Amazon ACoS: 7 Hacks to Reduce Your Amazon Advertising ACoS
Table of Content
- 1 ACoS Amazon basics
- 2 How to calculate ACoS?
- 3 The Profit Margin of Your Product
- 4 Break-Even ACoS on Amazon
- 5 The Right ACoS Depends on Your Marketing Strategy
- 6 The key traffic metrics:
- 7 The key conversion metrics:
- 8 Other metrics:
- 9 How to optimize ACoS on Amazon?
- 10 Amazon ACoS driver #1: Click-Through Rate (CTR)
- 11 Amazon ACoS driver #2: Cost Per Click (CPC)
- 12 Amazon ACoS driver #3: Conversion Rate (CVR)
- 13 Amazon PPC HACKS to lower your ACoS
- 14 Isolate Your Search Terms
- 15 Use Negative Keywords
- 16 Effective Bid Management
- 17 Cost Per Click (CPC)
- 18 Optimize Page Content
ACoS Amazon basics
You are investing money in an Amazon Sponsored advertising campaign, but you don’t know what ACoS means and how you should use it to make your business more successful, Are you serious?
I am just kidding! Not every seller is familiar with this term; despite that, it can be unexpectedly useful.
This article can be your starter pack in the ACoS world research.
What is Amazon ACoS?
ACoS (Ad Cost Over Sales) – advertising costs relatively to your PPC sales.
In simple words, this metric compares your advertising spend to how much you earned from it [aka Sales]. Or, in other words, it’s an essential point that helps you figure out if your ad campaign brings you profit.
Now, as we know what ACoS means, we can move forward to study this topic in detail.
What is a good ACoS on Amazon?
To answer, what is good ACoS — you’ve got to predict the final result you are aiming at.
If your goal is rapidity, then the higher ACoS is the positive one for you. On the other hand, if your initial plan for a particular product is a high efficiency – you are seeking a lower ACoS.
You can determine whether specific ACoS is right or wrong for you by figuring out the profit margin of a particular product, after that, you should identify your break-even Amazon ACoS and, eventually, define your target ACoS.
So, as soon as you decide what your focus is — profit or the number of sales, the faster you will know what ACoS is perfect for you.
Before realizing the fitting ACoS for your business, every Amazon seller needs to learn how to calculate it.
How to calculate ACoS?
Here is the formula that you can use to calculate your ACoS:
For example: ACoS = 1500 / 3000 * 100
The imaginary Amazon seller spends $1500 on an advertisement, $3000 is his income from advertising sales. He divides outgoings on ads by the sales he has got during the advertisement time and multiplies it by a hundred.
As a result, we get 50% ACoS in this example.
What exactly it means?
It means that for every 50 cents, that you invest in advertising, you are getting a dollar.
This example is elementary, but it’s easier to understand the system by using simple words and simple numbers.
ROAS vs Amazon ACoS vs MACoS
Now, let’s deal with this long line of maybe unknown or just scary letters for you because you might not know how to figure them out or what the difference among them.
ACoS, as already known, was made to help sellers calculate the percentage of income you get from generated by advertising sales.
On the other hand, there stands the term ROAS.
ROAS (Return On Advertising Spend) is a general marketing metric that is oriented on identifying whether a specific advertising campaign works effectively for your business and how the next advertising attempt can be improved.
To calculate your ROAS, you need to divide your revenue by the cost of the ads. ROAS is reverse to ACoS.
Here comes MACoS
MACoS is a measuring tool that takes into account the total volume of Sponsored Ads outlays – and the respective ASIN’s total (PPC + organic) sales for any given period.
When you see low MACoS, it means that the number of sales is high during the advertising process. High MACoS implies the opposite.
There are some complications with reading your MACoS; Amazon doesn’t provide you with straightforward data. To calculate it, you need to add data from the Advertising Manager to the data from the Business Report. While doing that, you can realize that it’s not simple, but it can be handy!
The Profit Margin of Your Product
It’s necessary to know your profit margin for the success of your business, because if you don’t make any money or not enough, then what’s the point, right?
Also, the profit margin is an essential clause in working with ACoS.
To calculate the profit margin, you need to add the manufacturing costs to the shipment cost and then to the Amazon fees.
