While running your PPC ads on Amazon, have you seen the ACoS metric next to your Campaign and wondered what it means? Many Amazon sellers are looking for ways to improve their Amazon ACoS, but others don’t have a great understanding of it yet.
If you want to have higher profitability on Amazon, it is important that you understand what the ACoS metric means and how to maintain it at a healthy percentage. We recommend that all sellers get a good grasp of this topic, but not many are paying attention to it! Read ahead to be a step above the rest.
In this blog post, we will cover what does ACoS mean on Amazon PPC, how you can calculate it, what your target ACoS should be, as well as our tips on how you can improve your ACoS based on our own success!
What is ACoS in Amazon PPC?
ACoS is the acronym for “Advertising Cost of Sales”. It is a percentage that helps you understand how much revenue you are making as a result of how much you have spent in advertising.
The ACoS is a metric that can be viewed on your Campaign Manager, which is part of Amazon’s internal PPC Marketing platform called Amazon Advertising.
You can view ACoS on the Keyword Level, Ad Group Level, Campaign Level, and Placement Level. We recommend that you analyze your ACoS for the Keyword and ASIN Levels the most often because we find it to be the most effective for us. It is a lot of work to analyze the ACoS for each individual level, because they vary and fluctuate monthly.
PPC Marketing, or “pay-per-click” marketing, is a way that you can advertise your product listings. Sellers use PPC as a tool to drive more sales and improve organic rankings. Depending on the form of advertising they choose, Amazon sellers pay for either the clicks, impressions, or conversions generated from a product listing ad that appeared in a user’s relevant search results.
Costs per click vary because the relevance of ad placement is based on an auction system. Your ads compete against other advertisements for a space in relevant search results. A bid is the maximum amount you’re willing to pay for a single click on one of your product listings. A higher bid may improve your placement, but sometimes it is the amount that is being bid that negatively affects your ACoS, and we will discuss this further later on in the article.
Why is ACoS So Important?
Advertisers want to be profitable. We use the ACoS metric to determine how much we are selling as a direct result of this advertising based on clicks. This tells us the effectiveness of advertising on Amazon. Because if a product sells fairly decently even without advertising, and you can see that your ACoS for this Campaign is telling you that you are losing money, this is an indicator that it is unnecessary to advertise.
With ACoS, you will also be able to compare which Campaigns generate more sales than the others. This way, you can determine if you need to take a closer look at the keywords that are being targeted for the poorly performing Campaigns. Sometimes it is just a matter of improving the mechanics of the Campaign for it to perform better.
What is the ROAS and what’s the difference Between ACoS and RoAS?
When advertising on Google Ads, RoAS is a commonly used term which means “Return on Ad Spend”. It is a very similar concept to Amazon’s ACoS, just with a different name. Because of this, the terms are sometimes used interchangeably.
However, on Amazon Seller Central, next to ACoS, you can also see a RoAS column. If ACoS is the percentage of their sales spent on advertising, RoAS on Amazon’s Seller Central is the revenue a seller receives from their advertising investments. It is calculated by dividing sales attributed to a seller’s ads by their spend, and attribution varies by campaign type.
Where To Locate Your ACoS and Calculate Profitability
Find Your ACoS
- On your Seller Central Dashboard, open the main toolbar and hover over Advertising. Click on Campaign Manager.
- When you are on Campaign Manager, you will automatically be viewing All Campaigns in the displayed table. Scroll sideways to find your ACoS. Your RoAS will also be next to it.
- To find ACoS for a specific campaign, you can search for it in the search bar. When you open a specific campaign, you can also see the ACoS at the Ad Group and Placement levels.
Calculating breakeven ACoS to Determine Profitability
When determining how much you are profiting from advertising, it is important that you start by identifying the exact percentage at which you make no profit while having zero loss at the same time. This is so that when the ACoS fluctuates (and it oftentimes will) you can see much quicker if you are earning or losing money.
Steps:
- Sale Price – Amazon Fees – Cost of Goods = Net Profit
- Divide Net Profit by Sale Price, then Multiply it by 100 to get your breakeven ACoS
For example, you sell an item for $30, and Amazon’s fees amount to $3, while Cost of Goods is $10. Subtracting Amazon’s fees and Cost of Goods ($13) from the sale price ($30) means that you profit $17 from one unit of this item (pre-advertising).
If you take your net profit of $17 and divide it by your sales price of $30 then multiply it by 100, you get your breakeven ACoS. In this case, it is 56%.
- $30 – $3 – $10 = $17 (Net Profit)
- ($17 / $30) x 100 = 56 (ACoS percentage)
Now you know that when you see an ACoS lower than your breakeven, you are profitable. Higher than your breakeven ACoS means that you are not profiting from advertising. The lower the ACoS, the better, because this means that you spent less to generate more revenue.
What Should My Target ACoS Be?
Have you heard another seller telling everyone about their ACoS percentage?
A “good” or “bad” ACoS will not be the same for everyone. Some sellers like to share their “good” numbers, and it makes other sellers feel like they are doing something wrong if their numbers are vastly different.
First and foremost, identify a goal for yourself. Are you spending on ads to increase profits or are you just looking to raise brand awareness by ranking higher? Once you figure this out, you can start to target your ACoS.
It is very important that you are paying attention to the period of time that you are viewing your ACoS. Because for example, if you view last month’s ACoS for the entire month and compare it to your ACoS for just the past 2 weeks, it is not a fair indicator yet of how well you are doing for an entire month.
We also recommend that you choose at which level you want to consistently be analyzing and improving your ACoS for. Choose between Keyword Level, Ad Group Level, Campaign Level, or Placement Level. Working on all of them at the same time will be time consuming and confusing.
