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.
Optimising for ACoS
There are a number of ways that Amazon advertisers can optimise their campaigns to generate a ‘good’ ACoS percentage, where that percentage aligns with their goals:
At their core, Amazon’s PPC campaigns aren’t much different to Google’s PPC campaigns. This means that they can’t work in isolation.
While the ad will drive traffic to the right place, conversions are less likely if there’s no on-page content to engage.
Title optimisation is another area that’s worth thinking about, with this forming a first impression for many users. An optimised title should include relevant keywords and product information that answers some initial base questions, ensuring that most clicks come from high quality leads.
Content optimisation can help to boost sales, increasing the total ad sales part of the ACoS equation and balancing out the ad spend side.
While broad match and phrase match keywords are generally ‘easier’, shifting your focus to exact match cases can be a better way to develop a stronger ACoS rate.
Incorporating exact match bidding into your keyword strategy may not help you to extend your reach across the Amazon platform, but should help you to better target niche areas, and connect better with high quality prospects, ultimately boosting sales while reducing wasted budget on irrelevant keyword bidding.
Negative keywords are also worth looking into here, helping you to focus your ad spend specifically on those keywords that are most likely to drive sales and convert, ignoring irrelevant terms.
Perhaps the most obvious ACoS optimisation strategy of all is simply to ensure you’re always paying attention to how much you’re bidding for your keywords.
In fact, one of the biggest mistakes that Amazon advertisers can make today is a failure to bid the optimal amount to see success, especially success in terms of ACoS. Some marketers may be bidding too low, while others bid too high.
And it’s clear that in order to generate an ACoS percentage that aligns with your goals, finding the right bid balance is everything.
While Amazon offers automation tools like Dynamic Bids, there is a risk that this can exceed your cost-per-click bid, sending your ACoS skyrocketing… not ideal if you’re striving for a profit-making low ACoS. Manual targeting is trickier, but better.
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.
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:
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.
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.
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)
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.
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 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.
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.