After that, you need to subtract from the price of your product the result of the formula above.
Now, the new result you need to divide by the product price and then multiply it by 100. This is going to be your profit margin from each item.
You are selling the product that costs $20. The manufacturing costs, shipment costs, and Amazon fees make up $12.
Here is your calculation:
$20 – $12 = $8
8 / 20 * 100 = 40%
The profit margin from each product is 40%.
Break-Even ACoS on Amazon
Break-even ACoS is one of the most critical metrics in your advertisement. Your break-even ACoS correlates to your profit margin.
It is a spot between profit and loss of the advertising campaign. Due to the break-even point, you can figure out if your business is doing well.
Lower ACoS, in general, is more desirable, it means you invest less in advertisement and making more profit during this time.
As long as you don’t spend more on your ads than your profit margin — you are making money.
It’s crucial to promote only one product in each ad. If you advertise a group of products with a disperse profit margin, it’s really hard to calculate whether you are making a profit or not.
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Target Amazon ACoS
At some point, you will want to hold on to a particular profit margin or even increase it. That’s when you are seeking for your target ACoS. It’s a specific instance where you obtain your target profit margin.
You are responsible for some details connected to your target ACoS and there some that not in your hands, but by calculating your target ACoS you can understand if you move in the right way.
Here is a formula:
Profit margin before advertising – Target profit margin after advertising = Target Amazon ACoS
Let’s use an example again:
The profit margin and the break-even ACoS of the product “X” is 40%. Let’s say you would want to keep your profit after advertising investment by 20%.
40% (Profit margin before advertising) – 20% (Target profit margin after advertising) = 20%
It means you can’t spend more than 20% on advertising to keep a desirable profit margin.
Choosing The Right Amazon ACoS Based On Your Goal
The popular opinion about ACoS is that it has to below, but there are some exceptions you need to consider when you are planning your Amazon business.
For example, you need to “get rid” of surplus inventory because you’ve been charged long term storage fees. In this case, it is more rational to sell the product from your stock with the help of Sponsored Products campaign than to keep them there and to pay more fees.
This situation is a first example where it’s acceptable to have higher ACoS than your break-even ACoS.
Or, let’s imagine that you are introducing your product in the niche with a very high number of competitors, which makes it impossible to get any sales.
Similar situation with freshly launched products, it’s when you want to develop brand awareness to your business and rank higher.
In all provided examples, higher ACoS is suitable for your business.
The Right ACoS Depends on Your Marketing Strategy
During the timeline of the selling process on Amazon, sellers are chasing different goals for their business. In the beginning, you want to receive as many reviews as possible to rank higher and increase your brand awareness.
Those targeting options depend on which ACoS is right for you.
Sellers with new products on the market need to focus on achieving the break-even ACoS. Their goals are usually consisting of a large number of reviews and brand awareness development after occupying a high position in the ranking.
As time passes, targets are changing. You, as a successful seller, want to increase your sales, hold on to a specific profit or to enlarge it. To obtain those goals, you are investing more money in your advertising.
When your aim is your profit – keep an eye on the target ACoS. If you are more interested in overall sales – you’ve got to maintain your ACoS higher than your break-even ACoS.
What does ACoS mean in advertising?
After you’ve learned what ACoS means, which ACoS is right and wrong for you, now as you know how to determine which ACoS fits for your business and how to calculate it, you might be interested in the role that ACoS plays in advertising.
There are two main questions you probably would want to find an answer on:
- Which metrics drive ACoS on Amazon?
- How to optimize your ACoS using these metrics?
Let’s look at the featured questions in detail.
Which metrics drive ACoS on Amazon?
Down below is a list of PPC metrics that matter the most. These metrics help sellers increase their profitability and improve ROI.
*ASP, Average Selling Price
The key traffic metrics:
Ad Spend or Ad Costs
To figure out this metric, you need to understand that it’s based on clicks multiplied by the cost per click. You need it to calculate how much you invest in overall PPC advertisements.
It’s an actual price of the auction, always lower than the bid. Cost-per-Click is a second-highest bid plus $0.01.
The calculation of CTR works like that: clicks divided by impressions.