Goals to profit
If you are aiming to profit, you should be aiming for lower spend compared to revenue as opposed to higher spend compared to revenue. In simple terms, your ACoS should be a number lower than your computed breakeven ACoS to profit. A number higher than your computed breakeven ACoS is considered a “bad” ACoS in this scenario.
Some sellers are happy with profit even though it is only a few cents, and other sellers aim for higher profits. It is ultimately up to you as a seller to set a goal on what kind of profit you are happy with.
Some products are not worth spending for advertising on like other products are if you can see that you are consistently getting “bad” numbers. One thing is for sure, if an Ad Campaign is not bringing in enough profit (or even traffic), you should either increase your bids or stop advertising altogether.
Goals to Rank Higher
However, if you are just aiming for your products to rank higher in relevant searches, we consider 40% above your breakeven ACoS as a good percentage. This kind of strategy can still drive profits if you are at a high sales velocity.
Sellers do this kind of strategy to attempt to dominate their niche and raise brand awareness when competing with large brands. This kind of strategy can take time and a significant investment to pay off in the long run, but it does work for many!
There are ways to improve your Campaigns so that your ACoS in return will improve as well!
Tips to Improve your ACoS Percentage
Sponsored Display Product Targeting
While viewing a product listing of another brand, you can advertise your competing product right underneath the Add To Cart and Buy Now box. It is available if your brand is registered on Amazon.
You may have to play around with your investment to get the profit you are aiming for, but it is a strategy that not as many sellers use. Take note that this ad only displays on competing product listings if your advertised product is in stock. Watch our video tutorial to set up Amazon’s Sponsored Display Product Targeting!
Sponsored Brand Ads
These are the ads for brands with their products that appear on the top and bottom of search results pages for relevant keywords targetting their products. The performance for the ads on the top of the webpage are usually better than the performance for the ads on the bottom of the webpage.
If you are running a Sponsored Brand Ad campaign, you can view the report to see your performance through these steps:
- Go to your Campaign Manager on Amazon Advertising and open up Reports in the toolbar
- Click Sponsored Brands on Campaign Type, and click Campaign Placement under the dropdown menu for Report Type
- Choose the time period you want your report for. We run reports for the Last 30 Days, but the longer the time period, the better.
- Click Run Report, wait a few moments, then refresh the page and click the Download button on the right side of the page.
From there, you will want to decrease the default bid that Amazon is creating for Other Placements.
We have a video tutorial on this trick to decrease your ACoS so that you can follow along and see how to analyze the report you just downloaded. From here, you can make the necessary changes to the settings in your campaigns to decrease bid adjustments for placements below top of search by a certain percentage.
Negative keywords
One of the most important tasks for Amazon sellers who run PPC ads is to add negative keywords to their Amazon campaigns. This means that irrelevant keywords (also known as “negatives”) that are searched by users on Amazon will not target your products.
You can also add negative ASINs to the campaigns. Adding negatives is a way to eliminate wasteful ad spending so that you will only be generating product visibility where it is relevant.
Bid Management
Make sure you increase or decrease bids as necessary for keywords that are profitable or not profitable.
Do not change your bids on a daily basis, because you need to allow time for your products to sell, and the system needs time to calculate your ACoS based on these sales.
Changes (both increases and decreases) should not be done drastically, so that you have a chance to recover from a wrong decision.
Separating Search Terms
Create one keyword campaigns (keyword boost) for high profitable keywords. They give you more control and better rankings. Download an Amazon Search Term Report to see the list of the keywords that people have searched when they found your products in search results.
When you spot search terms with a good ACoS, create a separate campaign for them in an Ad Group targetting Exact Matches, and confidently bid a little bit higher on them than the bid that Amazon suggests.
Optimize Listings
You can be on top of your game with PPC, but if your listing is not optimized, your PPC efforts can go to waste. View your Sales Report to see Conversion Rates.
- On your Seller Central Dashboard, click the dropdown arrow on Today’s Sales, then click on your desired report under “Ordered Product Sales”.
- Once in the report, click on Detail Page Sales and Traffic by Child Item.
- Locate the column for Unit Session Percentage (the percentage of people who entered your listing and actually bought the product)
- Choose items that have a low percentage under Unit Session Percentage. These are the listings you can optimize. Many sellers use Sales Rank Tracker tools that suggest keywords, compare your pricing to competitors, and provide data and metrics to help you understand how your products are performing.
Create the Right Campaigns
It’s important to organize how you will allocate your budget across all campaigns, whether they are Auto Campaigns, Manual Campaigns, Video Ads, and Sponsored Product Displays.
We personally observed that Video Ads and Sponsored Product Displays are the most effective for us, because the return of investment is much more worth it than an Auto Campaign or Manual Campaign. However, we still do regularly run Auto and Manual Campaigns, so if you have the budget for it, go for it!
For these last 5 methods, we have a video tutorial on How to Lower your ACoS. But for all 7 methods, they are not something that you do once and leave alone after. They all take consistent attention, analysis, adjustments, and patience to see results!
Conclusion
As you can see, there are many reasons why ACoS is so important. It’s not just a number that says how your profit margins look on Amazon; it’s also an indicator of the health and success of your business.
We hope that our tips will prove to be helpful for you! Do you have any further questions on how to make the right decisions with each method we shared? We want to hear from you!
Whether it’s starting an Amazon business, PPC campaigns, optimization techniques, or understanding customer psychology – we’ve got all bases covered in the Sourcing Monster Blog!
[…] you which ASINs and keywords got sales. If you see that they have a good Advertising Cost of Sales (ACoS), you can take them and bid higher on that campaign or add negative keywords to the Auto […]