How to Optimize Your Advertising Cost of Sales on Amazon

By Cepy 9/01/2023 Post a Comment

Hi everyone, welcome to another article where we share some tips and insights on how to grow your online business. Today, we're going to talk about one of the most important metrics for Amazon sellers: advertising cost of sales, or ACOS.

ACOS is a measure of how much you spend on advertising per dollar of revenue you generate from your ads. It's calculated by dividing your ad spend by your ad revenue, and multiplying by 100 to get a percentage. For example, if you spent $100 on ads and earned $200 from them, your ACOS would be 50%.

Why ACOS Matters for Amazon Sellers

ACOS is a key indicator of the profitability and efficiency of your Amazon advertising campaigns. It tells you how much of your revenue goes back to Amazon as advertising fees, and how much you get to keep as profit.

A low ACOS means that you're spending less on ads and earning more from them, which is ideal for maximizing your profit margin. A high ACOS means that you're spending more on ads and earning less from them, which can hurt your profitability and cash flow.

The Break-Even Point of ACOS

The break-even point of ACOS is the point where your ad spend equals your ad revenue, meaning that you're not making any profit or loss from your ads. It's also equal to your profit margin, which is the percentage of revenue that you keep as profit after deducting all costs.

For example, if your product sells for $20 and it costs you $10 to produce and ship it, your profit margin is 50%. This means that your break-even point of ACOS is also 50%. If your ACOS is lower than 50%, you're making a profit from your ads. If your ACOS is higher than 50%, you're losing money from your ads.

The Target ACOS for Your Business Goals

The target ACOS for your business goals depends on what you want to achieve with your Amazon advertising campaigns. There is no one-size-fits-all answer, as different sellers may have different objectives and strategies.

However, here are some general guidelines to help you determine your target ACOS:

If your goal is to maximize profit, you want to aim for a low ACOS that is well below your break-even point. This means that you're spending as little as possible on ads while generating as much revenue as possible from them.
If your goal is to increase sales volume, you may be willing to accept a higher ACOS that is closer to or above your break-even point. This means that you're spending more on ads to reach more customers and sell more products, even if it means sacrificing some profit margin.
If your goal is to boost brand awareness, you may not care about ACOS at all, as long as you're reaching your target audience and building trust and loyalty. This means that you're using ads as a marketing tool rather than a sales tool, and focusing on metrics like impressions, clicks, and conversions.

How to Improve Your ACOS on Amazon

Now that you understand what ACOS is and why it matters, let's look at some ways to improve it and optimize your Amazon advertising campaigns. Here are some best practices to follow:

Choose the Right Keywords for Your Ads

Keywords are the foundation of any successful Amazon advertising campaign. They determine when and where your ads show up on Amazon's search results and product pages, and how relevant they are to the shoppers' queries.

To choose the right keywords for your ads, you need to do some keyword research and analysis. You can use tools like Skai's Ecommerce Channel Ads platform or Amazon's Keyword Planner to find out what keywords your potential customers are searching for, how popular and competitive they are, and how much they cost per click.

You also need to decide what type of keywords to target: broad, phrase, or exact. Broad keywords match any search terms that contain the keyword in any order. Phrase keywords match search terms that contain the keyword in the same order. Exact keywords match search terms that are exactly the same as the keyword.

Broad keywords have the highest reach but the lowest relevance. Exact keywords have the highest relevance but the lowest reach. Phrase keywords are somewhere in between. Depending on your goals and budget, you may want to use a mix of different keyword types to balance out reach and relevance.

Optimize Your Bids and Budgets for Your Ads

Bids and budgets are another crucial factor that affects your ACOS on Amazon. Bids are the maximum amount you're willing to pay for a click on your ad. Budgets are the maximum amount you're willing to spend on your ad campaign per day or per month.

To optimize your bids and budgets for your ads, you need to consider your target ACOS, your profit margin, and your conversion rate. You also need to monitor your ad performance and adjust your bids and budgets accordingly.

A general rule of thumb is to start with a low bid and a low budget, and gradually increase them as you see positive results. You can also use Amazon's dynamic bidding options to automatically adjust your bids based on the likelihood of conversion. There are three options: dynamic bids - down only, dynamic bids - up and down, and fixed bids.

Dynamic bids - down only lowers your bids in real time when your ad is less likely to convert. Dynamic bids - up and down raises or lowers your bids in real time depending on the likelihood of conversion. Fixed bids keep your bids the same regardless of the conversion probability.

Track and Analyze Your Ad Performance and ACOS

The only way to know if your Amazon advertising campaigns are working and if your ACOS is improving is to track and analyze your ad performance and ACOS. You can use Amazon's reporting tools or third-party tools like Skai's Ecommerce Channel Ads platform to access various metrics and insights on your ad campaigns.

Some of the most important metrics to track and analyze are:

Impressions: The number of times your ad was shown to shoppers.
Clicks: The number of times shoppers clicked on your ad.
Click-through rate (CTR): The percentage of impressions that resulted in clicks.
Cost-per-click (CPC): The average amount you paid for each click on your ad.
Conversions: The number of times shoppers purchased your product after clicking on your ad.
Conversion rate: The percentage of clicks that resulted in conversions.
Cost-per-conversion: The average amount you paid for each conversion from your ad.
Revenue: The total amount of sales generated from your ad.
Return on ad spend (ROAS): The ratio of revenue to ad spend, expressed as a percentage.
ACOS: The ratio of ad spend to revenue, expressed as a percentage.

By tracking and analyzing these metrics, you can identify what's working and what's not, and make data-driven decisions to optimize your ad campaigns and ACOS.