That is where you look to grasp whether your advertisement is relevant and exciting.
The key conversion metrics:
Conversion Rate (CVR)
You calculate it by dividing orders by clicks. And you will find out how convincing your listing and your offer is.
If your bid wins – your listing appears on the Top of the Search results page. If your bid was lower, your ad gets other placements throughout Amazon.
It shows how many people saw your advertisement. Your chances for more sales are growing in direct ratio to the number of your listing’s visibility.
If a customer considers your ad relevant to their search – they click on your ad.
There is a high possibility that the buyer could get a product from your listing after clicking on it.
Calculation: Orders multiplied by Average Selling Price.
Ad Revenue measures how many sales you’ve got during the advertising process.
Return on Ad Spend (ROAS)
Calculation: Ad Revenue divided by Ad Spend.
Shows how much revenue is earned for every dollar spent on advertising.
The final given metric would be Advertising Cost of Sales (Amazon ACoS).
We’ve spoken about it.
There are a lot of other metrics that ACoS depends on; these are the most significant ones.
How to optimize ACoS on Amazon?
You finally came to the point where you learn how specific metrics are helping you in optimizing your ACoS on Amazon.
Amazon ACoS driver #1: Click-Through Rate (CTR)
What is the Click-Through Rate (CTR)?
It’s a metric that reveals achieved by advertisers clicks when it shows up for a particular search request. Or, you can also say that CTR presents to a seller data about how exciting and relevant your product’s ad is, compared to other product advertisements that appear on the same search result page (to the same search).
Before conducting the optimization of CTR, you need to dive in subtleties of influencing the question: what happens when CTR changes and which factors are influencing CTR?
The formula for calculating Click-Through Rate is:
CTR = Clicks / Impressions
That is why your ACoS won’t change if your CTR changes, but conversion rate – not. When your Click-Through-Rate changes – your listing gets more visitors, but at the same time, if your CVR doesn’t change – you just get more sales.
CTR is influencing ad spend and ad revenue equally. That means it’s impossible that your sales will grow, but ad spend won’t. Each time you get a click – you are paying!
Growing CTR is useful when your ACoS is lower than your Break-Even ACoS. In this case, your sales and your profit will grow as well.
When the change in CTR includes the change in conversion rate – your ACoS doesn’t stay the same.
When you want to attract more listing visitors, but those clicks are hardly converting (it depends on the situation, maybe, your ad shows up in the wrong placement or even category to the customers, who are not interested in your product. You will probably get more Clicks because your ad seems interesting, and some customers will find it useful. But they won’t convert because the customer was going to purchase something else.
CVR will go down, decrease, your ad spend will increase, as a result – ACoS is going up.
There are aspects of Click-Through Rate that you can, and you can’t change.
Through those aspects that you CAN change – you can optimize your CTR:
Listing optimization is the most important and the most predictable factor. It’s under your control to optimize your main picture, the title of the product, five-star rating, prime eligibility, and the number of reviews – everything that can impress a customer from the first sight. Listing optimization will evolve in a higher CTR in some time.
Keywords have to be leveled with your products so they will show up to the right search.
The advice would be to add irrelevant keywords to the list of negative keywords, that will lower your chances to appear in front of the wrong audience.
Amazon ACoS driver #2: Cost Per Click (CPC)
What is Cost Per Click (CPC)?
It’s a metric that shows you an actual cost for each click in your PPC campaign. THE typical CPC price range is $0.02 – $3. The commonly accepted opinion is that the best CPC is the lowest one, but is it true?
Not entirely, lower CPC means a lower ACoS, lower clicks, and sales. The calculation of the perfect Cost Per Click depends on the niche where you are.
There are levers of pressure for the CPC change that you can impact, and you can’t.
Changed bids are influencing the CPC change. Bids are not the same as CPC, as it might seem.
What is the bid? It’s a peak price that the seller is willing to pay on the auction. The winner pays the next after the highest price plus $0.01.
What you can’t influence, is when the CPC change without any your interference in the bids. It happens because something is changing in your competitor’s activity.
Also, the change in bid strategy to `Dynamic – Up & Down` or `Fixed` is influencing CPC change.
