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Amazon is one of the world’s largest platforms for online advertising with a wide range of tools designed to make life easier for brands and advertisers alike.

When used effectively, Amazon Advertising has the potential to boost profits, raise profiles and encourage everything from an enhanced online profile to more sales.

Understanding Amazon AcoS

The Amazon AcoS refers to your Advertising Cost of Sale. It’s one of the most important metrics on the platform and will help to determine and guide your strategies. The Advertising Cost of Sale is often regarded as the foremost way of finding out whether you are successful on the platform and frequently helps to shape bidding behaviour and which search terms are selected.

In the world of Amazon PPC (Pay-Per-Click) advertising, this is really the most important metric for you to watch. To really know whether your Amazon AcoS is good (or bad), you also need to have an understanding of the way this metric slots into the costs which surround your product. Crucially, it is worth noting that while you spend less on your advertising activities than you do on your profits, you will never actually experience a loss in revenue.

However, the higher your Amazon AcoS, the higher your ad costs will be in relation to sales revenue. Likewise, the lower this metric is, the lower your ad costs are adjacent to your revenue. There are a few key ways of finding out whether your Amazon AcoS is good, but without supplementary tools at your disposal, it is more difficult to find out the true profitability of your campaign.

Calculating your AcoS

Acos graph

Put simply, your AcoS refers to the amount spent on advertising, defined as a relatively straightforward formula. AcoS is calculated by comparing your total ad spend with your total sales. If you spend £20 on advertising but make £100 from these efforts, then your AcoS would be 20%, for example.

While the AcoS is an incredibly important metric, there is also much more to be taken into account when deciding whether your advertising has been successful. Recently, marketers have begun to suggest there is really no ‘good’ or ‘bad’ AcoS. In fact, this area can often serve to complicate matters for marketers and create lots of confusion as to what they should be doing – and how.

Using AcoS more effectively

To calculate and monitor your AcoS, you need to ensure that your Seller Central account is set up correctly.  When you look at the AcoS column, you should be able to segment data to three distinct levels: campaign, ad group and account. Via these categories you can find out whether you are currently on the right path, but there are many other factors which will determine whether you have a good or bad AcoS , as defined by your overall goals and the intentions of your campaigns.

Target Setting

To achieve the AcoS you want, it is important to start setting implementable goals. While in some circumstances you may view simply breaking even (ie. no net loss, but no gains either) as positive, most advertisers and brands do want to see an improvement in profits.

Breaking even would suggest that your advertising costs and your profit margin are the same, but to work out your AcoS you need to find out what your costs are beyond simply breaking even, and determine your intended profit margins.

Things to note:

An AcoS which is lower than your target will help to give your profit margin a further boost. In addition, an AcoS which is higher than your target but somewhat lower than breaking even will still allow you to generate profit, though it will also decrease your profit margins.

Crucially, you should remember that an AcoS higher than breaking even will create losses.

Looking beyond AcoS

There are many other areas which need to be observed before you can truly understand your AcoS. Other factors which should be considered alongside your AcoS include:

Impressions

Charts on a laptop screen

This metric simply looks at the number of times your ad was displayed. There could be a number of reasons for low impression volumes. Perhaps the bid was too low (leading to missed bids)? To adjust, raise your bid and assess performance.

There may also be other underlying issues which are impacting impressions. The wrong keywords may be being used, or they may be far too specific for actual search behaviour. In this instance, it’s time to perform more keyword analysis and find new and effective search terms.

Total spend

Your total spend is simply the amount of money which has been spent on your advertising campaigns. The best way to improve the effectiveness of your profits is to keep this cost as low as possible, particularly in relation to your product spend.

Despite this, it is important to ensure that your campaign costs aren’t too low. This could simply indicate that your adverts are not being displayed, and will require careful analysis of your activities to help you increase impressions.

To do this, take a look at both your keywords and targeting and consider how they can be made more relevant to your products and brand.

Clicks

This metric analyses how many times your ads have been clicked on. It is often monitored alongside impressions, and can provide crucial insights into the health of your campaign activities. There are many reasons why clicks are so important.

Firstly, high click rates, when accompanied by poor sales performance, suggest there is a problem with your product pages rather than your adverts. The ad is doing its job in this scenario, yet for whatever reason people leave without buying the product.

This could indicate that the wrong customers are being targeted, or that you should make a few adjustments to your product pages.

Low click rates can also be suggestive of a problem. People are viewing your ads, but do not make a purchase. The reasons for this are primarily due to poor keyword selection, as the keywords used are not linking up with either the audience or user intentions. To get it right, check your keywords carefully.

Click-through rate (CTR)

This metric is important for understanding the effectiveness of your ads. CTR is calculated by using the ratio of ad clicks and impressions.

The higher your CTR, the better. This generally means that your adverts are proving to be successful with audiences, and prompting them to click. In contrast, lower CTRs are indicative of an advert which is not attracting enough customers. This could be an issue with either the audience you have selected, the ad copy itself or your placement of the ad. Other variables include the product image; high quality images generally attract more clicks.

To find out how to get better at this aspect of Amazon Advertising, take a look at your competition. Who is outperforming you, and what are they doing? This should provide plenty of pointers on how to create more effective ads.

This metric is also useful for keyword optimisation, as it allows you to pause keywords which are producing a click-through rate lower than 10%. This low rate is indicative of limited interest in the product via this particular search term.

Cost per click (CPC)

CPC chart

Your CPC will calculate the money spent on each ad click. How you optimise these ads will vary depending on the cost of the product being sold. Be sure to remain mindful of profits at this stage, and remember that Amazon uses an average CPC which provides a total across your campaign.

Overall sales

This metric takes into account both the sales which have been generated by your advertising activities and those which have been generated organically. There are many reasons why a shopper may choose to buy your product, and not all of them are influenced by ad clicks.

However, you will want to ensure that your ad sales are healthy, otherwise, it somewhat defeats the purpose of running paid ads. For every 10-12 sales you make, you should expect that around 6-8 of them stem from your ads to ensure a healthy flow of ad-based clicks.

Conversion rate

Conversion rates are incredibly important on Amazon, as they indicate that a shopper has moved beyond simply looking at a product after clicking on an ad, and has in fact made a purchase.

The conversion rate you expect will vary depending on the product and can suggest that you need to further optimise your product pages (in the event of clicks but no sales). In addition, Amazon considers your conversion rates when determining ad ranking, which itself dictates the frequency with which ads are displayed.

Conclusion

Depending on the intended outcomes of your Amazon Advertising activities, it may be time to rethink how you define a successful AcoS. Don’t be afraid to sift through all of the data at your fingertips, rather than simply using one (albeit powerful) metric to see whether you’re doing well.

There is a lot of data to work within Amazon Advertising, and a simple look at your conversion rates or your views may prove you’re being far more successful than you originally thought. While this shouldn’t lead to complacency, it can certainly help to reassure and prove that your efforts are not wasted – or give food for thought and a pathway to improvement.

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George Meressa
George Meressa
George is the Founder of Clear Ads Ltd. Clear Ads Limited was first set up in January 2011 with the soul purpose of helping small and medium sized companies advertise through Google Adwords. Over the last few years through word of mouth, our account managers have managed to help over 200 different companies gain better exposure to their website through Google Ads and Amazon. Connect with George on LinkedIn.

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