Our amazon ads agency invites you to discover an important KPI in advertising: the Amazon ACoS.
Understanding how this KPI is calculated will allow you to analyze the performance of all your advertising campaigns, whether they are sponsored products or sponsored brands.
ACoS is the acronym for Advertising Cost of Sales.
Amazon gives the following definition: ACoS is the percentage of sales spent on advertising. ACoS = total spend ÷ total sales x 100
In simpler terms, the ACoS of Amazon’s PPC campaigns corresponds to the amount of advertising expenses invested to generate $1 of revenue, expressed as a percentage.
This KPI is the equivalent of ROAS (return on advertising spend) for Google Ads campaigns.
To better understand, let’s see how it is calculated.
How is the ACoS calculated?
ACoS is calculated by dividing the amount of your ad spend by the revenue generated by your ads and multiplied by 100.
ACoS = (Amazon advertising spend / revenue) x 100
Let’s take a concrete example:
You have spent a budget of €100 on your Product Sponsored campaigns.
These campaigns have generated a turnover of 150 €.
We then divide (100 /150) x 100 = 66.66
The ACoS of the campaigns is therefore 67%.
That is to say 0,67€ for 1€ of income.
The ACoS is an indicator to monitor in order to optimize your campaigns and forecast the advertising budgets you need in terms of customer acquisition.
What is the difference between ACoS and ROAS?
The ROAS (Return on Advertising Spend) is also a KPI that allows you to measure the profitability of your CPC campaigns.
It is obtained by dividing the total revenue generated by the amount spent.
It is expressed in value, unlike the ACoS which is expressed in percentage.
It, therefore, allows us to obtain a reference profitability index.
The more this number increases, the more the profitability of your advertising campaigns improves.
For example, if we take the example above. Roas = Turnover / advertising expenses
RoAS = 150/100 = 1.5
What is the average ACoS on Amazon?
What is a good ACoS? While it is legitimate to ask yourself this question, it is much more complicated to give a clear answer because each product offering and each company is different.
For example, if you sell consumables and you have recurring sales, your profitability objective for the acquisition of a new customer may be more flexible than for a merchant with a low purchase frequency, since you know that this acquired customer will become profitable only after several months.
To determine what is the ideal ACoS for your business you need to know the amount of your profit margin in order to determine your break-even point, that is to say, the maximum amount you can spend on advertising to remain in balance.
How to optimize your ACoS (or ROI) on Amazon? In order to maximize the profitability of your Amazon Advertising campaigns, you need to generate reports and analyze the different KPIs on a regular basis that will allow you to identify which campaign elements are performing and which ones, on the contrary, are not.
Optimize Keyword Targeting
Regularly analyze the search terms and keywords that trigger your ad to detect which ones bring you the highest profitability or sales volume.
- Pause certain keywords:
- Keywords that consume too much of your budget;
- Keywords that are above your break-even point;
- Keywords that get clicks but no conversions.
- Increase the bids or budget on top performers
- Test the automatic bidding strategies offered in the Amazon Ads tools
- Create lists of irrelevant keywords to exclude from your targeting
Optimize targeting by product and product category
The Amazon Advertising platform offers the ability to target your ad campaigns by product or product category. Just as with keyword targeting, you’ll need to generate reports that help you identify the most effective targeting according to your business goals.
Focus on your best SKUs
The best way to optimize your ACoS is to apply the 20/80 rule to your advertising campaigns.
Your marketing budget doesn’t allow you to broadcast on your entire inventory? Reserve your budget for the 20% of your offers that generate 80% of your sales.
Optimizing the performance of your campaigns and your ACoS is a long-term process. It is by broadcasting and analyzing your ads regularly that you will manage to reach your objectives and improve your profitability.
Our Amazon Ads expert agency has developed a certain number of unique tools to allow more detailed studies than those that can be done using the Amazon interface.
Would you like to be accompanied in the implementation and optimization of your Amazon ads?