As the world’s largest retailer, Amazon is often the first port of call for shoppers in search of everything from tech to beauty products, homewares to fashion.
Its sales grew by 70% during the pandemic, so it’s no surprise that more and more individuals and businesses are turning to Amazon to sell their products.
Of course, this popularity means there’s also fierce competition from other retailers, making it hard to stand out and make money on the platform– this is where Amazon ads come in.
As with any ad campaign, you’ll want to be clear that any money you’re spending is helping you to make sales. If you’re spending more on advertising than you’re generating in revenue, you’ll quickly find your business in the red. If you’re advertising on Amazon, a simple metric called ACoS will tell you whether you’re making a profit or spending more to make a sale than you’re banking.
What does ACoS stand for?
ACoS is an acronym for Advertising Cost of Sale. This figure is the amount you’re spending on Amazon to generate a sale.
Why is ACoS helpful?
In finance terms, ACoS tells you whether you’re making money, breaking even, or making a loss. It’s a figure you’ll need to keep an eye on because you don’t want to find that your ad campaigns have strayed into loss-making territory without you being aware of it. Go too far down that road, and your business could be in jeopardy, with more money flowing out of the bank than into it.
Wait. Isn’t ACoS the same as ROI?
Yes. And no. They’re basically the same, but where ROI tells you what your return is (what you’re getting out), ACoS tells you what you’re spending to generate results (what you’re putting in). So, they are both useful and can help you to ensure that you’re running a profitable business.
A clear idea of ACoS and ROI will also help you grow your business, as you’ll understand precisely what kind of results you’re generating for the amount of money you’re spending right now. With your ACoS and ROI figures clear, you can extrapolate data to forecast how your sales or revenue might increase if you were to scale up your advertising spend.
Why is it important to know what your ACoS is as an Amazon advertiser?
There are a few reasons why it’s good to have a clear handle on your ACoS when running any kind of Amazon ads campaign.
Keep a handle on what you’re spending: Knowing your ACoS figure means you have a very black-and-white method of tracking your spending. As a result, you know exactly how much cash you’ve poured into advertising.
Be aware of trends over time: If you keep a record of your ACoS, you’ll be able to track whether your spending is trending up or down over time. Tracking trends means you’re better placed to forecast what’s ahead and prepare accordingly.
Remain on top of increasing PPC costs: The overall trend across the ad industry is that PPC costs are climbing. Unfortunately, that means it’s getting more expensive month on month to participate as an advertiser.
Knowledge is power and knowing how much you must spend to make a sale means you’re better placed to make decisions around budget allocation, project pricing, and alternate marketing methods.
What does a good ACoS look like?
Broadly speaking, you can split ACoS into high, average, and low percentiles. But a word of warning – this doesn’t necessarily indicate you have a good or bad ad campaign on your hands. ACoS can be more nuanced than that, as how your view your ACoS percentage will also be influenced by what your goals are as an Amazon business.
Your goals will naturally shift over time, so your interpretation of your ACoS as good or bad will move too. When you’re more focused on brand building, you may spend more on advertising that you make in direct sales, for example. But, if your goal is to raise awareness during critical sales periods, such as before Amazon Prime Day, that isn’t automatically a bad thing.
That said, there are a few general benchmarks that can help you classify your advertising cost of sale.
A high cost of sale: If your ACoS is greater than 40%, it can (generally speaking) be said to be high. You’d expect this if you were driving large amounts of ad budget into brand-building and awareness campaigns.
An average cost of sale: A figure of between 30%-35% is about average. You’d want to see a figure around this level as a new advertiser and during periods of solid, steady business activity.
A low cost of sale: Anything below 25% can be considered a low average cost of sale. This is the holy grail as it means you’re enjoying higher levels of profits.
Things to keep in mind:
● Your average cost of sale won’t stay the same. Your advertising aims and business objectives will continually influence it.
● Seasonality can be a factor for some Amazon businesses, with naturally high demand periods for certain products requiring less ad spend.
● Your OG products – those that your customers love, that they return to again and again and recommend to their friends – will have a lower ACoS more often than not. The reason for this is their popularity; you know they sell well, so you don’t need to put as much ad budget behind them to maintain those high sales figures.
How to calculate your Amazon advertising cost of sale?
When your ad campaigns are up and running and your products are beginning to sell to Amazon shoppers, you can start to calculate your advertising cost of sale. If you’re advertising on other platforms such as Google Ads, knowing what you must
invest to make a sale on Amazon will also help you to gauge performance elsewhere.
So, let’s go back to school and learn how to perform this calculation: ● Ad spend / ad revenue x 100 = advertising cost of sale.
The first component is ad spend. This is the total amount you’ve spent on Amazon advertising for the given period.
The second component is ad revenue. This is the number of sales you’ve made for that same period. Both figures are available via your Amazon Seller Central dashboard for convenience.
Can you improve your advertising cost of sale percentage?
As we’ve seen, your Amazon business will have different ACoS percentages depending on the type of ad activity and campaign goals you’re running at any given moment.
If your ACoS is running at a higher level than you’re comfortable with, and you’re spending a more significant portion of your revenue on advertising than you’d like, there are a few tips you can try to bring that percentage down.
● Improve your product listings: If you’re generating lots of clicks but not many sales, it could be that your product listings are holding you back. Many clicks suggest that your adverts aren’t the problem, as they’re getting shoppers to take action. The problem lies when they land on your listings.
To address that, work on your product listings to make them more compelling. That could mean overhauling your product description text, adding more images showing the product from different angles, or being much clearer about product specifications. If your listing page is more enticing, your clicks will result in more sales, bringing down your cost of sale.
● Be more price competitive: One of the great things about Amazon from a shopper’s perspective is that it’s easy to compare offerings from different sellers. This helpful feature could work to your disadvantage if your pricing is higher than other sellers with similar products. Being more competitive on price is another way to increase conversions, which can make your cost of sale more favorable.
● Experiment with different keywords: The cost you pay per click is heavily influenced by the keywords used in your ad campaign and the match types you target. If your advertising cost of sale isn’t working for you, it might be time to revisit your keyword selection.
● Review your targeting options: Amazon offers advertisers a selection of targeting types when setting up an ad campaign. Amazon automatically adjusts variable bids to increase the chances of conversion. While this is convenient, it can lead to you paying over the odds. Try switching to a different targeting option. Don’t forget, when making changes, you’ll need to keep a close eye on the outcome in case adjustments are necessary.
Succeeding on Amazon can feel like a minefield but having a good handle on what you’re spending to generate sales makes it easier to avoid the pitfalls. To learn more about calculating and interpreting your Amazon ACoS, check out this detailed guide by Amazon advertising agency, ClearAds.