Amazon Acos: key metrics & optimization strategies

Amazon Advertising can be a complex PPC service if you don't know the key metrics, but don't let that stop you as in this article I will give you all the details for one of the most critical metrics for assessing your ad campaign's success: Advertising Cost of Sales (ACoS).

I'll delve into the factors that influence ACoS and how to determine what an ideal ACoS looks like for your business. And, more important: optimization techniques and marketing strategies to improve your campaigns and drive down costs.

Maximizing your ACoS isn't a sprint, but a a marathon requiring consistent analysis and adjustments based on key performance indicators. Ready to seize control of your Amazon ad spending? Go go go!

What is ACoS?

If you want to be successful with your Amazon products and drive paid sales to your listings, it's crucial for you to understand ACoS, or Advertising Cost of Sales. This is essentially the ratio of your ad spend to total paid sales expressed as a percentage. It measures how much you're spending in advertising to generate $1 in revenue.

ACoS is the ratio of your ad spend to total paid sales expressed as a percentage

Knowing your ACoS allows you to gauge the effectiveness of your marketing efforts and make informed decisions that can significantly boost your profits. For instance, a lower ACoS indicates higher profitability since it means less ad spend for each dollar made in sales.

In my experience, you get a lower ACoS on the mid-long term, once your listing is consolidated with a bunch of reviews and your Conversion Rate is high. In the short term, the only keywords that get a lower ACoS are branded keywords.

Keep in mind that what constitutes a ‘good' ACoS largely depends on your product and company specifics such as profit margins and break-even points. For example, if you're a manufacturer or private labeler, a good ACoS could be a 30-40%, but if you're reselling, you need a 10% or less.

So don't just aim for low figures but for an optimized balance that maximizes both profitability and growth potential. And, also, keep in mind that there's another metric: the TACoS.

What is TACoS?

TACoS is the Total Advertising Cost of Sales and it's an indicator of the ratio of your ad spend to total sales, including both paid and organic sales, expressed as a percentage.

TACoS is the ratio of your ad spend to total organic + paid sales expressed as a percentage

Honestly, I don't know who came up with this metric. It's not an official Amazon metric, you can't check it on your Amazon Ad Console metrics. The first time I saw ACoS was on Amazon PPC tools such as Helium 10 Adtomic, Perpetua on Zon.Tools.

So, let's assume that every paid conversion on your listing helps Sales Velocity, which also improves organic rankings. That's what TACoS is about. Assuming every PPC order counts for rankings, Total ACoS calculates the total organic + paid sales vs the ad spend.

What is ACoS formula

ACoS formula is pretty easy: divide your ad spend by the ad revenue, then convert it to a percentage.

(ad spend ÷ ad revenue) x 100

Let's see an example.

How to calculate ACoS

So, for example, if you are selling a $100 product and spend $20 on advertising to generate 1 sale, your ACoS is a 20% and the formula would be:

(20 ÷ 100) x 100 = 20%

As you can see, you don't need to be a genious to calculate ACoS. Actually, it's pre-calculated on Amazon Ad Console metrics per campaign, ad group, keyword and target ASIN.

ACoS vs RoAS

I'm sure RoAS also rings a bell for you, especially if you have worked with Facebook / Instagram / Meta / Google Ad campaigns before. RoAS is the Return on Ad Spend meaning:

RoAS is the total revenue from an ad campaign divided by the amount spent on the campaign

So, if you spend $100 on advertising and your generated revenue is $200, the formula, would be:

RoAS = ($200 / $100) *100 = 200%

As you can see, the difference is the concept. While ACoS calculates a % on ad spend vs sales, RoAS would be the return (or ROI) for every dollar spent.

ACoS influencing factors

You've got to consider several critical elements that can significantly impact your ad's ACoS. Understanding these factors will not only help you gain control over your campaign performance, but also maximize your ROI.

These parameters are intertwined and exert substantial influence on your Advertising Cost of Sales. By keeping these metrics at the forefront of your strategy formation, you'll have an upper hand against competitors while ensuring optimal use of advertising spend.

As I delve deeper into understanding how to navigate through Amazon Ads campaigns, let's now focus on determining what constitutes an ideal ACoS for your specific business scenario.

