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The Amazon ACoS is probably the most frequently discussed KPI when it comes to Amazon PPC campaigns goes. Whether beginner or established Amazon seller, Everyone watches the ACoS displayed and hopes that it won't rise any further. But what does the abbreviation ACoS actually mean? And why shouldn't you use the ACoS as the only key figure for displaying your paid advertisements on Amazon? 

I would like to answer these and other questions today so that you can correctly assess the relevance of the ACoS.

What is the ACoS?

ACoS stands for "Advertising Costs of Sale" and indicates the proportion of Advertising costs in advertising sales again. It is important to understand that this is the advertising revenue and not the total revenue! The ACoS is given as a percentage and is intended to reflect the profitability of advertising activities.

How is the ACoS calculated?

ACoS = (advertising costs / advertising sales) * 100

Example = (10€ advertising costs / 100€ advertising turnover) *100 = 10%

An ACoS of 10% means that a total of €10 in advertising revenue is generated for €1 in advertising costs.

Acos

Amazon ACoS

The ACoS therefore does not initially tell you whether your advertising campaigns profitable are or are not, but should only help you to assess the efficiency of your ads. Basically, the lower of the ACoS, the more efficient the advertising costs are invested.

You should also bear in mind that the ACoS is calculated and displayed across all campaigns and campaign types (SP, SB & SD). If in your Advertising-Console an ACoS of 10% is shown, this is the ACoS across all campaigns and products. The ACoS can differ significantly for the advertised products and depending on the type of campaign used!

If you want to use the ACoS as a key figure, you should always determine it for each product group and campaign type (SP; SB & SD), as you will get very different results here, which are difficult to compare with each other.

What influences the Amazon ACoS?

In order to influence the ACoS of our Amazon Advertising campaigns and optimize them in the best possible way, we first need to know how we can influence the ACoS.

There are three Influencing factorsthat directly influence the ACoS and numerous factors that have an indirect influence.

We know that ACoS is the proportionate advertising costs in advertising sales.

Hidden behind the advertising costs are the Click prices on your ad. The following therefore have a direct influence on the ACoS Click pricesthat you pay to Amazon. 

If you now have a low ACoS by adjusting your advertising costs, you can 

  1. your defined max. click prices reduce (usually leads to low click prices, but does not necessarily have to)
  2. Remove keywords and product placements that have high average click prices and focus on cheaper ones. CPC keywords & product placements set
  3. Use additional types of advertising that promise lower advertising costs

The second influencing factor on your ACoS is the advertising revenue generated. We remember: ACoS = advertising costs / advertising revenue * 100. How can we now influence advertising revenue so that it leads to a lower ACoS if possible? In theory, it would be advisable to higher priced articles as the ACoS is lower due to the increased shopping basket (while advertising costs remain the same). 

The constant advertising costs for low-priced products compared to higher-priced products (e.g. bundles) are difficult to achieve in practice. Nevertheless, it is also advisable to advertise bundles and other product combinations in order to optimize the ACoS.

The third influencing factor is the Purchase probability or the conversion rate. The higher the conversion rate, the fewer advertising clicks are necessary to achieve a purchase. Through the Optimization the Amazon conversion rate, the ACoS will inevitably be lower.

How can the conversion rate be optimized?

  • Increase the number of positive product reviews
  • Increase the number of meaningful images
  • A/B testing on Amazon
  • Offer a detailed product description
  • Offer Amazon Prime shipping
  • Professional customer service
  • Display brand content (A+ & brand store)
  • Offer product videos
  • etc.

All measures to improve the conversion rate fall into the indirect measures that lead to a lower ACoS.

What needs to be considered when calculating the ACoS? (time period)

When calculating the ACoS, there are numerous Tripping hazardswhich must be observed. One that often goes unnoticed is the selected period, in which the advertising activities are evaluated.

First of all, you should note that the order data in the Advertising Console can be up to 12 hours later are displayed. This can lead to sales data appearing with a delay in the "Today" date range. For this reason, it is not recommended to evaluate the campaigns of the current day.

ACoS for sponsored product campaigns

But the much more important points are the attribution window and the Conversion delay in the Amazon advertising campaigns. This applies in particular to Sponsored product campaignsa 7-day period for sellers and a 14-day period for vendors. Attribution window have. This means that conversions made 7 or 14 days after clicking on an ad are still attributed to the advertising campaign. 

Another complicating factor is that the purchase of the product in the Advertising campaigns is not attributed to the purchase day, but to the click day on the ad. Ultimately, this means that your campaign performance and therefore also the reported ACoS will subsequently improve.

For this reason, you should select the latest day of the Evaluation period as a seller at least 7 days in the past, so that subsequently generated sales are still awarded. In some cases, this can lead to an improvement of up to 30% of your ACoS!

ACoS for sponsored brand campaigns

Not only for Sponsored product campaigns there are a few things to bear in mind when calculating the ACoS, and the same applies to sponsored brand campaigns.