On the other side, Amazon can increase your bids if `Dynamic – Up & Down` is turned on. This process is made to search for the customers, who would be more interested in purchasing the item you are advertising.
Another factor that is changing entirely without your help can be called “seasonal”. The number of participants in bids depends on the season.
The control of your keywords, their optimization, and target bid optimization are the right way to optimize CPC.
Amazon ACoS driver #3: Conversion Rate (CVR)
Conversion Rate is not only crucial for ranking improvement, but it´s also one of the most important ACoS metrics.
What is Conversion Rate (CVR)?
Conversion Rate is not only crucial for ranking improvement, but it’s also one of the most important ACoS metrics. The metric measures the number of sales compared to the received views.
The formula of calculating Conversion Rate is:
Orders / Page Views = Conversion Rate
The CVR optimization works through the whole listing optimization. After clicking on your product advertisement, your listing has to be super-efficient that your product is what shoppers exactly need.
That is why successful businesses are always seeking for the growing CVR. Five-star rating and a large number of reviews are also something they are hunting for.
What is the role of keywords in the CVR?
When the competition aspect is not something you can change, keywords are on the opposite side.
Relevant keywords lead the right shoppers to your product detail page. As a result, the conversion rate is optimized because more and more buyers want to purchase from your listing. After all, that is what they were looking for.
To not mislead customers and to save budget from unnecessary expenses, you have to increase bids on high CVR keywords and reduce bids on low CVR keywords.
But at the same time, in the list of low CVR keywords should be nothing.
When you turn ‘Dynamic Bids – Down Only,’ it means that Amazon has the permission to lower your bids down to 0%, decreasing your bids at this point will help you save your budget for more valuable investments (increasing cost-efficiency).
Placement adjustment allows Amazon to set a bid in real-time, depending on the ad placement appearance.
Amazon PPC HACKS to lower your ACoS
Focus On The Right Keywords
When a customer has to decide whether he wants to buy your product, anything can turn his decision in one or another direction. That is why your listing has to be fully optimized.
But so you get a chance to impress your potential customer, first, you have to provide him with an easy path to you. This path on Amazon is made from keywords.
So, how do you find the right keywords for your ad?
Selecting suitable keywords is serious work, it requires a lot of your time and attention.
Experienced sellers don´t choose and sort out keywords themselves, they need the assistance of the professional tool, like Zero to Hero keyword research.
This Amazon keyword tool will find relevant keywords for your listing and save hours of your life.
In PPC marketing, correct keywords are playing an essential role.
Right keywords lead the right customers to your listing, and then match happens! The customers are clicking on your listing, and often those clicks convert.
On the other hand, wrong keywords attract customers, who are not interested in the item you advertise, and their click doesn’t convert, but you have to pay for each of those clicks.
This is a simple explanation of how irrelevant keywords can make a hole in your business budget.
As soon as you chose your keywords, you should integrate them into the product´s listing and Sponsored Product, Sponsored Brand, and Sponsored Display Campaigns, but only once. This system is different from the one with Google SEO.
Isolate Your Search Terms
When it comes to the scrupulous keywords research, you need to consider some substantial details about this work. As an example, in case you use broad and phrase match keywords on Amazon, multiple off-topic products show up as a result of such searches.
You have to keep in mind that for phrase and broad match keywords, you can set only one bid.
Afterward, Amazon uses this bid for the whole phrase or broad match keyword.
To avoid such a problematic setup, you´ve got to isolate your keywords.
Here is the plan:
- In the term search report, you can find specific necessary search terms, from which was produced at least one sale.
- Highlight and copy them.
- Transfer them to certain campaigns like Exact Match keywords.
- Chosen keywords should not be included in any other campaign.
Let´s say you apply the “scratch map” keyword (you use this keyword in broad). Someone who was looking for the “scratch map of the USA” will find your ad and will probably click on it because Amazon might show your advertisement on this search. But you sell the scratch map of the world. Ad Spend is increasing, but the clicks are not converting.
How to structure Amazon PPC keywords?
There is some serious (and often neglected) work needed to be done before even creating your first Amazon PPC campaign.Actionable Amazon PPC Checklist For Amazon Sellers
When preparations are done correctly, Amazon ads WILL drive your sales in almost any circumstances: either on its own (with profitably-low ACoS) or by enhancing your top organic keywords’ ranking faster, that it would’ve evolved naturally (thus justifying even too-high ACoS).
