It’s reported that almost three quarters of all Amazon shoppers click on product ads when they’re browsing for items, and of them, 60% believe that the ad helped them to make a purchasing decision. So while it’s always a good idea to work to promote your brand organically through the platform, it’s important not to overlook the power of Amazon’s built-in PPC-based model, which can help you to grow your online business.
However, Amazon’s PPC model isn’t always simple and straightforward; it needs strategic planning to ensure that it’s delivering the right results for your business. There are many aspects that could go poorly, such as using the wrong keywords that promote your products in the wrong categories, to the wrong people, or bidding inefficiencies that result in you paying too much for low value clicks. With paid promotion activities, you need peace of mind that your campaign is effective.
How can you get this peace of mind? By incorporating ACoS into your strategy.
What is ACoS?
ACoS stands for Advertising Cost of Sale, and it’s an integrated Seller Central tool that provides a straightforward calculation of all PPC financial activity through Amazon.
It’s similar – in a way – to Google’s RoAS (Return on Advertising Spend) tool, although there is one major difference between the two. While RoAS outlines how much you earn from your ad spends, ACoS outlines how much you spend to earn; it’s RoAS in reverse. Reports suggest that around 61% of Amazon advertisers currently use the ACoS metric.
Calculating Your ACoS
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
The calculation looks like this:
ACoS = Total Ad Spend/Total Ad Revenue *100
- Total ad spend covers all financial resources that are driven into direct advertising through the Amazon platform. This is made up of everything from spend on a single keyword to spend across an entire category, with Amazon taking into account both cost per click (CPC) and number of clicks to calculate total ad spend across all activities. Your ACoS percentage rises as you drive more budget into advertising.
- Total ad sales looks at the number of sales that you’ve made across the platform that can be attributed to your on-site advertising efforts. However, it’s not quite as simple just accounting for those sales made when a click results in an instantaneous conversion action, such as adding an item to the basket, or making a purchase. It also accounts for postponed effects. Your ACoS percentage will drop as your Amazon sales increase.
How Can ACoS Help You?
It’s natural to think of ACoS as a spend indicator that can help you to minimise your outgoings and lower your advertising budget, and Amazon itself states that ‘as ACoS decreases, your campaign becomes more efficient because you’re spending a lower percentage of sales on advertising’.
And in a sense, they’re correct. After all, if your ACoS percentage is greater than your break even, you’ll be losing money. If your ACoS percentage is lower than your break even, then you’ll be making money. Simple.
It seems clear, doesn’t it? The tool helps advertisers by motivating them to achieve the lowest possible ACoS, which ultimately means that they’re selling more than they’re spending, and enjoying an excellent return on investment. But ACoS is more complex than that. In fact, there are actually two distinct ways that ACoS could benefit your Amazon business, and only one of them relies on having a low ACoS percentage.
1. Amazon ACoS Can Help You Boost Profits
Depending on where you source your data, the average Amazon ACoS is between 30 – 35%. However, some advertisers are striving for a low ACoS of between 15 – 25%, helping them to generate the best possible profits from the lowest possible spend.
As this means advertisers are driving fewer resources into their campaigns, this method works best for products that ‘sell themselves’, as the aim is to sell more while spending less. For high converting products that are in demand, this can really work.
A low ACoS can be especially beneficial at certain times of the year. For example, you may be able to spend less on advertising small trinkets when shoppers are looking for stocking fillers.
2. Amazon ACoS Can Help You Boost Visibility
You don’t need to have a low ACoS to benefit from this Amazon tool. In fact, some advertisers are actually aiming for a high ACoS, which can help boost visibility, especially for products that are struggling to be seen by the right eyes.
By driving more financial resources into advertising, it’s possible to significantly boost brand awareness, become a leader in a particular niche or category, and generate more profit in the long term.
After all, as the old saying goes, you have to spend money to make money. In terms of building a brand, some advertisers are willing to take the risk of losing money initially to create a ‘halo effect’ that uses PPC to earn a greater organic position.
How you incorporate ACoS into your Amazon advertising strategy really depends on your goals, and what you want to achieve from your efforts. Do you want to use ACoS as an indicator of spends, or of visibility? It does both… but not at the same time!
The Benefits of ACoS
Whatever reason you use ACoS, its value ultimately comes from the ability to provide you with data-driven insight into whether or not your Amazon ad campaigns are achieving what they’re supposed to.
And this is important because performance is what Amazon is all about. If you’re using both Google Ads and Amazon Ads, you will probably have noticed that the two are very different.
Google’s mission is to promote, while Amazon’s mission is to sell, and it places a great deal of importance on performance when it comes to figuring out what products to promote over others.
Performance is a massive ranking factor for Amazon, and it uses performance to determine everything from positioning within its own SERPs to assigning products to the coveted Buy Box. Whatever your overall aims, your campaigns must be effective and efficient enough to perform excellently, and that’s where ACoS can really be useful.
Overall, ACoS isn’t necessarily about lowering costs; it’s about being in control of them. It was reported that 81% of existing Amazon advertisers planned to increase their spends on the platform during 2020, with around one third stating that this additional budget will be pulled from other budget lines, particularly non-digital options such as print, TV, and outdoor.
When taking budget from other areas, it’s vital that you have peace of mind that the campaigns eating the majority of your budget are working.
Learn how to optimise your Amazon ACoS here.
Ready to Use Amazon’s ACoS Tool?
As it’s clear to see, ACoS can be a highly valuable tool in helping you to stay in control of your advertising costs, no matter what your overall aims are. However, as ACoS can rise with every new bid, and reduce with every sale, your ACoS strategy must be rooted in ongoing PPC campaign management to ensure great efficiency and performance.