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Amazon Expert Briefing: How Can I Drive My ACoS Down and Allocate Ad Spend Correctly?
The Amazon Expert Briefing series focuses on Feedvisor’s hands-on expertise across price, advertising, content, and brand optimization and intelligence, with Amazon at the center. This post is led by Feedvisor’s Managed Services Manager, Antonio Lorenzo.
These are two of the most frequently asked questions that we hear from advertisers on Amazon. Your advertising cost of sales (ACoS), which is the percentage of direct sales you make from Sponsored Product ads or the overall brand sales you make from Sponsored Brands that resulted from your ad campaign, is a critically important metric to track regularly as part of your greater Amazon advertising strategy. ACoS is calculated by dividing total ad spend by total ad sales, multiplied by 100.
A measure of advertising efficiency, ACoS indicates the ratio of ad spend to sales or targeted sales and tells you how well your ads are performing relative to your advertising spend. ACoS depends on a number of factors — your business objectives, proper campaign structure, product life cycle, profit margins, and more. If a lower ACoS is better, though, how can you work to bring down your ACoS on an ASIN-specific level?
The best way to reduce your ACoS is to significantly reduce your wasted ad spend. To do so, you can operate by hindsight. You should review a recent search term report for Sponsored Products and analyze it for wasted ad spend. You will be able to use the data to help make well-informed keyword decisions and uncover which keywords you spent money on that did not result in a sale.
You can also look at the search terms that are driving profit and conversion. By analyzing the average cost-per-click for each keyword in the search term report, you can find valuable information to help you reduce your ad spend and prioritize your time and resources on high-performing keywords. By isolating the search terms that generated a sale, your ACoS will greatly improve, effectively reducing wasted ad spend.
Although you will never be able to get an ad campaign to 100% efficiency given variables such as changing market dynamics, evolving consumer search behavior, and manual keywords developing into other keywords, you can leverage AI-based optimization software to determine your optimal ad spend, perform keyword bidding, harvest negative keywords, and make adjustments on an ongoing basis.
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Effectively Balancing Your Amazon Ad Budget
Once you have reduced your advertising spend, you have money you can reallocate to new campaigns or top-performing keywords. For example, let’s say you had $10K in ad spend that resulted in $30K in sales; that represents a 33.3% ACoS. If only $5K in ad spend resulted in the $30K in ad sales, and you reduced your total spend by $5K, your ACoS now sits at nearly half the original, just over 16%.
You can invest that additional ad spend into converting keywords, new campaigns, or expanding your catalog. At the end of the day, your goal should always be to lower your ACoS, maintain your ad spend, and generate more sales. Although perfecting this combination can be complex without the proper tools or expertise, understanding ACoS and prioritizing ad spend allocation will help you ensure that you get the most out of your advertising dollars on Amazon.