Amazon advertising has grown 5x since 2018, exceeding a $40 billion annual run rate.
What does this mean? It means Amazon sellers are investing more and more in ads to promote their business.
However, to make the most profit, you need to understand your costs. We know that ads boost sales, but if the cost is too high, it can eat into your profit!
Simply put, it is important to check how well your Amazon Pay-per-Click ad is doing. Look at your product’s ACoS; that’s how much you spend on ads compared to what you earn. Knowing what is a good ACoS on Amazon helps you figure out if your ads are worth it.
In this guide, we will tell you:
- Everything you need to know about ACoS Amazon
- How to calculate it
- Steps to reduce ACoS
So…
What is ACoS?
ACoS stands for Advertising Cost of Sale. It’s a key metric used to measure the efficiency of your paid advertising campaigns, particularly on Amazon.
Here’s how it works:
- ACoS is calculated by dividing your total ad spend by your total sales generated from those ads, then multiplying by 100.
For example, if you spent $50 on ads and earned $100 in sales, your ACoS would be 50%.
- A lower ACoS is generally considered better, as it means you’re spending less money on advertising to generate the same amount of sales. However, the ideal ACoS can vary depending on factors like your product costs, ad goals, and budget.
- ACoS helps you track the performance of your ad campaigns and identify areas for improvement. For example, if your ACoS is higher than your target, you might need to adjust your Amazon PPC strategy. This includes bids, keywords, or landing pages.
Why is ACoS Important?
Amazon ACoS is like a friendly guide, telling you if your ad strategy is on point. This PPC profits formula is a handy tool for Amazon sellers to keep tabs on:
- Profitability
ACoS shows how well your PPC weekly ad is doing. If the ACoS is low, that’s good because it means spending less on ads to make the same sales, increasing your profit margin.
By improving ACoS, you avoid running ads that don’t make money and use your advertising budget wisely.
- Performance Measurement
ACoS measures how well your Amazon PPC management is. It helps you compare different ads, keywords, and strategies to see which ones bring in the most profit.
By keeping an eye on ACoS over time, you can figure out what needs fixing and make your ads work better.
- Budget Management
ACoS is like a “money-in, money-out” meter for your ads. You put in cash for clicks, and hopefully, you get more cash back from sales.
It tells you how much you’re spending for every dollar you earn from those ads. So, a lower ACoS means you’re keeping more of your ad budget. Knowing this, you can avoid pouring money into ads that aren’t bringing in enough sales.
This smarter budgeting keeps your cash flow healthy and you see bigger profits from the same ad spending.
- Growth Strategy
ACoS can guide how you grow on Amazon. If your product makes good money, you might accept a higher ACoS for a while to boost your brand, get new customers, or introduce new products.
Knowing how ACoS works with other numbers like sales and customer costs helps you make smart choices about your ads.
- Competitive Advantage
In a competitive marketplace like Amazon, understanding and optimizing your ACoS can give you a significant advantage. By running more efficient ad campaigns than your competitors, you can achieve higher profit margins, attract more customers, and ultimately win market share.
Now that you know the ACoS definition and why ACoS marketing is important, let us get straight to the point: How to calculate it?
How to Calculate Amazon ACoS?
To calculate ACoS, you need an ACoS formula, as discussed earlier.
| ACoS = (Ad Spend / Ad Revenue) x 100 |
This means that if you spend $100 on advertising, and generate $500 in sales, the calculation of ACoS will go something like this:
ACoS = (100/500) x 100
ACoS = 0.2 x 100
ACoS = 20
With $100 on ad spend and $500 on ad revenue, your ACoS will be 20%.
However, here’s where the real question arises: Is 20% a good ACoS?
What Is a Good ACoS on Amazon?
ACoS is not a single target; in fact, it’s a spectrum. This means that good or bad doesn’t actually exist for it!
Your ideal ACoS depends entirely on your sales strategy and desired profit margin.