You can learn more about definitions of each Campaign via this link.
Here is the example of the semantic core that Zero to Hero Software creates:
Use Negative Keywords
As a previous work was done, you can move to the next step of keywords preparation. Without such an action, this operation can not be successfully completed.
Move forward to negative keywords.
Negative keywords are maximizing the chances for your ad to be served for the right searches. Without them, you can never be sure that your advertisement budget won´t be wasted.
If you don’t use negative keywords, it is more likely, that your ad will receive more clicks from the buyers who are not planning to purchase your product.
The first thing you should know is that it is better to create a list of negative keywords before your product is launched on Amazon. Plus, you can make a list of negative keywords only if your keywords are structured and isolated well.
If you managed to do some negative keywords researches before, you can ad them, of course.
At the beginning of any PPC campaign, you WILL get some poor performing keywords. Browsing through the Search Term Report will help you identify those. There are 2 kinds of them:
– Keywords that have 10+ clicks and NO sales. These are likely to either bring you 0 or little sales in the future
– Keywords with ACoS over 80% AND 3+ sales (for any given period). These will likely keep generating you sales, yes – but for some reason, they are not very relevant, and customers keep leaving your listing more often than buying. This makes them too expensive to work with.
They can be checked on relevancy by Amazon Search result.
In the final step, you can add them now as negatives!
There is another easier and faster way to investigate which keywords are negative – Zero to Hero Automation tool.
You can make up a list of negative keywords, and Zero to Hero tool will check if those keywords are relevant to the ASIN or a set of ASINs that you are advertising.
This tool can help you work through the chosen by your keywords and make your business more profitable.
The described above way for recognizing negative keywords can be as well used for the ASIN targeting Campaign, but you can receive new ASINS only from automatic targeting and category targeting.
Effective Bid Management
Bid management is compound. Phrase and Broad keywords bids are not possible to control, that is why the keywords isolation topic was described above.
Down below are described popular complex scenarios that you might find useful, they can help you realize how to operate with your bid´s optimization:
High clicks, low sales, and low conversion rate
Solution: check the detail page content for competitiveness and inspiring conversions
Low ad sales and high ad spend
Solution: decrease the bid
High conversion rate and low impressions
Solution: increase the bid
High impressions and low clicks
Solution: Photo and title optimization
By working with Profit Whales auto-bidding technology, you can immediately follow the chosen strategy without any complications.
Here is a formula to calculate your bids:
Bid = Average Sale Price x Target ACoS (decimal) x Search Term Conversion Rate (decimal)
Cost Per Click (CPC)
And now you might think: how does the bidding system work? You select a fixed quantity of keywords for which you want to contest yourself.
Then you need to settle the bid. It depends on your budget, which bids you choose. They should not flatten your wallet. The chosen number is shown according to the place where the ad is located.
There is an interesting peculiarity about bids. You might win the contest if your bids are like $0.77 or $0.99.
It works like that — Amazon Managers choose simple numbers like $0.70, $0.80, or $0.95.
When it comes to the actual biding, you need to be really careful because Cost Per Click is growing pretty noticeably when the default bid is taken.
Now, you can also increase your bidding next to the search bar or on the product page.
All of the stuff described above was done only to sell your product successfully in the future.
At the start of the selling point, you always have to control how the market changes, what you have to adjust, what to optimize.
Later, as you learn what your product needs to maximize the conversion rate and build a strong selling process, you can let your business work for you.
Apparently, there is nothing more important than listing optimization.
Product´s photo, title, and description have to be “perfect” to attract more and more customers to buy what you have to offer.
The main image of your listing is the main character of a movie. The same as a character, the main image has to be professional.
To be completely honest, the customer knows on a 98% if he will purchase the product from the listing at the moment when he sees the main picture.
Hopefully, you found this article useful. Don´t limit yourself with outside help. Resort the assistance of an auto-bidding technology or an agency partner.
By following the advice provided above, you will save money instead of wasting them on unnecessary ad spend and, undoubtedly, find where to reinvest them. Good luck!
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