ACoS (Advertising Cost of Sales) is a great matric to scale if your Amazon PPC efforts are satisfactory. But the question comes in mind, what would be the good ACoS to know that we have done the job well.
Though we are well aware of what is ACoS, let’s have a brief idea once again:
ACoS by definition is the advertising cost that an advertiser incurs to earn a sale. By formula it is:
For example, if your Amazon Ads campaign managed to produce a total sales of $1500 at an expense of $400 then your ACoS will be (400/1500)*100 = 26% which would mean that you spend almost a quarter to gain a sale.
Low ACoS Vs High ACoS
What do we understand by Low and high ACoS? Low ACoS shows high profitability and high ACoS means high visibility. If your ACoS is high, you make a loss, and if it is low then you make a profit. There are many factors that can cause ACoS to go high and low.
- Business Goals
- Proper Campaign Structure
- Product Life Cycle
- Profit Margin and so on
Normally, advertisers believe that they should aim for low ACoS however, it solely depends upon the strategy you have to sell your product on. Our post How To Reduce Amazon Ads ACoS? sheds some light on ways such as
- Adding Negative Keywords
- Use Keyword Match Type Efficiently
- Alter Bids Based on Performance and more.
In Amazon PPC, ACoS is everything so, how to determine what is a good ACoS or a bad one?
What is Good and Bad ACoS?
Knowing what ACoS is good and bad for your Amazon PPC campaign is crucial as it helps to know if you are making money with these ads or experiencing loss. But there is no such thing as good or bad ACoS.
As per the above example, 26% ACoS seems to look good but it doesn’t really tell you if you are gaining profit or attaining loss.
ACoS generally vary from product to product because they have different profit margins. And the profit margin decides whether you are gaining benefits or loss. As long as your advertising expense is lower than your profit margins, you will gain profits.
For example, you have put up one of your products for sale with the price tag $40. You are hoping to earn $10 after deducting other variables like Amazon fee, packing & shipping cost, etc. So, 25% (10/40 ) will be your break-even ACoS or profit margin before you could deduct other variables. And as long as you don’t spend more than 25% of your margin, you will not lose money.
There are some scenarios where it is acceptable to have high ACoS:
1) Launch of a New Product: Launch of a new product always has a high ACoS as your customers take more than usual time to learn about that product. And because of this, you see a lower conversion. As customer gains confidence in this new product, your conversion rate will increase and ACoS will come down.
2) High Order Value: If your products are priced at $150 and above, your targeted customers might take a little longer to make up their minds to buy the product. This will cause ACoS to go high for a short while. However, it’s worth running at a higher ACoS and look at lower ACoS for a long run when you understand your customer better.
3) Launch of a Brand or Brand Awareness: If you are a newcomer or raising brand awareness in the market, it is very likely that you need to spend more money to advertise your brand. However, with a vigorous advertisement, you will score more visibility, sales, and reviews, and eventually, it will help you to reduce your advertising cost.
4) Clear Out Old or Excess Inventory: Suppose you want to replace your old fashioned clothing product range with trending ones or you wish to clear out excess inventory, it is bearable to lose some of your funds in advertising. It will shoot up your ACoS for a short while and it will be fairly acceptable.
Wrapping It Up
ACoS is a benchmark to know the profitability of your Amazon campaign. A good or bad ACoS is based upon your marketing strategy. It is evident that you might have higher ACoS in certain conditions but you should keep in mind to spend as little as possible on advertising so you can gain maximum profits. You need to be patient as it will take time and effort before you could reach your desired ACoS. Regular optimization and Testing is a must.