University - Amazon Advertising
Amazon PPC Advertising Cost of Sales (ACoS)
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Advertising cost of sales (ACoS) is a key metric for retailers and brands advertising on Amazon to track regularly. ACoS is the percentage of direct sales made from Sponsored Products ads, or the overall brand sales made from Sponsored Brands (formerly known as Headline Search Ads) that resulted from an advertising campaign. It indicates the effectiveness of your campaigns relative to your advertising spend. The metric is calculated by dividing total ad spend by total sales from advertising.
How to Calculate ACoS:
The formula for Amazon Sponsored Products ACoS is below:
ACoS = total ad spend / total ad sales x 100
For example, if you spent $2.00 on advertising and those ads results in $20 worth of sales, your ACoS would be 10%. On Amazon, ACoS is used to help you measure how effective a campaign is relative to your advertising spend. A lower ACoS means that you are spending a lower percentage of sales on advertising.
With Sponsored Products campaigns, total sales consist of product sales generated within one week of clicks on your ads. This total includes both sales of the advertised item, as well as sales of the other SKUs in your inventory. For example, if a click on your ad for a blue shirt generates a sale for one of your red shirts, this is included in total sales.
With Sponsored Brands, total sales consist of the product sales generated by ad clicks in two weeks. This total includes sales of the advertised items, as well as sales of other products within the same brand that resulted from clicks on your ads, regardless of whether they were sold by you or by others. For example, if you sell athletic equipment, you may discover that your Sponsored Brand ad for your new running sneaker collection also generated sales for that brand’s socks and workout clothes sold by other advertisers.
ACoS depends on a number of factors — business goals, proper campaign structure, product life cycle, profit margins, and so on. A lower ACoS means you are spending a lower percentage of your sales on Amazon and how you classify “low” will vary by ASIN.
What Is a Good Amazon PPC ACoS?
ACoS factors into an Amazon advertising strategy because it can help determine the success of your advertising campaigns. It is important to note, however, that ACoS alone can not be used to measure profitability, as you will need to take the entire cost structure of the product being advertised into account. As a seller or brand on Amazon, your intention is to drive profits over time in order to grow your business. Therefore, you need to clearly define the net profit margin you are targeting after ad spend in order to determine each product’s target ACoS.
Given this information, you first need to decide on the strategy and objectives for each campaign. By clearly establishing and presenting your goals, you will be better equipped to decide which products to include in your campaigns, properly structure them, and measure results. Examples of advertising campaign objectives include launching and promoting a new product, liquidating inventory, garnering positive reviews, generating profits, driving brand awareness, and more.
What Are Breakeven and Target ACoS?
Depending on the strategy you are utilizing and the product you are marketing, you then need to calculate the breakeven ACoS and the target ACoS. Breakeven ACoS is the point where your advertising cost becomes equal to your profit margin — which is calculated after all fees and costs involved with selling on Amazon are subtracted from the sale price — and you have a net loss and net profit of $0. Next, as its name implies, target ACoS is the ACoS you are striving to achieve.
Once you have calculated your breakeven and target ACoS, you can assess whether a certain ACoS is good or bad. If the ACoS is less than the product margin, your campaign is profitable, but it may not be hitting your targeted margin goal. For example, to launch a new product and get the system going, you may be willing to have an ACoS that is above your margin. Whereas for existing products, you will likely be driving towards profitability and have an ACoS well below your breakeven point.
Typically, a lower ACoS is associated with strategies such as maximizing profitability, optimizing underconverting SKUs, or selling items that you know will sell without having a high level of visibility. A higher ACoS can be beneficial for sellers who are looking to increase product exposure or brand awareness, liquidate stale inventory or products with low sales velocity, or maximize product visibility. All said, whether a certain ACoS is good or bad will depend on the business strategy behind each campaign.