19 Dec What is Amazon ACoS?
If you are already a seller on Amazon and you are thinking of making an advertising campaign for your products, you should know what ACOS is, a metric that you cannot overlook, since it is where sellers base the success of their advertising campaigns on Amazon.
If you haven’t heard of ACoS or read about it anywhere, don’t worry, in this post we will tell you everything you need to know about this incredible metric so that you can measure the performance of your campaigns on Amazon.
How to Calculate ACoS
ACOS is a percentage that measures the efficiency of your ad campaigns on Amazon. It is calculated by dividing the advertising spend by the revenue generated from that advertising. For example, if you spend $100 on ads and get $500 in sales, your ACOS is 20%.
ACOS Formula on Amazon
The formula is very simple:
ACoS = (ad spend / sales revenue) x 100
How to Tell if Your Amazon ACoS Is Good
Now, we already know how to calculate ACoS on PPC ad campaigns on Amazon, but how can we know if our ACoS is really good? Well, the truth is, determining whether an Amazon ACoS is good or bad is not such an easy task.
The first thing you have to consider is the entire cost structure of your product to figure out what a good ACoS is. In order not to experience a loss on your sponsored product listing, you must spend less than your profit margin on ad campaigns (profit margin is the amount you earn after all costs of production, shipping, etc.; and the fees paid to Amazon are subtracted from the price at which the product is sold.
4 Metrics That Accompany ACoS
When evaluating how profitable your Amazon Sponsored Product Listings are, you also need to consider other metrics along with ACoS, in order to make a much clearer determination.
Evaluate the popularity of your product. If the impressions are high, then the product is in a popular category so the ad is showing a lot. If impressions are low, then even if the ad is shown frequently, the product may not be as popular.
Total de Clicks
If the click-through rate is low, it’s likely that the ad didn’t rank well or that Amazon users weren’t enticed to click on the ad.
Total investment in the campaign
Don’t forget how much money you spent on the ad and what the cost per click was. It’s important to make sure you’re not spending too much on ads based on the price of your products. If you spend too much, it will reduce your profit margin considerably.
Look at how many clicks there were and how many sales resulted from those clicks. If clicks are high and sales are low, your ad content may need to be changed.
Can High ACoS Be Useful?
While you generally want to achieve at least Amazon ACoS equilibrium, there are some cases where it can be beneficial to choose more aggressive strategies that result in higher ACoS. If, for example, you’re launching products within a very competitive niche where it’s too difficult to generate sales at an ACoS break-even point, or if you want to sell excess inventory because your goal is to clear inventory as quickly as possible, even if it’s lost, rather than having to pay Amazon additional storage fees.
You may also want to increase your brand awareness, with the goal of ranking on the first page for all the important keywords in a specific product category. Accepting a higher ACoS in these scenarios makes sense, because the value of the visibility generated for your brand is greater than the loss that occurs in the products you sell.
Why Is ACOS So Important?
Profitability Meter: ACOS helps you understand if you’re investing wisely in advertising. A low ACOS means you’re getting a high return on investment, while a high ACOS can be a red flag.
Decision Making Tool: Based on your ACOS, you can adjust your advertising strategies, pricing, and even your product selection.
Market Competitiveness: Knowing your ACOS allows you to compare yourself to the competition and understand your position in the Amazon market.
How to optimize your ACOS
Strategic Keywords: Choose relevant and specific keywords for your products. This will increase the relevance of your ads and can help reduce ACOS.
Product Listing Optimization: Make sure your product listings are engaging and contain relevant, detailed information. This can improve your conversion rate.
Bid Management: Adjust your advertising bids according to performance. Don’t be afraid to decrease your investment in ads that aren’t performing well.
Continuous Analysis: The world of Amazon is constantly changing. Regularly review your ACOS and adapt your strategies as needed.
Differences Between ACOS and ROAS
Have you ever wondered if you’re getting the most out of your Amazon ad campaigns? In the world of e-commerce, two metrics reign supreme: ACOS (Advertising Cost of Sales) and ROAS (Return On Advertising Spend). Although at first glance they may seem similar, understanding their differences is key to successfully navigating the sea of digital marketing.
As we mentioned earlier, ACOS is the percentage that represents advertising spend out of the total sales generated. It’s like a lookout on your ship, always watching how much you’re spending compared to what you’re earning. A lower ACOS is synonymous with greater efficiency in your advertising campaigns.
ROAS, on the other hand, is the return on ad spend. It is calculated by dividing the revenue earned from advertising by the cost of that advertising. If ACOS is the watchdog, ROAS is the calculator, showing you how much you’re earning for every dollar spent on advertising. A higher ROAS indicates higher profitability.
Choose an ACoS Strategy That Works for Your Business
Determining whether an ACoS is good or bad also depends on the goal of the strategy you choose for each Amazon campaign.
An ACoS of 20% might be good if your primary goal is to maximize sales velocity.
The purpose of this strategy is to sell as many units as possible through advertisements, without incurring losses. Amazon sellers usually use this strategy for new products without an Amazon history, however, this strategy can be bad if your idea is to maximize profits.
Another strategy would be to use Sponsored Product campaigns to generate as much profit as possible. This type of strategy is commonly used at a later stage of a product when it already has good organic rankings.
Depending on the strategy you’re using, you’ll need to calculate the “ACoS break-even point” or the “ACoS target” to assess whether a given ACoS is good or bad.
One of the techniques that can lead to the improvement of this metric is the use of remarketing in Amazon campaigns.
Need help with your metrics in Amazon campaigns to identify your actual profit margin? Are you looking to design a strategy to promote your products on Amazon?, don’t worry, at Nozama Soluciones we have the best team of Marketing professionals who will be able to advise you on everything.
Don’t miss the opportunity to grow your business within Amazon and reach more customers with Advertising campaigns. Start promoting your best products and make your brand known with the advice of Nozama Solutions.