An effective advertising strategy is also essential in the Amazon business. Only with the right marketing strategy can Amazon sellers and vendors achieve long-term success on Amazon, the world's largest online marketplace.
The Amazon Advertising Cost of Sales (ACoS) is an important key figure that helps retailers to monitor their advertising expenditure and the success of their advertising campaigns.
In this article, we explain exactly what Amazon ACoS is, why ACoS optimization on Amazon is so important and how it works. We also explain the differences between Amazon ACoS and Amazon RoAS.
What is the Amazon ACoS?
The Amazon ACoS is probably one of the most important key performance indicators (KPIs) on Amazon, with the abbreviation ACoS standing for "Advertising Cost of Sale". This is a key figure that is used to measure the Success of advertising campaigns can be measured and evaluated.
The ACoS on Amazon therefore shows the Relationship between advertising costs and the advertising revenue generated on. It forms the financial framework for an advertising campaign on Amazon. The ACoS is calculated by dividing the advertising costs by the turnover. This results in a percentage value that represents the cost efficiency of the advertising campaign.
An example of the calculation of the ACoS could look like this:
A retailer pays 1,000 euros for an advertising campaign. The turnover of this campaign is 5,000 euros.
(advertising expenditure : sales) x 100 = ACoS
(1,000 euros : 5,000 euros) x 100 = 20 %
In this example, the retailer has invested 20 cents per euro in the campaign.
However, it should be noted that no indicators other than monetary values are taken into account when calculating the ACoS.
Determine the Amazon Advertising Cost of Sales after break-even
An important Method for optimizing the ACoS is the determination of the so-called break-even ACoS. This indicates the ACoS at which a trader makes neither a loss nor a profit.
To calculate the break-even ACoS, the costs of manufacturing the product and advertising expenditure must be taken into account. It therefore describes the profit range after deducting all costs.
An example of the break-even ACoS on Amazon:
The break-even ACoS is therefore a key figure that shows the percentage profit before deduction of advertising expenses. In the example given, this is 20 %. The advertising expenditure must therefore not be higher than 20 %, as otherwise the retailer would make a loss.
However, retailers should not focus on the break-even ACoS. This only serves to Maximum advertising spend After all, retailers usually aim for the highest possible profit. Therefore, in this example, the goal could be to reduce the ACoS value to 10 %, which would mean that the retailer makes 10 % profit per item.
In principle, the following applies: Only when the break-even ACoS is known can the retailer determine the maximum Advertising Cost of Sale that they are willing to accept for an advertising campaign. An Amazon ACoS that exceeds the maximum value means that the advertising campaign is not profitable and should be optimized accordingly.
What key figures does the Amazon ACoS depend on?
The Amazon ACoS depends on numerous factors. In order to optimize the ACoS on Amazon, you first need to understand which key figures influence the ACoS in the first place. These include, in particular, the cost-per-click (CPC), the conversion rate and orders.
- Cost-per-click (CPC): Cost-per-click is largely dependent on the retailer's offer and the competition. As bidding auctions are second-price auctions, retailers only ever pay EUR 0.01 more than the next highest bidder to win the auction. A higher CPC is possible if a higher net margin is available. The higher this is, the more merchants can spend on advertising per click.
- Conversion rate: The conversion rate shows how many visitors to an Amazon store actually buy a product. A higher conversion rate can lower the ACoS, allowing retailers to spend more money per click (CPC).
- Orders: The number of orders shows how often a customer has purchased an item after clicking on an ad. It therefore reflects the persuasiveness of the offer and the product detail page and significantly influences the ACoS.
Why is ACoS optimization so important for Amazon PPC?
The optimization of the ACoS is particularly crucial for successful PPC campaigns on Amazon. Through appropriate Amazon PPC tools and effective ACoS optimization, retailers can optimize their Using advertising budgets more efficiently and maximize their advertising campaigns.
