What Is Amazon ACoS? Here's Everything You Need To Know
What's most important when running ads online?
Right. The costs.
If you don't keep costs under control, you don't know whether a campaign is profitable or not. As an Amazon seller, if you don't know your costs, you'll probably fail with all your PPC campaigns.
If you want to know what Amazon ACoS is and what it's all about, you've come to the right place.
This post gives you all the information you need.
Let's dive right in.
What Is Amazon ACoS?
ACoS means Advertising Cost of Sale.
It's that simple.
If you run Amazon Sponsored Ads, you've to pay per click. Every time a user clicks on your ad, you've to pay.
Let's assume five people click on your ad and the price is $0.5 for each click. One of these five users buys your product for $10.
All in all, you've advertising costs of $2.5 and $10 in sales.
ACoS is your advertising costs divided by your sales = $10 / $2.5.
Accordingly, your ACoS would be 25%.
Here's the general formula to calculate ACoS:
Why Is ACoS Important?
This question is relatively easy to answer.
If you want to become a successful Amazon seller, you have to keep your costs under control.
If you constantly have to pay more money for advertising than you get out of it, you'll lose money all the time.
Sometimes, it's okay that your ACoS is higher than your profit margin. We will discuss this later in the article.
LONG STORY SHORT = You need to know how much you've to pay for advertising. There's no way around.
You Need To Understand This...
Let's take a closer look at the relationship between ACoS and profit. There a few metrics you should keep in mind when planning an Amazon PPC campaign:
- ACoS
- Profit before ACoS
- Profit after ACoS
- Revenue
- Costs
Let's quickly go through all of these:
- ACoS = Advertising costs divided through profit.
- Profit before ACoS = Profit after deducting all costs except advertising costs.
- Profit after ACoS = Profit after deducting ALL costs.
- Revenue = Your revenue before deducting any costs.
- Costs = Your costs (expect advertising costs). These costs include shipping costs, production costs, Amazon FBA Fees, and others.
There are two metrics that are especially important. 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.
Finally, there are two ACoS metrics 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 deducting advertising costs, it's a break-even ACoS.
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 margin before deducting advertising costs. This is what every seller wants to achieve.
ACoS < Profit Margin
Two Different Approaches...
Normally, your ACoS should be lower than your profit margin. However, some PPC strategies can justify a higher ACoS.
You don't always have to run campaigns to make short-term profits. You can also run campaigns to increase your brand awareness and rank higher in search results.
Look:
Amazon's Algorithm analyzes the sales velocity of a product to determine its rankings. If your sales velocity increases, your ranking will automatically improve.
You'll get more passive traffic which means you'll automatically make more sales without the need to spend money on advertising.
If you're able to satisfy your customers, your rankings will improve even further and you'll automatically get more customers. In this case, it's perfectly okay to have a higher ACoS than your profit margin.
Most sellers need some time to build a profitable Amazon Business. The average Amazon seller needs 6 months to 1 year to turn a profit:
Especially in high-competition niches, it's totally okay to spend more money on advertising to increase your brand awareness, increase your sales on Amazon, and become a successful Amazon seller in the long run.
4 Pro Tips To Lower Your ACoS
Optimize Keywords
If you want to run successful campaigns, you've to choose relevant keywords.
But what does relevant mean?
Imagine you sell waterproof bottles for people who do sports. Then, it would be a better idea to target the keyword "waterproof bottles", instead of "bottles".
Also, you've to choose keywords with high demand and low competition. If there are thousands of sellers targeting the same keyword, your ACoS will skyrocket.
All in all, you must target relevant keywords with low competition.
But how to 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.
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 Giveaways).
This metric is super useful.
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 lower your 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% buy, you've to pay half of the costs.
But how to optimize your Amazon Listing?
There are a few fundamental things like optimizing your bullets, title, images, and so on. Ultimately, you must spend the most effort on your images and 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 into 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 into 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 to set wrong PPC bids. They may set their bids too low or too high.
But there's a simple formula to find out 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, 10 people click on your ad, and one buys. Finally, one click on your ad is worth $2.
In this case, your bid could be $2.
But your revenue isn't your profit. For this reason, you must multiply $2 with your target ACoS to find out your perfect bid.
You need to continuously optimize your bids 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 brand awareness.
- If you want to lower your ACoS, you must improve your conversion rate.