Ideal ACoS determination

Determining the perfect ACoS for your business isn't a one-size-fits-all equation, but rather a nuanced balancing act that requires careful consideration of various factors: profit margins, pinpointing your break-even point and the competitive landscape of your product category on Amazon:

Profit margin

Pivotal in this determination. It's vital to calculate how much you earn from each product after deducting all costs associated with its sale. This insight gives you control over how much you can afford to spend on advertising while still making a profit.

Break-even ACoS

Another key metric. It's simply your gross margin expressed as a percentage and signifies an ACoS at which you're neither making nor losing money. Maintaining an ACoS below this level ensures profitability from ads.

The competition

Always keep an eye on the competition. If they're offering similar products at lower prices or higher perceived value, it might be worthwhile aiming for a lower ACoS to remain competitive. Remember that pricing matters, so you may want to read about repricing strategies for Amazon Sellers.

Let's now shift focus towards some proven techniques to optimize your ACoS effectively.

ACoS proven optimization techniques

Let's start unpacking some magician tricks & techniques that can give you a real edge in the marketplace.

Optimizing your ACoS is all about understanding what works best for you and leveraging that knowledge to outperform your competition.

Analyze Keywords

Regularly scrutinize your search terms and keywords performance data both on the Amazon Ad Console Search Term reports and using an external software such as Adtomic. This will help identify profitable ones, which can then be emphasized on.

You can do this on autopilot by using an Amazon PPC optimization tool. All of them have their own algorithms to “kill” bad keywords and boost profitable ones.

Bid Management

Consider increasing bids or budget on top-performing keywords, while pausing underperforming ones. This ensures efficient use of resources. Again, this is something you can automatize and scale by using an external software.

Product Targeting

Focus on your best-selling SKUs or target by product category for more precise reach, both on Sponsored Products and Sponsored Brand campaigns.

Organize campaigns

9 out of 10 times I analyze clients' campaigns I find several ASINs on the same campaign. Let's see. Different ASINs have different performace, because they have different reviews, pricings, FAQs, BSR, best seller / Amazon's choice brands… I mean, don't do that. Period.

Remember, ACoS optimization isn't an overnight process; it involves continuous refinement based on regular analysis of key metrics and trends.

Now that we've covered the ins-and-outs of optimizing ACoS, next up is how to effectively apply marketing strategies for even greater success!

Marketing strategies

Remember Pareto and his principle? Well, you can't afford to overlook the potential of applying Pareto's 20/80 rule to your marketing budget.

This principle suggests that 80% of your sales will come from just 20% of your products. So why not channel most of your advertising dollars towards these top-performing SKUs?

Mastering Amazon ACoS isn't just about crunching numbers, but also about understanding and implementing effective strategies. Regularly analyze search terms, pause low-performing keywords, and increase bids for high-performers while testing automatic bidding strategies.

Don't stop there. Create a list of irrelevant keywords to exclude and consider targeting by product or product category. Negative keywords and negative target-ASIN are often forgotten and they can seriously improve your ACoS!

Long-term optimization process

Fine-tuning your advertising campaigns to ensure optimal performance isn't a one-time task, but rather it's akin to nurturing a garden – requiring regular care and attention over an extended period. As we already discussed, you can rely on a software for that. Depending on the amount of campaigns and countries involved, you can do it manually, which I won't recommend to be honest.

The same principle applies when you're working on optimizing your ACoS on Amazon. It's not something you set up once and forget about. Instead, it's a long-term process that requires routine analysis.

To help with this process, consider the following table:

Remember the power is in your hands to dictate how successful your Amazon Ads are by continuously refining them according to data-driven insights from ongoing evaluation. So don't let any potential for improvement slip away! Make every effort count towards outpacing competitors and reaping immense rewards as a result of achieving an optimized ACoS.

Final thoughts

As you can see, understanding and optimizing Amazon's ACoS is crucial to your ad campaign's success. It's influenced by factors like profit margin and break-even point, which vary for different products and companies.

By regularly analyzing KPIs, identifying profitable keywords, and focusing on best-selling SKUs, you can effectively manage your ACoS.

Remember that optimization is a long-term process, but with persistence and smart strategies, you're well on your way to boosting your revenue!

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