ACOS: What Is It? And How Do I Calculate Amazon ACOS?
The Advertising Cost of Sales, or ACOS, indicates how much you spend on advertising for every dollar in revenue. It may also be viewed as the ratio of ad spend to target sales.
In Amazon PPC, your Advertising Cost of Sales (ACOS) is crucial. It’s a crucial metric that guides your Amazon marketing strategy.
Your ACoS is a fluctuating percentage used to determine how much you should spend for search terms. ACOS is crucial in Amazon PPC advertising.
On Amazon, what counts as a good or bad ACOS?
No such thing as good or bad ACOS exists.
At times, we wonder whether ACOS is only a vanity metric. Like the ending of Fight Club, expressing that occasionally blows Amazon sellers’ minds.
For many sellers, the subject of ACOS is confusing and unclear. Let’s immediately clarify the topic.
ACOS: What Is It? Furthermore, how is Amazon ACOS calculated?
Let’s first describe the traditional method for calculating Amazon ACOS, and then we’ll describe the most recent formula (created in 2023) after that.
Simple is the ACOS definition. The Advertising Cost of Sales, or ACOS, measures how much you spend on advertising for every dollar in revenue.
How to quickly calculate ACoS
Here is a useful illustration of an ACOS calculation: If your ACOS is 25%, you paid $0.25 for every dollar you earned, or $25 for every $100 you earned (production costs, Amazon fees, etc. are not included in this calculation; only Ad Spend is).
A crucial indicator of the effectiveness of your campaign is Amazon ACOS.
What is the most recent formula for calculating Amazon ACOS?
If you’re wondering “How do I figure out my Amazon ACOS?” The formula total advertising spend / total sales is the obvious response.
But when you figure out your Amazon ACOS, you might have more concerns. You might need to anticipate future Amazon ACOS analytically and understand how conversion rate influences Amazon ACOS. To get this multidimensional view of your Amazon ACOS, you would require a new formula.
The formula is as follows:
Let’s investigate the most recent method for estimating and calculating Amazon ACOS.
Your Amazon ACOS is considerably impacted by conversion rate, but prior to the introduction of this new methodology, it was impossible to determine just how much.
You can’t know how, for example, a two-point decrease in your conversion rate affects your other KPIs, such as Amazon ACOS. Even if your Amazon ACOS changes, you still need to diagnose it to figure out why.
You may more easily determine the cause of your Amazon ACOS’s change with this updated method.
When you wish to change your Amazon ACOS, you can divide it up into smaller, more manageable components.
Can PPC on Amazon Influence Conversion Rate?
Yes, Amazon PPC can affect conversion rate, to put it simply.
Amazon PPC and conversion rate are mutually beneficial. Conversion rate is indirectly impacted by Amazon PPC.
Although you can arrange your keywords in a specific way to promote higher conversion rates, Amazon PPC won’t affect how well your products perform. Amazon PPC can increase the number of people who see your product, but if the product doesn’t fit the market well, conversion rates could not go up.
The performance of your Amazon PPC ads is impacted by conversion rate, which is the other side of this symbiotic relationship between Amazon PPC and conversion rate. This relates to how your Amazon ACOS conversion rate is affected. Your Amazon PPC campaign’s effectiveness will be impacted favorably by a listing with a high conversion rate.
How Do I Use This New Formula To Calculate Amazon ACOS?
Say you have 30 days’ worth of performance information. Your typical conversion rate is 10%, your average CPC is $1, and your average order value is $25. You now have an Amazon ACOS of 40%.
Let’s imagine that you would like to reduce your Amazon ACOS to 35%. You enter your desired Amazon ACOS in the formula’s Forecasting section. It will determine the CPC and conversion rate required to reach the desired Amazon ACOS.
In this case, you would need to raise your average conversion rate to 11.43% in order to achieve a 35% Amazon ACOS. That is a 13% increase. Additionally, you would require a CPC of $0.88, a 14.29% drop from your existing CPC.
What is the best time to use this new Amazon ACOS formula?
If your Amazon ACOS is high and you’re having trouble lowering it, the new formula will be useful.
Consider a scenario in which your Amazon ACOS is running at roughly 100%, your average order value is low, and your CPC is quite high. Every time you lower your Amazon ACOS because the bids are too low, you are left with no traffic. In this case, you could enter the figures you’d need to break even, and the calculation would inform you of the CPC you’d require.
If your ACOS is not too high on Amazon, stick to the tried-and-true original formula.
Now that you know what ACOS stands for, let’s discuss how to reduce your advertising costs while increasing your profit margin.
How Can I Calculate the Break-Even ACOS?
The point at which your profit margin matches your advertising cost is known as break-even ACOS (you have a net loss or gain of zero). What ACOS do you make zero profit and zero loss at? is answered by this. The mud is clear? Let’s use the following example:
Consider that we sold a toy car for $20 and that we paid $3 in Amazon fees for it. Let’s assume that the cost of goods to produce that product is $6.
