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How to calculate Amazon ACoS
Marketing

How to calculate Amazon ACoS

Why is Amazon ACoS important?

Firstly, let’s define what ACoS means. ACoS(Advertising Cost of Sale) is the amount of money you spend on advertising per dollar of revenue you make. Knowing your Advertising Cost of Sales is crucial when launching PPC campaigns on Amazon. It is one of the most defining metrics for Amazon PPC. Many strategies also revolve around targeting a specific ACoS or minimizing it.

The primary function of ACoS is to track the costs of your campaigns and then estimate how much profit you will be able to make. Your ACoS will also evaluate the success of any specific campaign. You can also use ACoS for calculating your break-even point too. More on that later.

How to calculate Amazon ACoS?

ACoS calculation process is pretty straightforward. You can either do it manually using the formula “total ad spend divided by the total sales x 100 for the percentage value” or via an inbuilt Amazon ACoS calculator present in most PPC management tools like Sponsoreds Amazon software.

What is break-even ACoS?

Given that ACoS shows the profitability of your PPC campaigns, you can also use it to figure out the break-even point. That’s where the break-even ACoS comes into play. It’s how much you can spend on ads while keeping your business profitable. You should regard it as more of a goal than an actual metric, but always keep it in mind when considering your budgets.

The calculation of break-even ACoS, however, is slightly more challenging. It’s basically your profit margin. To calculate it, you need three more items: Revenue(the income from your product sales), Cost of Goods Sold or CoGS(your manufacturing, fulfilment and storage costs + taxes), and Gross Profit(CoGS minus the Revenue). Then, when you divide your Gross Profit by Revenue, you get your profit margin and break-even ACoS.

You should definitely calculate your break-even ACoS before launching any PPC campaigns on Amazon because it allows you to discover how much exactly you can spend on ads and still turn a profit. Therefore, you should always ensure that your ACoS is less than your pre-advertising profit margin. The smaller the gap between your ACoS and Profit, the better it is for your business.

How to lower your Amazon ACoS?

The answer to lowering your ACoS on Amazon is constant campaign optimization. Here are some techniques used by Sponsoreds software to solve this issue.

To dispense with the low-relevance keywords problem, software from Sponsoreds utilizes the power of the AI, letting it remove most of the irrelevant search terms using ‘Negative Exact’ and ‘Negative Phrase’ keywords. The goal here is to set exact or phrase keywords irrelevant to the product but considered the opposite by Amazon as negative keywords for a campaign. Doing that before launching your campaigns prevents unwanted resource waste on irrelevant and low-converting search terms that otherwise would only be found out after campaigns have been running for some time.

Another method used by Sponsoreds is “Search Terms isolation”. It makes each search term pool associated with a unique keyword in your PPC campaigns, thus preventing competition between different keywords for the same search term. It removes the potential for arbitrary bid increases and keeps advertising data from being split between two keywords for the same search term. That means you are not overpaying for your keywords, and you get precise data on how each keyword or search term performs.

“Search Terms isolation” is reachable in two ways: deleting any keywords but one that target the same search term pool (i.e., duplicates, singular/plural forms, keywords with different articles, etc.); and marking all keywords present in the semantic core as negative exact or negative phrase keywords in automatic or broad targeted campaigns to avoid competition between any campaigns managed by the software.

For Product Targetings, the Sponsoreds software puts your ASIN targetings into negative match types for automatic campaigns, Category and Audience campaigns to prevent competition between those campaigns on competitors’ listings.

Hence, all of the above methods can help you reduce your ACoS and optimize your campaigns according to the chosen strategy.

Conclusion

Amazon ACoS is one of those essential metrics that you cannot ignore. It is one of the indicators of the success of Amazon PPC along with CVR or CTR. Therefore, keeping track of it at every point in your business cycle is of utmost importance. Amazon PPC tools, like Analytics or Audit tools from Sponsoreds, greatly facilitate this task. You can try out the software at https://sponsoreds.com/

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