In contrast to sponsored product campaigns, sponsored brand campaigns use the sales achieved via advertising to generate revenue. not the day of the click on the ads, but to the actual day of purchase. This means that the ACoS does not change for sponsored brand campaigns.

However, the attribution window for sponsored brand campaigns for both sellers and vendors is 14 days. Sales made 14 days after clicking on the brand ad will still be attributed to the campaigns.

The biggest difference to SP campaigns when calculating the ACoS, however, lies in the sales awarded. This means that customers do not have to purchase products from your account for them to be displayed, but mainly from the advertised brand.

What do I mean by that? 

If you promote a branded product that is also offered by other sellers, it may well be the case that customers will buy the products from another seller. These purchases will benefit your Sponsored Brand campaigns and the shown ACoS even though the purchase was not made from you.

If your brand is only sold by you and no other providers, this has no influence on the campaign performance shown.

If the advertised Brand however, is offered by other sellers, you should definitely consider this counting method in the ACoS evaluation!

ACoS for sponsored display campaigns

There are also a few things to consider when calculating the ACoS for sponsored display campaigns!

As with sponsored brand campaigns, the attribution window is 14 days for both sellers and vendor participants. The attribution of sales (account or brand attribution) is dependent on the selected alignment. 

Let's first look at attribution according to product targeting:

All sales via product targeting are attributed to the day on which the ad was clicked. In addition, all sales of the advertised brand that have been generated via the ad are taken into account. Regardless of whether the product was purchased from Amazon, other resellers or your own seller accounts.

Now let's take a look at attribution according to interest targeting:

All sales via product targeting are attributed to the actual purchase date. In addition, all sales of the advertised brand that have been generated via the advertisement are taken into account. Regardless of whether the product was purchased from Amazon, other resellers or your own seller accounts.

Finally, let's take a look at the attribution of remarketing by views & conversions:

All sales via product targeting are attributed to the day on which the ad was clicked. Which products are attributed to the ad depends on whether you sell products via Seller Central or Vendor Central.

The following applies to sellers: All sales are counted, regardless of whether they were generated by Amazon, other sellers or actually via your own seller account.

The following applies to vendors: Only sales that have actually been sold by Amazon are counted. Sales from third-party sellers are not counted.

As you can see from the different counting methods, it is very difficult to correctly assess an advertising campaign based on the ACoS. 

In the case of sponsored product campaigns, only purchases made via the advertised account are counted. This is not the case with Sponsored Brand and Display campaigns.

The performance of the ACoS of sponsored product campaigns also changes retrospectively, as the purchases are attributed to the day on which the ad was clicked. 

Why the ACoS is a poor reference value

The different attribution methods make the interpretation and comparison of ACoS quite difficult. The ACoS of advertising campaigns is also mainly dependent on the product sold. For example, large FMCG brands generally have a relatively low ACoS, as the majority of sales are generated via private label terms.

However, the product life cycle and competition of the advertised products also have a significant influence on the ACoS of advertising campaigns. Especially with trend products, such as massage guns, there is a first-mover advantage, which is also reflected in the ACoS. However, if you are relatively late to the market (e.g. massage gun in 2021), a significantly higher ACoS cannot be avoided even with the best structure.

Therefore, ACoS values should not be compared with other sellers and categories. As an Amazon PPC agency, we therefore not only rely exclusively on the ACoS, but also include a variety of KPIs to determine campaign performance.

How the ACoS differs per orientation

In the previous section, I also briefly explained that big brands enjoy an advantage, as many people search for these brands on Amazon.

For this reason, we look at alignment types according to the height of the ACoS.

Basically, we can distinguish between the following orientations in the placement of Amazon advertising:

  1. Own-brand advertising (keywords & products
  2. Generic keyword targeting
  3. Competitor targeting (keyword & product targeting)

What we can observe in practice is the following:

The ACoS for own-brand advertising is consistently the lowest and is usually between 0.5 - 10%.

The ACoS for generic keywords is generally higher than for own-brand advertising and lies between 5 - 100+%.

The ACoS for advertising campaigns that are displayed for competitor keywords is usually the highest (compared to generic and own-brand terms).

We also found no significant differences between sponsored product and sponsored brand campaigns.

Therefore, be sure to analyze the ACoS by targeting: own-brand advertising, generic keywords and competitor targeting.

ACoS consideration for seller vs. vendor

The ACoS consideration for sellers and Vendors is fundamentally different! For sellers, the gross sales price is included in the calculation of turnover. (For sellers with the VAT calculation service, the net sales price is considered!) This is also correct from a marketing perspective, as the price is also defined by the seller. 

With Vendor participants this approach is actually not correct, since the calculation of the ACoS is not based on the purchase price paid by Amazon, but on the End customer price is included in the calculation. It also does not help that the net end customer sales price is taken into account here. The correct calculation here would be (advertising costs / net purchase price) * 100.

What alternatives are there to ACoS?

Now that we have discussed in detail the problems of ACoS as a Marketing KPI I would now like to present two alternatives.

