For all of the time and money you invest into Amazon Ads, it’s important to ensure that you’re getting the most out of your campaigns and maximizing their ROI. Monitoring key performance indicators (KPIs), such as ACoS (Advertising Cost of Sale) can help give you an understanding of how well your campaigns are performing and whether they’re providing the results you expect.
In this article, we’ll talk about how to use ACoS as a KPI to measure Amazon Ads performance, as well as some key considerations and additional metrics to be aware of when evaluating campaigns.
What Is Amazon ACoS?
Amazon Advertising Cost of Sale, or ACoS, is a metric used to measure the effectiveness of Amazon Sponsored Products and Headline Search Ads campaigns. It provides advertisers with an indication of how expensive or successful their campaigns have been and helps to identify areas for improvement within their advertising strategies.
ACoS represents the percentage of a purchase’s total cost attributed to the Amazon advertising campaign and is calculated by dividing ad spend (cost) by sales generated (revenue). The higher the ACoS percentage, the less successful a campaign has been in terms of driving return on investment. An optimal goal for most to achieve is to keep ACoS as low as possible, making sure that the cost of ads does not exceed revenue.
Calculating ACoS: The Basic Formula
Cost of sales is a big piece of the puzzle when it comes to understanding the effectiveness of an Amazon Advertising project. Comparing ACoS percentages, a marketer can easily see which of their efforts are performing best. From there, it’s simply a matter of drawing lines between the strategies used across different campaigns to understand how they influence ACoS.
You don’t need a fancy calculator or advanced math skills to determine Amazon ACoS, either. The formula is relatively simple – all you’ll need is a pen and a piece of paper.
ACoS = (Ad Spend / Sales Generated) × 100
Let’s break down each part of the formula:
Ad Spend: The total amount of money spent on an Amazon Advertising Campaign. This includes all costs associated with the campaign, such as clicks and impressions.
Sales Generated: The total amount of sales generated from an Amazon Advertising Campaign. This includes all revenues associated with the campaign, such as initial product purchases and follow-up orders.
Multiplying by 100 turns the number into a percentage, which makes comparisons easy. The higher the ACoS, the less effective a campaign is.
ACoS Calculation Example
Let’s say you spent $100 on a sponsored product campaign and generated $200 in sales. You would plug the numbers into the formula like this:
ACoS = ($100 /$200) x 100
ACoS = (0.5) x 100
ACoS = 50%
Amazon ACoS vs. ROAS
ACoS and ROAS are similar in that both compare ad spending and revenue. The way they present information is a bit different though; while ACoS is calculated by dividing ad spend by revenue and multiplying by a factor of 100, ROAS is simply a division of ad revenue by ad spend. These two metrics can be used together to obtain a holistic picture of a campaign’s earning potential and growth over time.
Impact of Product Category and Listing Quality On ACoS
Your ACoS percentages aren’t set in stone — they have the potential to increase and decrease over time. Two of the most powerful factors behind this change are product category and listing quality.
When it comes to product categories, some are naturally more competitive than others. For example, products related to health and nutrition might have a higher ACoS than products in the home improvement category.
Listing quality is also an important factor that can lead to changes in ACoS percentages. It reflects how accurately and effectively a product is listed on the platform. Poorly written descriptions, outdated images or incorrect information can all lead to lower click-through rates and higher ACoS percentages.
What is a Good ACoS?
There’s no simple answer to this question. Just like ROAS and other important advertising metrics, ACoS is not a one-size-fits-all KPI. A good ACoS will vary from campaign to campaign and depend on the advertiser’s overall goals, budget, product category, listing quality and more.
For example, a lower ACoS might be suitable for an ecommerce store that’s just starting out and trying to establish its presence in the market. Whereas a higher ACoS may be acceptable for an established brand that has more resources to experiment with different campaigns.
If you’re looking for hard numbers, a good rule of thumb is to consider 25% to 40% ACoS as being in a healthy range, and anything above 40% as indicating an opportunity for improvement.
Keep in mind that each campaign is unique and requires regular monitoring and optimization to ensure the best performance possible. Other factors, such as the campaign’s age, may also affect ACoS numbers. This is why it’s so critical to look at things with a long-term view — and bring other KPIs into the equation.
Setting Target ACoS for Brand Goals
It’s not advised to compare your brand’s ACoS to those of others; the best way of gauging success with this metric is to focus on reaching your own goals. Monitoring changes over time and assessing performance against internal benchmarks is the key to understanding what’s best for your brand.
When setting target ACoS, consider first where you want to see your business in a year or more. Consider factors such as growth objectives, budget constraints and your overall strategy. Once you have a better understanding of the direction you want to take with your campaigns, set realistic ACoS targets for each one.
Determining Target ACoS with Existing Data
The numbers you already have available to you can be a helpful tool when determining what ACoS goals make the most sense. We recommend paying close attention to break-even points for each product.
Your break-even ACoS is the point at which your ad spend is equal to the revenue it’s generating. Anything lower than that means you’re turning a profit, while anything higher indicates a loss. Since this number can fluctuate depending on seasonality and other factors, use existing data points as a starting point for goal setting.
Strategies to Reduce and Optimize ACoS
Whatever goal you set or initial numbers you start with, it’s likely that a low ACoS will always be a priority for you. Luckily, there are plenty of ways to optimize advertising campaigns in favor of better ad cost metrics, both in the short and long term.
Here are a few strategies that may be helpful as you strive for peak performance:
Remember Keyword Relevance In ACoS Optimization
Keywords always have a big role to play in the effectiveness of an Amazon Ad, but they’re particularly important to keep in mind when pursuing ACoS-related goals. The terms you put into your campaigns define which customers see your ads. The more relevant keywords you’re using, the better the chance of finding potential buyers who are interested in what you have to offer. That has the potential to increase conversion rates and ultimately generate more sales for every dollar spent on advertising placements.
Identify and Exclude Negative Keywords
Create a list of negative keywords to have Amazon Ads filter out customers who are not likely to convert. This can lower your ACoS by making sure that only the most relevant potential buyers see your ads and through reducing wasteful spending on impressions that don’t lead to sales.
Test Ad Copy and Creative Assets
Testing is essential for optimizing ACoS. You should try different ad copy, titles, and creative assets to see which version best resonates with potential buyers. Measure the performance of each variation to determine which ones produce the best returns.
Optimize Your Bidding Strategy
When you start running your campaigns, keep an eye on the performance of each bid amount to identify which ones generate the best returns for your budget. If Amazon Ads is showing more clicks but fewer conversions, then you may need to lower your bid amounts. On the other hand, if Amazon Ads is generating more conversions but no additional clicks, then you could raise your bids to get even better results.
Broader KPIs: Beyond ACoS
ACoS is a very important metric, but it’s not the only one you should focus your energy on. Other KPIs such as conversion rate and click-through rate can also offer valuable insights into the success of your campaigns.
By monitoring these KPIs in addition to ACoS, you’ll get an even clearer understanding of how well your ad campaigns are performing and how much they’re contributing to sales. A low ACoS doesn’t necessarily mean that your campaigns are performing poorly, so be sure to look at a variety of metrics before making decisions about adjusting bids.
Although ACoS is just one of many KPIs you can track to measure the success of your Amazon Ads campaigns, it’s a great way to get an overall understanding of how they’re performing. By monitoring ACoS and other KPIs such as impressions, clicks and CTRs regularly, you’ll be much better positioned to make adjustments to your campaigns and ensure that every dollar of ad spend that goes into them is worthwhile.