Understanding ACoS on Amazon Advertising
So what is ACoS on Amazon, and why is it important to sellers?
In 2022, Amazon had 2.2 billion visits on desktop and mobile combined. This means Amazon is one of the best marketplaces to sell your products. Even though this figure is impressive, brands will still yield the best results when advertising on Amazon.
But what if you are advertising on Amazon and still aren’t generating a decent ROI? If so, your ACoS could be to blame.
“ACoS” stands for “advertising cost of sales.” It’s a metric that describes the amount you spend to promote your brand on Amazon. If your ACoS is high, you’re either spending too much on ads or not converting enough leads to make your ROAS (return on ad spend).
Here’s your guide to ACoS on Amazon and how to spend less on advertising.
What is ACoS?
Marketers use ACoS (a.k.a. TACoS, or total advertising cost of sales) to measure their spending on pay-per-click (PPC) campaigns. This metric compares the amount advertisers spend versus the revenue they generate from a specific campaign. Tracking ACoS on Amazon ensures you host cost-efficient yet successful ad campaigns.
But what is a good ACoS on Amazon? It depends, since every brand will have different goals. Some brands want to generate the most sales while investing as little as possible in their ads. However, this isn’t always realistic. That’s why most brands aim for an ACoS of 15%-20%.
How to Calculate ACoS on Amazon
To calculate ACoS, divide ad spend by revenue. Then, convert the result into a percentage.
Let’s say you spent $100 on an advertising campaign, which earned you $200. When you divide 100 by 200, you get 0.5. Converting 0.5 to a percentage results in 50%. Therefore, your ACoS is 50%–far above the recommended 15%-20%.
What About ROAS?
You may hear other advertisers discuss “ROAS,” which stands for “return on ad spend”. It is similar to ACoS on Amazon, insofar as tracking the same data. However, ROAS calculations are different from ACoS.
When dealing with ROAS, instead of dividing the amount you spend against your revenue, you’re dividing revenue by ad spend.
In the above example, your ROAS would be 2. The average ROAS is 3x the amount you spent on your campaign, below the ideal amount.
Why does ROAS and ACos have different calculations?
ROAS shows your earning potential. In contrast, ACoS on Amazon tells you the percentage of sales you achieved from the amount you spent.
So, should you look at one or both metrics? We recommend keeping track of both to get a better-rounded view of spending vs earnings. That said, both ACoS and ROAS target the same metric. So, advertisers can only use the one they prefer.
How Do I Reduce My ACoS on Amazon?
If you’re spending more on advertising than what you’re generating, you’ll have to reduce your ad spend. However, this isn’t as easy as it may seem.
The trick is to optimize spending, ensuring the dollars spent will lead to more sales. Here are some ways to do this.
Determine Your Target Ad Spend
Before beginning your ad campaign, plan for an ACoS that fits your budget and profit margin. To determine your ACoS on Amazon, look beyond your budget. Consider your goals and how much you’ll need to spend to achieve said objectives.
Let’s say your main goal is to boost brand awareness. 42% of your ad spend should serve to increase visibility. Thus, you should dedicate a larger budget to sponsor products and invest in display ads.
And what if you want to increase sales? While the most successful campaigns cost $50-$100/day, there is no correct amount to spend on Amazon ads. Like we said, Your set budget will depend on your goals as a seller.
Review the Right Metrics
In addition to ACoS, you’ll want to track other metrics to ensure your Amazon ads convert leads. These include conversion rate, impression, and click-through rate (CTR.)
1 in 5 marketers struggle to measure the effectiveness of their campaign. So, it’s essential that you become familiar with these metrics to understand how they will impact your success.
You can track these metrics on the Amazon Advertising platform and access more reporting data.
How Can I Increase Sales and Conversions?
For most advertisers, focusing on converting leads is more effective than reducing ad spend. With the right advertising and marketing strategy, you can convert leads and increase revenue.
But how do you optimize your ads for conversions? It’ll take a full-scale strategy. For PPC, you’ll want to bid on the best-performing keywords. This includes keywords that have high search traffic and low competition, all while maintaining an affordable cost per click (CPC.)
If you’re investing in sponsored products, optimize your listings. Use high-quality imagery, write keyword-rich titles and meta descriptions, and always include a unique selling point (USP.)
And no matter your advertising strategy, you’ll want to price competitively. Make it so that sales are worth the cost of sourcing and shipping your products. Also, remember that consumers will want to find the best product at the lowest price. For best results, stick to a profit margin between 25%-30%.
Even with these best practices, there’s no guarantee your ads will convert leads. Here’s where A/B testing can be integral to your success.
A/B testing is when you compare the performance of two different ad types. Try it out by changing up your ads.
For example, create two similar ads, but write different content and add different imagery to each. Then, see which ads attract and convert the most leads, and translate those results to your ad campaign.
Should You Focus too Much on ACoS?
While ACoS on Amazon is a key metric, it’s not your only indicator of success. In fact, Amazon ACoS really only measures profit. But if this isn’t your only advertising goal, you should focus on other metrics.
For example, let’s say your key goal is brand awareness. Instead of calculating ACoS, track new-to-brand sales. This way, you’ll know how many of your sponsored posts’ clicks resulted in sales.
If these metrics were successful, you can say your brand awareness advertising strategy was a hit.
There are also times when a high ACoS is inevitable. This is often the case with new advertisers and campaigns because the brand is spending more to compete with other brands.
Also, use different metrics to gauge success. Amazon offers numerous seller metrics, such as brand follows, return on engagement, and brand searches. By diversifying your intel, you can measure visibility, engagements, and customer growth.
Achieve the Best ACoS on Amazon
Amazon is the center of online consumerism. It’s a marketplace where brands can attract serious leads, provided they track the right metrics.
One of the ways that brands can better promote their products is by advertising on Amazon. But if your ad campaign isn’t successful, you can rely on ACoS to determine if your ad spend exceeds your generated revenue.
If you’re tracking your ACoS on Amazon and your spending is too high, you may need professional help. We specialize in advertising e-commerce companies on Amazon and other marketplaces, implementing the right tactics that increase sales.
If you need to improve your ACoS on Amazon, make a head start with our advertising services today.
Author
Stephanie Jensen has been writing e-commerce content for seven years, and her copy has helped numerous stores rank on Amazon. Follow her on LinkedIn for more insight into freelance writing and creating high-quality content.
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