1.CPO

CPO stands for Cost per order (costs per order). When calculating the CPO, we take into account the Advertising costs in relation to all orders in this period. We do not just look at the orders that were generated directly via advertising, but actually all orders.

The CPO is particularly recommended because it also takes into account the effect of paid advertising on organic sales. Paid advertising on Amazon not only leads to direct sales, but also to indirect sales. Indirect sales can result from brand awareness or the improvement of organic rankings, among other things.

2. tACoS

A similar concept, which is followed by our most successful customers, is the calculation of TACoS = Total Advertising Cost of Sale. With TACoS, we compare advertising expenditure with total sales. (ACoS, on the other hand, only compares advertising revenue).

Here too, we then get a more honest picture of current performance and also take possible organic sales into account.

Why a low ACoS should not necessarily be your goal

Now we come to the last point ours Article on the topic of Amazon ACoS: Why a low ACoS not necessarily should be your goal. Reducing the ACoS is one of the easiest "Optimizations" in the placement of Amazon advertising campaigns. In the end, you only reduce the Placements & keywordsthat exceed a target ACoS and reduces the bids for other placements. At the same time, the playout for generic and competitor placements can be reduced.

These measures quickly lead to Reduction of the ACoS, but at the same time the number of sales achieved and organic visibility.

When a Brand If a company that plays out and optimizes its advertising campaigns exclusively on the basis of ACoS will be overtaken in the long term by competitors that focus more on CPO or TACoS. 

Reduction in CPC bids does not necessarily lead to a reduction in ACoS

Next, let's take a look at why the Reduction of the CPC bid does not necessarily lead to a reduction in AcoS. 

There are two main reasons for this:

  • Reducing the CPC bid does not mean reducing the click prices
  • The reduction of the CPC bid does not lead to unprofitable playout being deactivated

The reduction of the CPC bid does not mean reducing the Click prices

With the Definition of CPC bids we define the maximum click price that we are willing to pay (exception for the bidding strategy: dynamic bids - increase and decrease). The actual amount to be paid is determined in a bid auction, where the relevance of the respective ads is taken into account in addition to the amount of the bid. The relevance of an ad is assumed based on the expected click rate and conversion rate, among other things. 

If our ads win the auction, we as the advertiser only ever pay 1 cent more than the second highest bidder in the auction, hence the name Second price auction. For this reason, there is always a discrepancy between the CPC bids submitted and the actual click price paid.

In the example below, we have set the maximum Click price set to 2€. However, the actual click prices are between €1.15 and €1.32.

Optimize Amazon ACos

If we now use the maximum CPC bids from €2 to €1.5, this would have a significant impact on the current Click prices would have no effect, as we would still be above the actual click price! In this example, reducing the click prices by 25% would therefore have no effect on the click price paid and therefore no effect on the ACoS. If we want to reduce the actual click price to be paid in this example, the CPC bid per placement would have to be between €1.15 - €1.32.   

Now we come to the second reasonwhy the reduction of the CPC bid does not necessarily lead to a reduction of the ACoS.

When placing broad-match keyword ads, we define the following for each stored keyword Keyword a CPC bid. This CPC bid applies to exactly this defined keyword.

The stored keyword must be Broad match campaign but do not match the customer's actual search term. 

Example:

Broad keywordLeather wallet

Ads are also displayed for search terms such as:

Ladies leather wallet

Men's leather wallet

etc.

The stored CPC bid now applies to both the keyword "women's leather wallet" and "men's leather wallet".

Some assumptions: 

The maximum CPC bid is: 1,2€

Click prices for ladies leather wallet: 1,1€

ACoS for ladies leather wallet: 15%

 

Click prices for leather wallet men: 0,74€

ACoS for men's leather wallet: 53%

If we now want to reduce the ACoS by reducing the CPC bid for the keyword "leather wallet" from €1.2 to €1, the following would happen.

  1. The number of auctions won for the search term "ladies leather wallet" would fall sharply, and with it the number of purchases.
  2. The display for the search term "men's leather wallet" would continue unchanged.

The result of reducing the CPC bid in this example would even lead to an increase in the ACoS, as the profitable playout for the search term "women's leather wallet" would be eliminated.

For this reason, the optimization of CPC bids should be based on Keyword- and Product-level.

 

What is the ACoS?

ACoS stands for "Advertising Costs of Sale" and shows the share of advertising costs in advertising sales. It is important to understand that this refers to advertising sales and not total sales! The ACoS is given as a percentage and is intended to reflect the profitability of advertising activities.

What influences the Amazon ACoS?

In order to influence the ACoS of our Amazon Advertising campaigns and optimize them in the best possible way, we first need to know how we can influence the ACoS. There are three factors that directly influence the ACoS and numerous factors that have an indirect influence. We know that ACoS is the proportionate advertising costs to advertising sales. Hidden behind the advertising costs are the click prices on your ad. The click prices that you pay to Amazon therefore have a direct influence on the ACoS.

Tobias Dziuba

My name is Tobias and I am the founder and managing director of the Amazon agency Adsmasters GmbH based in Düsseldorf.

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