (e.g., 30% – 50%) to maintain sales volume and visibility.
- New products: Invest more in advertising and accept a higher ACoS to generate initial sales and reviews.
- Seasonal products: Increase ad spend and accept a higher ACoS during peak seasons to maximize sales.
My Amazon ACoS Is Too High—How Do I Lower My ACoS on Amazon?
If your Amazon ACoS is higher than your target, it’s time to optimize your advertising campaigns. Here are the steps you can take:
Step 1: Which Metrics Drive ACoS on Amazon?
The first step is to identify the metrics that impact your ACoS. The main drivers of ACoS on Amazon are:
- Click-through rate (CTR)
- Cost per click (CPC)
- Conversion rate (CVR)
- Average sales price (ASP)
Step 2: Amazon ACoS Strategy—How to Optimize ACoS on Amazon
Once you’ve identified the metrics that drive your ACoS, you can develop an Amazon ACoS optimization strategy. Here are some tips:
- Improve your product detail page: Optimize your product titles, descriptions, and images to increase your CTR and CVR.
- Target the right keywords: Use Amazon’s keyword research tools to find relevant keywords with high search volume and low competition.
- Adjust your bids: Increase your bids for high-converting keywords and lower your bids for low-performing keywords.
- Monitor your campaign performance: Keep an eye on your ad spend, sales, and ACoS regularly to identify areas for improvement.
Step 3: Optimizing Amazon ACoS: Key Takeaways
Here are some key takeaways for optimizing your Amazon ACoS:
- Don’t rely on ACoS alone: Use RoAS and other metrics to evaluate the effectiveness of your ads.
- Set realistic goals: Your target ACoS should align with your profit margin and business goals.
- Test and adjust: Continuously test and adjust your advertising campaigns to improve performance.
- Keep an eye on your competition: Monitor your competitors’ ad strategies and adjust your bids and targeting accordingly.
Total ACoS (TACoS) as an Additional Advertising Metric
Total ACoS (TACoS) is a metric that measures the combined cost of all your Amazon ad types, including Sponsored Products, Sponsored Brands, and Sponsored Display. TACoS is calculated as:
TACoS = (Ad Spend ÷ Total Sales) x 100%
TACoS provides a more comprehensive view of your advertising costs and can help you make informed decisions about your overall ad strategy.
Does a low Amazon ACoS always mean a good Amazon ACoS?
Not necessarily. A low ACoS may indicate that you’re spending less on advertising relative to your sales, but it doesn’t necessarily mean that your ads are profitable. You also need to consider your profit margin, return on investment (ROI), and other factors when evaluating the effectiveness of your ads.
Understanding what drives your ACoS for Amazon ads
As mentioned earlier, there are several factors that drive your ACoS on Amazon. Let’s take a closer look at each one:
Amazon ACoS driver #1: click-through rate
Click-through rate (CTR) measures the percentage of times your ad is clicked relative to the number of times it’s shown. A higher CTR indicates that your ad is relevant and engaging to your target audience, which can lead to higher sales and lower ACoS.
Amazon ACoS driver #2: cost per click (CPC)
Cost per click (CPC) is the amount you pay each time someone clicks on your ad. Lowering your CPC can help reduce your ACoS, but it’s important to balance CPC with other metrics such as CTR and conversion rate.
Amazon ACoS driver #3: conversion rate (CVR)
Conversion rate (CVR) measures the percentage of clicks on your ad that result in a sale. A higher CVR indicates that your product detail page is compelling and persuasive, which can lead to higher sales and lower ACoS.
Amazon ACoS driver #4: average sales price
Average sales price (ASP) measures the average price of each item sold through your advertising campaigns. Increasing your ASP can help increase your sales and lower your ACoS.
Other factors that can influence Amazon ACoS
Other factors that can influence your Amazon ACoS include seasonality, competition, and changes in Amazon’s advertising algorithms. It’s important to keep an eye on these factors and adjust your ad strategy accordingly.
Optimizing your Amazon ACoS is essential for maximizing your sales and profits on Amazon.