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5 Ways to Lower Your ACoS Without Sacrificing Visibility
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A successful advertising strategy involves regularly assessing your campaigns. One major metric that many sellers and advertisers use to measure their goals and track their success is ACoS (advertising cost of sales).
What is ACoS?
ACoS is short for advertising cost of sales and is a key metric for retailers and brands. It is the percentage of direct sales made from advertising campaigns. Generally, it is used to show the effectiveness of specific campaigns based on advertising spending.
Although, it is important to note that ACoS alone should not be used to measure profitability. The entire cost structure of your product should be taken into account. ACoS should not be used in isolation and should always be paired with other important metrics for overarching success across the business.
Those who have been advertising on Amazon for the past few years have probably seen the space continuing to get more competitive leading to rising costs. There’s no doubt that the market is shifting. This has led to many sellers with higher ACoS and increased pay per click costs. The silver lining here is that many Amazon sellers deal with this issue. The best way to combat these rising costs and competition is to adapt.
In the past, you may have been solely focused on a low advertising budget. But a lower ACoS does not necessarily mean a small advertising budget. If you keep your advertising budget small, you may risk having a very high ACoS because although your advertising spending is low, so is the impact of your campaign. Some brands may have to make a lot of initial investment to see the best rankings and brand recognition for the platforms they are advertising on.
Further Reading: ACoS Defined
How to Calculate ACoS on Amazon
For both of those campaigns, you can calculate your ACoS using the following formula:
Total Ad Spend / Total Sales x 100 = ACoS
There are many different opinions on what a good ACoS is when selling on Amazon. ACoS is one of those metrics that is truly dependent on your current business goals, as well as the type of seller you are.
If you sell apparel, cosmetics, or food products on Amazon, you will have to pay more for first conversions to get repeat customers, while things like technical products or replacement parts will have to pay less for first conversions.
Based on your strategy, you will calculate the breakeven ACoS, where your advertising is equal to the profit margin and the target ACoS.
Five Ways to Lower Your ACoS on Amazon
The best way to lower your ACoS is to eliminate wasted ad spend and use that budget saved to invest in what’s working well. Each strategy we explain below follows these principles: find what’s not working and stop it, find what is working and optimize it, and if you have the budget, experiment.
1. Keyword Selection
Try reducing wasted ad spend by running a search term report for your Sponsored Products. You can use this report to understand if your recent campaigns were effective. If your recent campaigns are not meeting your predetermined goals, reduce this type of ad spend in the future.
You can use the same search term report to find search queries that drive profit and conversion. Be sure to check the cost-per-click for each keyword. After reviewing the report, choose the high-performing keywords you want to focus on. If you can isolate the search terms that generate the most sales, your ACoS will improve, and in turn, your ad spend will no longer be wasted on irrelevant keywords.
But remember, It is important to revisit these reports often. Many variables can affect changing market dynamics. We suggest pairing these reports with AI-based optimization software to support your ongoing adjustments in keyword bidding, harvesting negative keywords, and optimal ad spend.
Further Reading: The Ultimate Guide to Amazon Keyword Research Strategy
2. Amazon Campaign Comparisons
If you want to find the best keywords for a specific product, try running a campaign comparison. Amazon has two different campaign types that you can use: automatic and manual.
- Automatic: Sellers can select their budget, and Amazon will automatically find keywords to match their product’s category, related products, and keywords in the product’s description.
- Manual: Sellers will pick the keywords they want to bid on and specify where their ad spending goes with broad match, phrase match, or exact keywords.
One strategy that sellers use, especially for new products, is running both campaigns simultaneously, giving Amazon the reigns to find profitable search terms that drive conversions. After both campaigns have run their course, you can review both side by side to understand the terms that worked well and add them to your manual campaigns.
Automated campaigns should be used to optimize your manual campaigns, don’t continue to run automated campaigns without additional next steps and optimization.
3. Optimize Amazon Product Listings
The actual product listings themselves are crucial to your advertising success. If you are spending your budget on advertising, you want to ensure that things like your image or listing title are not getting in the way of a buyer clicking on your product.
Product titles and images are the first things that a buyer sees, and you need to be sure they are effective. Here are a few tips to ensure that your product title is not negatively impacting your ACoS:
- Make your title concise. Instead of trying to fit as many buzzwords in as possible, keep it to critical information like the specs or model numbers that are important to your customer.
- Test different images or compare your product images to competitors to be sure they are relevant to your target customers.
- Avoid marketing terms like “free shipping.”
- Check your reviews and frequently asked questions to see if you can clarify your listing to answer these questions or concerns.
4. Conduct Competitor Research
We can promise you that you aren’t the only seller trying to lower their ACoS and optimize their listings; your competitors are too. It is suggested to keep an eye on your competitors by doing the following:
- Gather information and compare. Look at the terms they are bidding on, product titles, and images, and compare them to yours.
- Check reviews. Use the reviews to see where your competitors are falling short and where you can swoop in to improve your own listings.
Keep your target audience in mind, are your competitors reaching that same audience? Is there a way that you can stand out? This research aims to find the ways that your competitors are succeeding to replicate and where they are failing to stand out and succeed.
5. Amazon Ratings & Reviews
Once your ads get to the eyes of your target audience, you want those ads to convert to a sale. One critical reason your customers may not decide to purchase from you is the reviews and ratings.
We suggest that you focus on advertising products with a 3.5 or higher rating on Amazon. This will give you a higher conversion rate to help you reduce your ACoS. If any of your products are not a 3.5 or higher, you can still consider an advertising campaign for these products, but keep in mind that it may affect your ACoS for the specific campaign.
Higher ACoS is not always a bad thing. A high ACoS can help sellers grow exposure or brand awareness or liquidate stale inventory.
To further look into your ACoS and other key Amazon metrics, try the free Feedvisor360 trial and see the power of an integrated platform that combines AI and human experience to meet your advertising and business goals.