For example, a high ACoS may mean that the advertising campaign is not particularly profitable, while a low ACoS may mean that the budget is not being fully utilized. Optimizing ACoS is therefore essential for sales success.
Transparency in sales & costs
Among other things, effective ACoS optimization gives Amazon merchants a clear Overview of your advertising costs and turnoverthat they achieve through their advertising campaigns.
By analyzing the ACoS, for example, it is possible to check whether the products advertised in Amazon PPC campaigns have been sold sufficiently so that the advertising placements are actually profitable. In the event that the ads cause more costs than they generate in sales, an optimization of the ACoS is definitely necessary. In this way, additional costs caused by low-converting products can be avoided.
In addition, a Performance analysis makes sense. This analysis of campaign performance relates on the one hand to the ACoS at macro level (account level, campaign level) and on the other hand is also interesting in relation to the performance optimization of keyword bids at micro level. The ACoS at micro level refers to individual products and keywords.
YouTube Video - Reduce ACoS - 10 tips
When do I need to optimize the ACoS?
The optimization of the ACoS is a process of continuous processwhich should be carried out regularly and therefore has no definitive end.
However, there are certain situations in which optimizing the Amazon ACoS is particularly important. This is the case, for example, if the following things are to be achieved with Amazon Advertising ads:
- Launch of new products
- Promoting a sale
- Push of certain products
When retailers Short-term goals with selective effect it is important and sensible to optimize the ACoS. This could be the launch of a new product, special offers, discounts or even Black Friday.
In principle, a comparatively high ACoS can be very profitable for such short-term goals - such as the promotion of offers or campaigns. Therefore, a Short-term increase in advertising budgets is perfectly permissible in such a case. This ensures that the project is pushed accordingly and that the advertising campaigns have the desired effect on sales.
Long-term goals, on the other hand, require a Constant monitoring and optimization of the ACoS. This can involve advertising a product range or increasing the continuous visibility of certain products.
For these long-term goals, it is essential to focus on Cost-effective advertising placements to set. This is the only way to increase sales figures in the long term. To achieve this goal, it is particularly important to keep the ACoS as low as possible. Nevertheless, it must be high enough to achieve the economic sales targets.
The optimization of the ACoS can be achieved by manual as well as through Data-driven measures take place. Furthermore, potential problems can be identified at an early stage by monitoring the ACoS so that appropriate measures can be taken to improve profitability.
Is an ACoS above my margin always bad?
There is no clear answer to the question of whether an ACoS above the margin is always bad. This is mainly due to the fact that every Amazon seller Different cost structures and margins has.
For example, an ACoS above the margin may mean that the advertising campaign is not profitable. However, there are also cases in which a higher ACoS can be perfectly acceptable, provided it leads to higher sales and therefore higher profits. In principle, Amazon merchants should Adapt ACoS goals to your individual situation and optimize their advertising campaigns accordingly.
Especially at the beginning of a campaign for a new product, it is almost impossible for it to be immediately profitable. Therefore, this should not be the primary goal. Rather, the primary goal of a product launch is to position the product in the search results so that a Improved organic ranking is built up. This later leads to the product practically selling itself.
What is the ACoS of other dealers?
In the Amazon business, comparisons with other Amazon sellers and vendors are a practical guide.
It can be helpful to know the ACoS of other retailers in the same industry or market segment. This has the advantage that your own advertising campaign can be compared with those of other Amazon retailers.
The following average values for the Amazon ACoS can serve as a guide for your own ACoS:
- Sponsored Products Ads: 16 %
- Sponsored Brands: 17 %
- Sponsored Display: 23 %
As part of this assessment, however, it should be noted that every retailer has different goals, cost structures and margins. Therefore, comparing the ACoS of other retailers should not serve as the sole measure of the success of your own advertising campaign.
Instead, Amazon sellers and vendors should focus on the Focus on optimizing their own ACoSto use your advertising budget effectively and achieve maximum success.
Also read our Field report about Amazon-Vendor.
