Advertising is a significant aspect of running an online business, and Amazon is no exception to this rule. Your ACoS advertising is a critical statistic for understanding and measuring how effectively your Amazon Sponsored Product campaigns perform. In this article, we’ll go over the specifics of what ACoS is, how it’s calculated, which metrics influence advertising for amazon, and how to improve your ACoS on Amazon. Let’s get started.
What Does ACoS Mean?
It is a term used by Amazon to refer to the costs associated with sponsored advertisements. ACoS stands for Advertising Cost of Sales. It is a critical indicator that indicates how many cents are earned for every dollar of revenue generated by Amazon seller advertising. It is expressed as a percentage for the seller to measure the effectiveness of their advertising campaign. Alternatively, it can be represented as the ratio of ad spend to the desired sales volume.
ACoS, which is similar to Google’s Return on Ad, is an important indicator of the performance of a campaign. It is one of the essential metrics for evaluating your Sponsored Product campaigns on Amazon to see whether they are generating valuable results and aiding your business in making a profit.
How to Calculate ACoS
It’s a great tool for assessing profitability, but you must know exactly how to measure and understand it. The ACoS formula is:
- ACoS = Total Ad Spend / Total Sales
Or
- ACoS % = 100* (Total Ads Spend ÷ Total sales)
For example, if you spent $10 on advertising and made a single sale of $40, your Advertising Cost of Sales would be 100*10/40 = 25%.
The higher your ACoS, the higher your cost of advertising. The lower the ACoS, the lower the cost of advertising. With a low ACoS, your goal is to maximize sales revenue while minimizing the cost of advertising. The concept is identical to Google Ads’ Return on Ad Spend (ROAS).
For optimal results, you should be aware of this figure for each of your products to determine which works well and performs poorly.
What Influences ACoS?
Several important factors influence ACoS, including the cost per click (CPC), conversion rate, and product sale price. The ideal ACoS percentage can be achieved with a low CPC, optimized listing, a decent conversion rate, and a high unit sale price.
You can get good ACoS for products sold at a premium price if you find the right balance between these factors. This proves that the product category is crucial to get a good ACoS percentage.
Why Is ACoS important?
ACoS is critical to your company’s success since it allows you to keep track of all of your expenses and determine how much profit you will make. You want to discover how much money you are spending on ads on Amazon. Your ACoS metric will assist you in putting your campaign in the best possible position for success.
It is a significant indication that shows whether or not you selected an appropriate advertising campaign strategy. Using ACoS, Amazon sellers may keep track of all of their expenses and understand how much money they can afford to spend on marketing their products on Amazon.
If you go over budget, you’ll lose money since, aside from advertising costs, you’ll have production costs, logistics costs, Amazon fees, and so on. Without a profit margin, your business won’t be sustainable.
Additionally, ACoS will assist you in determining your break-even point. When you know your break-even point, you can set goals for yourself to attain higher results.
How to Calculate Break-Even ACoS
The moment your advertising costs equal your profit margin (you have a net loss and a net gain of $0) is known as the break-even point (ACoS). It provides an answer to the question, “At what ACoS do you get zero profit and zero loss?”
Take, for instance, a product whose manufacturing costs are $4 and whose retail price is $20 if the product has an Amazon charge of $2. From the sales price of $20, subtracting the manufacturing costs plus Amazon’s fee gives $14. As a result, the Pre-Ad Profit per Sale equals $14.
The ACoS formula states that if you spend all of your $14 on sponsored traffic to create sales, you’d have $14/$20, which is 70%. So our break-even ACoS is 70%. We’ll be profitable if we don’t exceed 70%. Moreover, 70% means we’re losing money.
It’s critical to understand how to calculate your break-even ACoS to determine your target ACoS for your business. Keep in mind that a good ACoS is dependent on several variables, including your profit margin and the prominence of your brand before your advertising campaign.
What Is a Good ACoS?
There is no such thing as a “good” or “bad” ACoS percentage; instead, it is determined by your sales strategy and the profit margin you wish to achieve.
At first appearance, it appears that a low ACoS would be better, as it would result in greater profit margins. However, if your goal is to maximize sales, you will need to put a significant amount of money into your Amazon advertising campaign. This suggests that you create a custom ACoS that applies to each of your product lines or even individual units.
See Also:
Tips for Lowering Your ACoS
If you want to enhance your ACoS, concentrate on updating the information in your listing. To assist you to lower your ACoS, take a look at these four tips:
Pay attention to the right keywords
Choosing the relevant keywords for your listing is critical to generating leads. Your ad will get more attention if you use keywords to your advantage.
Finding new customers interested in your products without spending extra money on advertising is possible when you use the relevant keywords. Simply by using it, one ad can draw in many potential customers.
Conducting keyword research is the initial step in discovering the best keywords.
Optimize your page content
The content on your page must be relevant to the keywords you’ve used to generate traffic. People searching “red shoes” should see content relevant to red shoes in your ad.
To assess the relevance, Amazon uses the product information you provide. You won’t get as many conversions if your content isn’t relevant to the product.
Make sure that the information you provide about your sponsored products on Amazon is useful to the people reading them. When it comes to encouraging customers to buy your product or service, you need to give them the information they need to make the right decision.
You’ll get more traffic and keep visitors on your page if your listings contain more useful information. Upon learning more about your product, they will make a purchasing decision.
Optimize your product titles
One of the most important aspects of a sponsored product listing is the title. Optimizing your page’s title is essential to draw in more relevant leads.
Your keywords and the content surrounding them should be your title’s primary emphasis. Information on the material, the colors, and the dimensions are all important considerations. This kind of information may lead someone to click on your listing because it’s relevant to their search query, so it’s worth trying.
More people will see your ad if you choose a catchy title. It helps you get more relevant leads for your business’s advertising strategies.
Set the right bid amount
Setting the wrong bid amount is the most common mistake businesses make. Either they underbid, or they overbid. Choosing the proper bid level for your ad campaigns is critical if you want to maximize your ROI and reduce your advertising for amazon costs.
Consider your estimated sales profit, conversion rate, and how much money you plan to spend on advertising. Determine your ideal cost per click and calculate your ideal bid depending on your ACoS target.
Get a Head Start With Your Small Business
One of the most important metrics to consider when analyzing your Sponsored Product campaigns on Amazon is the ACoS.
It is a valuable tool for determining profitability, but you must know how to interpret it. Keep in mind that the most successful Amazon sellers have developed their patience in this regard.
At PIRS Capital, we’ll help you get your business off the ground by providing you with funding. Many businesses across the country rely on our services. If you’d like to find out more, book a consultation right away!
I work with companies that sell products on platforms such as Amazon, Shopify, Walmart, Ebay, Etsy, etc. I understand that every business is unique and thats why I form genuine relationships with owners so I can help them reach their goals and find success through our working capital solutions.
