Amazon ACoS: What is Advertising Cost of Sale and How to Improve It in 2021


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The Advertising cost of sale is ACoS, measuring Amazon’s PPC campaign performance. How to calculate performance and how to maintain a good performance this is all you need to know to maintain a good sale. In this article, you will be learning how to work with Amazon ACoS. This is a proper guide to newbies at Amazon. 

What is Amazon ACoS?

ACoS = Ad Spent \ Ad Revenue*100

ACoS is the efficiency of your advertising campaign, A ratio to ad spent and ad revenue in %. Above is given the formula of ACoS for the calculation of the campaign. 

For instance, if a campaign has generated $250 of advertisement cost. The ad in between this campaign costs $ 59 then, ACoS will be equal to 59/250*100 which will be 23% that means, for every dollar which is obtained, 23 cents have been spent upon them.

By measuring your ACoS you can compete with competitors as well since you are aware of your advertisement’s KPI.

After ACoS here comes ROAS which is the sum up of how many dollars you have earned from the dollars you have spent on advertisement. Both the RAOS and ACoS show the efficiency of your advertisement campaign. RAOS is inverse of ACoS.RAOS can be calculated by the formula below

RAOS = Ad Revenue / Ad Spent = 1/ACoS

A Great ACoS

A good ACoS is varied by Product dimensions like size, price, and more. For instance, Giving a minute glance to Amazon different products, with different price categories.

It is just a small go-through to the price and category list. But, sometimes a great ACoS depends upon the profitability. Is either your campaign profitable enough with how much ACoS or what? In this article, we have added some initiatives to follow which may help you to create a good ACoS and make your product profitable via Amazon Ad

Profit Margin

If the ACoS is less than 25% then the product is profitable and if the ACoS is 15% then only just the target margin is achieved.

A cost block contains,

The products cost the manufacturing cost

The delivery or shipping cost, the cost from the consignee to the buyer or market

And the last, Amazon Fees which is a referral, FBI, and other fees

The profit market is determined by deducing all these above costs per unit from the product price.

For instance, if you are selling the product for $1000. Deducting all the cost per unit then all you gained is $750 so, that means $1000 – $750 is equals to the $250, which is the profit per unit, and then the profit margin you get will be $250 / $1000* 100 which is equal to 25%

Even-Break

The profit and loss system-id the break-even of the campaign. The ACoS shows the loss and profit if the ACoS is higher than its loss and if it is lower you make a profit. It is correspondent to your profit margin. Simply put, if you spend more than your profit margin on just a campaign you are at loss.

Break-even ACoS is equal to the Profit Margin.

According to the Amazon Experts, from our example, if you spend more than the profit margin on just your advertisement then you will be at loss. So that means, you should not exceed your profit margin to invent upon your advertisement campaign

It is important to work ad campaigns per product or only similar margin products for easily gaining break – even.

Some special tools can easily calculate the break-even of your campaign with a 14 days free trial.

Target Market

The target ACoS is the target where you achieve the target profit margin. The formula which is used to calculate the target ACoS is below

Target ACoS is equal to the subtraction of target profit margin after advertising, from profit margin before advertisement campaign.

For instance, your profit margin is 20% and if you keep a profit margin is 5%after advertising. Then you can only spend only 20%-5%which is equal to 15% of revenue on the advertisement. So if your ACoS is higher than 15% you are at loss and miss your target margin profit.

Amazon Goals

Amazon has set its goals for a good profit margin from your campaign. Set your goals accordingly to Amazon’s Goal.

Maximizing sale

In this situation, where you are launching a new product you should focus on getting maximum sales while breaking even.

Maximizing Impressions

If you are willing to increase brand awareness. Here you should focus on the product impression like increasing the brand or newly launched product between break even.

Making a Profit

It is a long-term goal for already surviving products. You should reach a correspondent Target Advertising Cost of Sales

Lowering the ACoS on Amazon

There are only two steps for lowering the ACoS on Amazon

Metric Drive ACoS on Amazon 

Some most important Amazon PPC metrics:

Bid

If you win the product bidding session then your product will be on number 1. If your bid is lower you can still run an ad

Impression

The impression depends upon the viewers. The more the visitors, the higher you can bid

Click

The shopper will click your ad if your ad is relevant to their search

CTR

Click through rates, The impression and the clicks on your ad shows the interest of viewers

CPC

Cost per click, CPC is lower than the actual bid

Order

By clicking your ad, the shopper can purchase your product

CVR

Conversion rates, the rate or order, and clicks is conversion rate

Ad spend

The CPC and clicks are equal to the spend on your advertisement

Ad revenue

The multiple orders and average selling price is revenue.

Amazon ROAS

Return on ad spend

Amazon ACoS

Advertising cost of sales 

Optimizing ACoS on Amazon

First, all you can do is optimize your ACoS by Click-Through Rate. CTR indicates the relevancy of your product and its interaction with customers

Secondly, you can optimize your ACoS by Cost-per-click. the fewer the clicks, it shows the irrelevance of your ad with the customer.

Thirdly, you can optimize your ACoS by Conversion Rate CVR. CVR and ACoS have inverse proportional relations.

In the end, these metric calculations are useful and very healthy activity for the advertisement world. You can focus on trends and raise the sale as per situations, or get help from an expert Amazon agency