How to optimize the ACoS
Various options and approaches are available for optimizing the ACoS. In general, however, a distinction is made between indirect and direct ACoS optimization differentiated.
The Amazon ACoS is closely linked to sales. If the number of products sold or the number of successful sales or conversions increases, the ACoS will generally also improve. For this reason, every measure helps to sell products successfully on Amazon and therefore also to optimize the ACoS.
The optimization of the Amazon ACoS includes the following indirect measures:
- Amazon SEO: Optimization of the landing page and the listing (description, title, name of the seller or vendor)
- Optimization of feed and inventory
- Product prices
Indirect optimization of the ACoS is therefore achieved by Improvements to the product detail pages and the organic search. A good product detail page with high-quality images and descriptions as well as positive customer reviews and an optimized product description can help to improve organic search results. This can significantly reduce the need for paid advertising.
Direct optimization of the ACoS, on the other hand, includes the Customization of advertising campaigns on Amazon. Amazon sellers and vendors can optimize their keywords, bids and budgets to make their ads as effective as possible. Different strategies should be tried out to see which strategy works best for different products.
If the ACoS of Amazon PPC campaigns is too high, it must be reduced by optimizing the click prices. One possible strategy for this is, for example, to allocate more budget to successful keywords and at the same time reduce the budget for keywords with poor conversion. Through this Targeted optimization of bids increases the effectiveness of the advertisements, generating more sales at the same or even lower costs.
However, this alone does not achieve a fully sustainable cost distribution across all keywords. To achieve this, keywords must be managed holistically and PPC ads must be fully utilized.
The right keyword strategy
An important component in the area of direct ACoS optimization is the Choosing the right keywords. Amazon sellers should regularly review and adjust their keyword strategy to ensure that their ads appear for relevant search queries. In addition, they should also monitor the search terms for which their ads are delivered in order to exclude irrelevant search queries and avoid unnecessary costs.
If you want to pursue a comprehensive keyword strategy, you should not only limit yourself to head and mid-tail keywords, but also consider the Longtail into consideration. The longtail refers to keywords with longer word combinations that occur less frequently in search queries but make up a considerable proportion of search queries overall. These keywords therefore offer great potential, as they usually lead to more favorable click prices than head and mid-tail keywords.
However, it can be difficult to optimize long-tail keywords as there is often limited data availability. The so-called Machine learning approach can, however, help to recognize similar keywords and thus expand the database. If you successfully use long-tail keywords, the ACoS can automatically improve due to the more favorable click prices.
In order to achieve the best keyword strategy, a Suitable campaign structure and maintenance necessary.
Further tips for optimization
In addition to the indirect and direct optimization of the Amazon ACoS, there are many other tips and strategies for a lower Advertising Cost of Sale:
- Use of Amazon bulk operations: Through the use of Amazon bulk operations Amazon sellers have the opportunity to manage large amounts of data and changes in Amazon PPC campaigns quickly and easily. This means that appropriate measures to optimize the ACoS on Amazon can be implemented quickly.
- Optimization of titles, bullet points, search terms and product descriptions: Content optimization is the be-all and end-all for a low Amazon ACoS. In-depth keyword research is required to optimize titles, bullet points, search terms and descriptions for products.
- Optimization of B+ content images: Optimizing B+ content images usually also optimizes the conversion rate, as it makes it easier for customers to make a purchase decision.
- Use of the "Dynamic bids" strategy - Sinks only": This strategy can reduce bids on Amazon by up to 100 %. If the ACoS of a campaign is too high and the expenses need to be minimized, this method can make sense.
- Implementation of catch-all campaigns: So-called catch-all campaigns are used when regular advertising campaigns are no longer within budget. As a rule, such campaigns have a strong Amazon ACoS so that little money has to be spent on clicks.
Amazon-ACoS vs. Amazon-RoAS
Anyone who deals with the topic of Amazon ACoS should also know about the Amazon RoAS metric. It is important to understand that the Advertising Cost of Sale and the Return on Advertising Spend (RoAS) different metrics to measure the effectiveness of Amazon advertising campaigns.
