What is advertising cost of sales (ACOS)? Here’s everything you should know
What does advertising cost of sales (ACOS) mean?
Amazon advertising cost of sales (ACOS) is a metric used to measure Amazon pay-per-click (PPC) advertising campaigns. It compares the amount spent on PPC campaigns to the amount earned, and it helps determine if your brand generated campaigns that were cost-efficient. Amazon ACOS helps measure the performance of Sponsored Products ads on Amazon.
Although it may be tempting to want high sales volume and a low Amazon ACOS, there are variables that make a difference and reasons why that shouldn’t necessarily be your only goal. In this guide we’ll explain what Amazon ACOS is, why it’s important, and how it can be an integral part in advertising campaigns for Amazon sellers.
How to calculate ACOS
Amazon ACOS is calculated by dividing ad spend by ad revenue, then converting it to a percentage. For example, if you spent $50 on an ad campaign and earned $100 from it, your Amazon ACOS would be 50%.
ACOS = (ad spend ÷ ad revenue) x 100
ROAS = ad revenue ÷ ad spend
What does ROAS mean?
Return on ad spend (ROAS) is the inverse of Amazon ACOS: it is calculated by dividing ad revenue by ad spend. In the example above, the ROAS would be 2.
What is the difference between ACOS and ROAS?
The ROAS tells you how much you could anticipate earning from an ad campaign, and Amazon ACOS tells you the percentage of increase. Both are measuring the same metrics, but the two calculations present the information in slightly different formats. It can be useful to look at both, though, to get a comprehensive view of how your ad campaigns are performing.
What is a good ACOS?
There isn’t a definitive number for a good Amazon ACOS. It’s dependent on your industry, company size, and campaign frequency, among other variables. Instead, you can measure a good Amazon ACOS by understanding the following components.
Understanding profit margins
The goal for companies is to break even or earn money on their products or advertising. The profit margin is the difference between those two—it’s the amount earned beyond the cost of product production and any other expenses your brand may have.
Break-even ACOS is directly linked to your profit margin. In order to maintain a profit, your Amazon ACOS needs to be lower than your profit margin. Otherwise, you will be spending more on ads than you’re earning.
How do I reduce ACOS?
If you’re spending more on ad campaigns than you’re earning, then you should try to reduce your Amazon ACOS or increase your earnings. Looking at successful or failing ad campaigns can help pinpoint where your funds should be going, and where there are opportunities to reduce and optimize spending. Additionally, make sure you’re considering the correct keywords. These metrics can help your campaigns reach a broader audience. For advertising with Sponsored Brands, we recommend including at least 25 keywords. Those keywords also include phrases, broad keywords, and products or brand names. A combination of a variety of types of keywords will help reach your optimal audience.
Reviewing the right metrics
Amazon ACOS is just one key performance indicator (KPI) for companies. Additional advertising metrics include impressions, conversion rate, and click-through rate (CTR). Though Amazon ACOS is a great benchmark to start with, it’s beneficial to consider multiple metrics to determine what works best for you and what changes could be made to achieve further improvements.
Determining target ACOS
Each brand is different and will have a different target ACOS. However, the first step should be achieving break-even ACOS and comparing it to your profit margin. From there, you can determine what goal is most important to your brands and campaigns: Is it increasing sales? Is it raising brand awareness? Once you decide, you can determine the value of Amazon ACOS in your marketing strategy.
How 4 brands improved their ACOS
PC company Lenovo sought the help of ROI Revolution, a full-service agency, to help update their ad campaigns and boost Amazon ACOS and ROAS. After adjusting their content and branding, they were able to improve engagement as well as reach ACOS and ROAS far above their benchmark goal.
PF Harris, a company selling pest-control products, had a goal of improving sales while keeping their Amazon ACOS stable. To do so, they used Sponsored Display product targeting, which helped to achieve an improvement in Amazon ACOS. They boosted their sales, too, for overall success.
The company Power Practical had a goal of reducing their Amazon ACOS while increasing both sales and clocks. With the help of Sponsored Products campaigns, they were able to reduce their Amazon ACOS and hit their other goals, as well.
When toy brand ThinkGizmos was looking to increase campaign efficiency and lower Amazon ACOS, they went to agency AMZ Pathfinder and software tool Prestozon for assistance. After experimenting and A/B testing their Sponsored Brands campaigns, they were able to improve Amazon ACOS.
Why you shouldn’t focus too much on ACOS
Again, Amazon ACOS shouldn’t be the sole campaign metric you focus on. It’s merely one facet of advertising campaigns for Amazon sellers, and it doesn’t take into consideration the variables between different campaigns. For example, new campaigns tend to have a high ACOS, merely because of their newness. But that doesn’t make a new campaign a failure; it means you should consider different KPIs.