What is the result of 20 minus 3 minus 6? Our Pre-Ad Profit per Sale equals that, or $11.
Now, according to our ACoS formula, if we spent all of those $11 on acquiring paid traffic to drive sales, then we would do $11/$20, which is 55%.
So, our ACOS at break-even is 55%. We’ll be profitable if our performance is less than 55%. Over 55% means that we will not be profitable.
How Can I Reach My Target ACOS?
Nobody likes to lose money, so we need to add another metric called Target ACOS (TACOS). You wouldn’t use all of your Pre-Ad Profit to create sales if you wanted to profit from Amazon.
The difference between what you spend and what you don’t is your profit margin.
How TACOS and Break-even ACOS are related
What is TACOS, how do I set it, and how does it relate to bidding?
Let’s explore the formula used to determine what the ideal bid truly looks like. What you should be paying for each click is equal to the average order value times your conversion rate, divided by one over your target ACOS.
You would never be overbidding or underbidding if you were able to access your Amazon account and optimize each and every keyword or ad group according to this formula.
What Does An Amazon ACOS Value Of Average, Low, Or High Mean?
The ideal benchmark is average ACOS.
The average Sponsored Product Ad’s ACOS per user per day has been 34.42% since the start of 2019, and will continue to remain so through 2022.
This is a reliable reference point that falls in the center of an ACoS high and low.
For our users, April is typically the best month to promote because it has the most sales and the lowest ACOS (20%).
High Profitability Resulted from Low ACOS
Most sellers agree that you need to try to minimize your Amazon ACOS. Nevertheless, it depends on your product sales strategy and profit margin. If you chose to pursue a low ACOS, I think 15–25% is a reasonable starting place.
However, the words “LOWER YOUR ACOS!” has probably been thrown at you a lot.
Lowering your Amazon ACoS can be beneficial, but only if it serves your goals.
Setting a low ACoS is a wise course of action when:
- Making as much profit as possible
- Selling a low-converting product
- You have a product that doesn’t need high visibility
Let’s use an example where your TACOS is 10% and your sales total $200. You made $180 in profit off of $20 in advertising (before the cost of goods).
Spending less on advertising can also be detrimental. The product’s visibility is compromised by a low ad spend budget. Setting your bids low for a highly competitive keyword runs the risk of losing the auction because you compete for keywords in Amazon PPC.
Higher ACOS Equals Greater Visibility
The classic saying “You have to spend money to make money” is the best approach to explain high ACOS.
To increase their chances of selling more things, successful Amazon sellers use different TACOS for different types of items. While a low ACOS is excellent for profitability, a high ACOS can boost awareness, dominate a market, and ultimately result in higher profits.
A good selling approach is to set a high ACOS for sellers who:
- Are trying to get rid of a product that isn’t selling well
- Attempting to run a product sell-out
- Are in an effort to raise brand awareness
- Dominate a niche
- Want your product to be well-known?
A high ACOS can be compared to advertisers who purchase a large Times Square advertisement or create a Super Bowl commercial. Although the marketer is spending a lot of money, the likelihood of profit is very high.
Let’s use an example where your TACOS is 40% and you generate $1,000 in sales. You invested $400 and made $600 in profit (before cost of goods).
We developed the definitive guide to Amazon PPC, which, if you haven’t read it already, goes into further information about how ACOS affects your ads.
How Can I Identify the Reasons for ACOS Spikes?
Why did my ACOS increase is a frequent question we receive.
How to Determine Why Your ACOS Spiked
Step 1: Go deeper.
Step 2 : Create time comparisons.
Use campaigns with just one ad group.
Click “pro tip” to learn more about the single keyword campaign strategy we use to enhance our best keywords.
Step 3: Ask more challenging inquiries
Step 4: Spend time planning.
What Other Strategies Can I Use To Reach My Amazon Target ACOS?
Boost Your Product Pages
The first part of the conversion formula is your product page and your pricing. The potential consumer will move on to another related product if you accomplished a wonderful job with your product ranking and Amazon PPC campaign but your product page isn’t great.
Make sure the product page on your Amazon product listing clearly explains what the product is, who the product’s clear target audience is, and how to purchase it.
A great Amazon product page contains these features:
- A clear and compelling product title
- Detailed product descriptions
- High-quality images and videos of the products
- A large quantity of supportive reviews
For the best ACOS results, be sure to optimize your organic product listings for both SEO and PPC.
Determine the Most Effective Times to Advertise
We discovered that April is the best month for advertising based on data we have been gathering since 2017. The best days to advertise are Sunday through Wednesday.
When choosing their TACOS, Amazon sellers find this data to be of great value.
Use a PPC tool on Amazon
As I’ve previously stated, there are numerous Amazon PPC solutions available that can automate your bidding to make sure you always reach your TACOS.
When placing bids, we consider your conversion rate and TACOS in order to hit your TACOS for each campaign, generate the most sales possible, and cut down on unnecessary spending.
Stay Tuned For More Amazon ACOS Content
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