The ACoS shows the relationship between advertising expenditure and advertising revenue, while the RoAS shows the Ratio between advertising revenue and advertising expenditure represents.
ACoS → How much money must be invested in advertising for every euro of revenue?
RoAS → How much revenue is generated with every euro invested in advertising?
Both metrics are therefore a performance measurement that provides information on the efficiency and profitability of advertising campaigns.
A higher ACoS therefore does not necessarily mean that a campaign is performing poorly. It can still achieve a positive return. A particularly high RoAS, on the other hand, indicates that a campaign is very effective and that the advertising budget is being used very efficiently. To calculate the Campaign performance both metrics can therefore be used.
Selecting the right Amazon ACoS based on the objectives
Choosing the right ACoS depends largely on the individual goals of the Amazon merchant. If the main goal is to maximize sales, it may make sense to accept a higher ACoS.
However, if the goal is to use the advertising budget efficiently and achieve a higher return on investment, a lower ACoS should be aimed for. So you can either focus on the Break-Even-ACoS or the Target-ACoS concentrate.
- Maximizing sales: When a new product is launched, you probably want to get reviews, generate sales and improve your organic ranking as quickly as possible. In this case, you are aiming for your break-even ACoS or even a slightly higher ACoS at times. You are therefore aiming to generate maximum sales and cover your costs.
- Maximization of impressions: Maximizing impressions makes sense if brand awareness is to be increased. Here too, the aim is to achieve a break-even ACoS by achieving as many impressions as possible in order to cover the costs of the campaign.
- Profit generation: This long-term goal is particularly important for established products. The focus here is on the target ACoS in order to achieve a certain profit margin.
Total ACoS (TACoS) as an additional metric
The ACoS and RoAS metrics are already known. Another important factor in ACoS optimization is the consideration of the Total-ACoS (TACoS).
While the ACoS only takes into account the sales generated by advertisements, the Total Advertising Cost of Sale represents the Ratio between total costs (advertising expenditure plus sales costs) and sales revenue represent. Total ACoS is therefore in some cases a more useful key figure that includes organic sales in addition to ad sales.
The TACoS provides a better understanding of the Overall profitability of the company and shows how advertising can influence organic sales. Therefore, TACoS is particularly helpful when trying to scale your business, launch a new product or achieve a better ranking for a keyword.
FAQ - Optimize Amazon ACoS
What does ACoS mean at Amazon?
ACoS at Amazon means "Advertising Cost of Sales". It is a key figure in Amazon Advertising that shows the relationship between advertising expenditure and advertising sales.
What is a good break-even RoAS?
The so-called RoAS ("Return on Advertising Spend") should never be below a value of 100 percent. This would mean that the advertising expenditure was higher than the revenue generated by the corresponding campaigns. The so-called break-even RoAS is achieved when the costs and the revenue from advertising campaigns cover each other. This represents the break-even point, so to speak.
What is TACoS-Amazon?
Amazon TACoS ("Total Advertising Cost of Sale") is also an important key figure. TACoS measures the relationship between advertising expenditure and total sales. The difference between ACoS and TACoS is that ACoS only measures the efficiency of the advertising campaign. TACoS, on the other hand, takes total sales into account.
Conclusion on Amazon ACoS optimization
The Amazon ACoS is one of the most important key figures that enables Amazon sellers and vendors to monitor their advertising expenditure and the success of their advertising campaigns. By calculating the break-even ACoS and monitoring relevant key figures such as competition and keywords, advertising efficiency can be increased.
ACoS optimization includes measures such as keyword research, ad creation and the constant monitoring and adjustment of advertising campaigns. Appropriate strategies for optimizing the ACoS on Amazon can lead to long-term success and higher net sales.
If you need support with optimizing your Amazon campaigns, we can help you as Amazon Agency can of course help you further.