What Is Amazon ACoS and How to Improve It in 2022
If you want to know what Amazon ACoS is and how to improve it, you've come to the right place.
Here are the contents of this guide:
- What is Amazon ACoS?
- Why is Amazon ACoS important?
- Important Metrics
- When a High ACoS Is Justified
- How to Improve Amazon ACoS
Let's dive right in.
What Is Amazon ACoS?
ACoS means Advertising Cost of Sale.
If you run Amazon advertising campaigns, your Ad Spend depends on how many users click on your listing. Every time a user clicks on your Amazon sponsored product, you've to pay advertising costs to Amazon.
To explain what Amazon ACoS is, let's assume five users click on your ad, and the price is $0.5 per click. One of them buys your product with a sale price of $10.
Overall, you would have $2.5 in advertising costs and $10 in Amazon sales.
So finally, the return on Ad Spend would be $2.5 / $10. = 25%.
Accordingly, your ACoS would be 25%.
Here's the general ACoS formula:
Why Is ACoS Important?
If you want to become a successful Amazon seller, you need to keep your costs under control.
In case that the total Ad Spend of your Ad Campaign is higher than your total sales, you're going to lose money.
You need to know your advertising spend. There's no way around it.
In some situations, e.g., when you want to improve your Amazon SEO Ranking, having a higher Ad Spend than Ad Revenue is okay.
Improving your SEO Ranking can benefit your business in the long run through organic sales.
Important Metrics
Let's take a closer look at the Amazon ACoS and its related metrics. There are some key metrics to keep in mind when running an Amazon PPC campaign:
General Metrics
- ACoS (Advertising Cost of Sales) – Ad Spend divided through Ad Revenue
- Profit before ACoS (Profit Margin) – Profit after deducting all costs (cost of goods, shipping costs, etc.) except advertising costs
- Profit after ACoS – Profit margin after deducting all costs, including advertising costs
- Ad Revenue – Revenue before deducting costs
- Ad Spend – Advertising costs
- Costs – Shipping costs, production costs, Amazon fees, and others
Two metrics are essential— Profit before ACoS and ACoS. If your ACoS is higher than your Profit before ACoS, you'll lose money. If your ACoS is lower than your Profit before ACoS, you'll make money.
For Amazon sellers – especially FBA sellers – it's essential to know their profit margin. You can use this Profitability Calculator to calculate your Profit Margin:
1. Sign up for a free Helium 10 account
2. Download Helium 10's Chrome Extension here
3. Head over to Amazon and choose a product
4. Enter all necessary values and check the profitability
Finally, there are two essential metrics related to ACoS that every Amazon seller needs to know:
Break-Even ACoS
In any case, you don't want to lose money when running Amazon ads.
If your ACoS is as high as your Profit before ACoS (profit margin before deducting advertising costs), it's a Break-Even ACoS.
ACoS = Profit before ACoS (Profit Margin) ⇒ Break-Even ACoS
Target ACoS
In general, you want to make money.
Therefore, your ACoS needs to be lower than your Profit before ACoS (profit margin before deducting advertising costs). This is what every seller wants to achieve.
ACoS < Profit Margin ⇒ Target ACoS
When a High ACoS Is Justified
Typically, your ACoS should be lower than your profit margin. However, some PPC strategies can justify a higher ACoS.
Not every advertising campaign has to aim for short-term profits. You can also run campaigns to increase your brand awareness, improve your SEO ranking and increase organic sales.
Amazon's Algorithm analyzes a product's sales velocity to determine its ranking. If the sales velocity increases, your SEO ranking will also increase.
Your product listing will get more passive traffic which means your sales revenue will also increase without spending more money on advertising.
If you get positive customer reviews, your rankings will improve even more, and you'll automatically get more customers.
Most sellers need some time to build a profitable Amazon Business. The average Amazon seller needs six months to 1 year to turn a profit:
Especially with new products and in high-competition niches, it's okay to spend more money on advertising to increase your sales on Amazon.
4 Pro Tips To Improve Your Amazon ACoS
Optimize Keywords
If you want to run successful campaigns, you've to choose relevant keywords.
Imagine you sell waterproof bottles for people who do sports. Then, it would be better to target the keyword "waterproof bottle" instead of "bottle".
Also, you've to choose keywords with high demand and low competition. If thousands of sellers target the same keyword, your average ACoS will skyrocket.
All in all, you must target relevant keywords with low competition.
But how can you find such keywords?
There are two Helium 10 tools for keyword research that make it incredibly easy.
Helium 10 Magnet and Helium 10 Cerebro.
Here's how to use Magnet:
3. Type in a seed-keyword
4. Get keyword suggestions
Magnet gives you hundreds of keywords and shows you how many sponsored products there are for one keyword.
But that's not the only thing. Magnet also shows you how much sales you've to make in one day for 8 days to rank on the first Amazon SERP (CPR 8-Day Giveaway Score).
This metric is super helpful.
With Helium 10 Cerebro, you can search for the keywords your competitors are ranking for. It's definitely a tool that you should check out. Cerebro also provides you with the same keyword information as Magnet.
Optimize Your Listing
If you want to have a low ACoS, you've to optimize your listing to improve your conversion rate. It makes the difference whether 10% or 20% of your visitors end up buying your product.
If 20% of visitors buy your product, you've to pay half of the costs.
But how can you optimize your Amazon Listing?
There are a few fundamental things like optimizing your bullet points, title, images, and so on. But finally, it would be best if you spent the most effort on your images and customer reviews.
75% of customers trust product photos when they decide to buy a product or not.
According to a survey by Deloitte, 60% of people say that customer reviews are their most trusted source of information.
If you want to learn exactly how to optimize your listing, I recommend reading these guides here:
- How to Increase Your Sales On Amazon
- How To Optimize Your Amazon Listing
- How To Become A Successful Amazon Seller
Check Your Index
If you include a keyword in your listing, you'll get indexed for it. This means that Amazon lists your product for a specific search query.
If you don't include a keyword in your listing, you won't get indexed for it. Accordingly, you won't get listed for it in search results. Thus, make sure that your product is indexed for all relevant keywords.
While this will not directly lower your ACoS, it will improve your long-term ROI.
But how can you ensure that your product is indexed?
Easy. Here's what you need to do:
2. Start Index Checker:
3. Type in your ASIN and the keywords you want to check.
4. Check if your product is indexed for all relevant keywords.
Optimize Bids
What most sellers do is set wrong PPC bids. They set their bids too low or too high.
But there's a simple formula to find the roughly correct bid amount.
Let's assume your total revenue is your total profit.
For example – $20.
If your conversion rate is 10% on average, ten people click on your ad, and you'll make one sale. Finally, one click on your ad is worth $2.
In this case, your bid should be $2.
However, your revenue isn't your profit.
For this reason, you have to multiply the $2 with your target ACoS to find out your perfect bid.
You need to optimize your bids continuously to run a profitable campaign.
Key Takeaways
Here's everything you've to keep in mind:
- ACoS means Advertising Cost of Sale
- Break-Even ACoS: Advertising Costs = Profit
- Your Target ACoS may be higher than your profit margin if you run ads in a highly competitive niche
- It's okay to pay a higher ACoS if you want to increase your SEO ranking
- If you want to lower your ACoS, you must improve your conversion rate