While a low ACoS might seem like the holy grail (more profit!), maximizing sales often requires a higher ad spend. So, finding your personal sweet spot is key: a unique ACoS that works for each product category, possibly even each individual product.
This is where your PPC campaign goals come in:
- If you’re a numbers-driven machine aiming for top sales figures, you’ll likely embrace a higher ACoS to fuel your growth.
- Building brand awareness takes center stage for you. Maximizing impressions through ads might mean a higher ACoS, but it’s an investment in the future.
- Your true north is a healthy profit margin, so you’ll likely target a lower ACoS to keep more of your hard-earned cash.
Remember, the average ACoS hovers around 30%, but adjust this based on your unique goals.
As a general rule, aim for 22% if you want your product cost to be higher than your ad spend and maximize profit.
However, don’t be stingy with ads! Investing too little can actually hurt sales. Think of ad spend like fertilizer for your product; the right amount brings growth, while neglecting it hinders your potential.
Ultimately, there’s no magic ACoS number. Experiment, track your results, and find what works best for you and your brand.
What Influences ACoS?
Once you understand what ACoS is, you might wonder: what affects it, and how can I achieve a favorable ACoS in my advertising?
Several essential parameters significantly influence ACoS. This includes:
- Cost-Per-Click (CPC): Lower CPCs naturally contribute to a more favorable ACoS.
- Conversion Rate: Efficiently converting clicks into sales directly skyrockets your ACoS.
- Product Sale Price: Products with higher price points offer more room for ad spend within a target ACoS range.
So, getting the best ACoS is about keeping a good balance between these things. Like, products that cost more might have a good ACoS, but if not many people buy them, that can be tricky.
How to Reduce ACoS?
Reducing ACoS involves Amazon PPC optimization to improve efficiency and increase profitability.
Here are some strategies to help you with it:
Target the Right Keywords
- Ditch the broad search terms and focus on keywords with clear buyer intent.
- Block irrelevant searches that waste your ad spend.
- Lower competition and higher conversion rates can lead to a lower ACoS.
Optimize Your Product Listings
- Clearly communicate product value and benefits to entice clicks.
- Showcase your product in its best light to boost conversions.
- Build trust and credibility to inspire purchases.
Bid Management Strategies:
- Automatically adjust bids to only increase when likely to win an ad auction.
- Fine-tune bids for specific keywords based on their performance and ACoS impact.
- Allocate your budget effectively across campaigns based on ACoS and sales goals.
Analyze and Optimize
- Identify areas for improvement and adjust your strategy accordingly.
- Discover the most cost-effective way to reach your target audience.
- Ensure a seamless buying experience from click to conversion.
Remember, reducing ACoS is a continuous process. Implement these strategies, monitor your results, and optimize your approach to conquer the Amazon advertising landscape!
However, doing all of this might seem like a hassle for most entrepreneurs.
So, why not…
Let Impact Wolves Help You Out
If you want your Amazon business to do great, it’s smart to team up with an Amazon PPC expert; someone who really understands Amazon Seller Central. They can help you with everything, from taking care of your products to helping lower ACoS and making wise choices for your business.
Say hello to Impact Wolves!
We’re here to offer top-quality Amazon account management services to help you succeed. Our team of experts knows all about Amazon PPC! They can show you the ropes with Amazon ads, take care of your orders, and much more!
Take a look at our Amazon PPC services to find out how we can help your business grow!
To Sum It Up
Understanding Amazon ACoS is like having a roadmap for your ads on Amazon.
ACoS tells you how well you’re spending on ads compared to what you’re making in sales. And to get a good ACoS, it’s important to keep an eye on stuff like Cost Per Click, conversion rates, and your product prices.
It’s not just about making sales but finding the winning formula for your goals; be it more sales, brand buzz, or maxing out profits.
So, use ACoS insights to fine-tune your ad game regularly, spend smart, and grow steadily on Amazon!