A Breakdown of ACOS by Industry

To give you a better idea of what ACOS looks like across different industries, we've compiled a table that shows the average ACOS by industry based on data from Jungle Scout, a leading Amazon analytics tool. Note that these numbers are only averages and may vary depending on various factors such as product category, seasonality, competition, and more.

| Industry | Average ACOS ||----------|--------------|| Arts & Crafts | 25.9% || Automotive | 30.6% || Baby | 31.4% || Beauty | 26.8% || Books | 24.1% || Clothing & Accessories | 28.7% || Electronics | 25.6% || Grocery & Gourmet Food | 25.5% || Health & Household | 29.4% || Home & Kitchen | 30.1% || Industrial & Scientific | 27.9% || Office Products | 28.5% || Pet Supplies | 28.8% || Sports & Outdoors | 29.7% || Tools & Home Improvement | 29.6% || Toys & Games | 27.6% |

As you can see, the average ACOS ranges from around 25% to 31%, with Books having the lowest ACOS and Baby having the highest ACOS. This means that sellers in these industries spend around a quarter to a third of their revenue on advertising fees.

However, this doesn't mean that you should aim for these numbers as your target ACOS. As we mentioned earlier, your target ACOS depends on your goals, profit margin, conversion rate, and other factors. You may want to have a lower or higher ACOS than the industry average depending on your situation.

FAQs About Advertising Cost of Sales on Amazon

What is a good ACOS on Amazon?

A good ACOS on Amazon is one that aligns with your business goals and profit margin. There is no definitive answer, as different sellers may have different objectives and strategies. However, a general guideline is to aim for an ACOS that is lower than your break-even point, which is equal to your profit margin. This means that you're making a profit from your ads. However, you may also want to have a higher ACOS if you're trying to increase sales volume or boost brand awareness, even if it means sacrificing some profit margin.

How do I calculate my ACOS on Amazon?

You can calculate your ACOS on Amazon by dividing your ad spend by your ad revenue, and multiplying by 100 to get a percentage. For example, if you spent $100 on ads and earned $200 from them, your ACOS would be 50%. You can also use Amazon's reporting tools or third-party tools like Skai's Ecommerce Channel Ads platform to automatically calculate your ACOS and other metrics for your ad campaigns.

How do I lower my ACOS on Amazon?

You can lower your ACOS on Amazon by improving the performance and efficiency of your ad campaigns. Some of the ways to do this are:

Choose the right keywords for your ads that are relevant to your products and target audience.
Optimize your bids and budgets for your ads based on your target ACOS, profit margin, and conversion rate.
Track and analyze your ad performance and ACOS using various metrics and tools.
Optimize your product listings and landing pages to increase conversions and customer satisfaction.
Test different ad types, formats, and strategies to find out what works best for your products and goals.

What is the difference between ACOS and ROAS?

ACOS and ROAS are two related but opposite metrics that measure the profitability and efficiency of your Amazon advertising campaigns. ACOS stands for advertising cost of sales, and it's the ratio of ad spend to revenue, expressed as a percentage. ROAS stands for return on ad spend, and it's the ratio of revenue to ad spend, expressed as a percentage.

The difference between ACOS and ROAS is that ACOS tells you how much of your revenue goes back to Amazon as advertising fees, while ROAS tells you how much revenue you generate from each dollar you spend on advertising. A low ACOS means a high ROAS, and vice versa. You can convert ACOS to ROAS by dividing 100 by ACOS, or convert ROAS to ACOS by dividing 100 by ROAS.

What are the benefits of advertising on Amazon?

Advertising on Amazon can bring many benefits for online sellers, such as:

Increase visibility and exposure for your products and brand on the world's largest e-commerce platform.
Reach millions of potential customers who are ready to buy with high purchase intent.
Drive more traffic and sales to your product listings and landing pages.
Boost organic rankings and reviews for your products by increasing conversions and customer satisfaction.
Build trust and loyalty with your customers by providing relevant and helpful information and offers.
Grow your market share and competitive edge by outperforming your rivals.

What are the types of ads available on Amazon?

Amazon offers various types of ads for online sellers to promote their products and brand on its platform. Some of the most common types of ads are:

Sponsored Products: These are pay-per-click (PPC) ads that appear on Amazon's search results and product pages. They look like regular product listings, but have a "Sponsored" label. They help sellers increase visibility and sales for their products.
Sponsored Brands: These are PPC ads that appear on Amazon's search results page. They feature a logo, a headline, and up to three products. They help sellers increase awareness and recognition for their brand and products.
Sponsored Display: These are PPC ads that appear on Amazon's product pages, as well as other websites and apps that are part of Amazon's network. They feature an image, a headline, and a call-to-action button. They help sellers retarget shoppers who have viewed their products or similar products, or target shoppers who have specific interests or behaviors.
Sponsored Video: These are video ads that appear on Amazon's search results page or product pages. They feature a video, a headline, and a call-to-action button. They help sellers showcase their products' features and benefits in an engaging way.
Amazon DSP: This is a demand-side platform that allows sellers to buy display, video, and audio ads programmatically across Amazon's network. It helps sellers reach a large and diverse audience across different devices and channels.

How do I create an effective ad campaign on Amazon?

To create an effective ad campaign on Amazon, you need to follow some steps, such as:

Define your goals and objectives for your ad campaign, such as increasing sales, profit, or brand awareness.
Choose the type of ad that best suits your products and goals, such as Sponsored Products, Sponsored Brands, Sponsored Display, Sponsored Video, or Amazon DSP.
Select the products that you want to advertise, and make sure they have high-quality product listings and landing pages that are optimized for conversions and customer satisfaction.
Conduct keyword research and analysis to find the most relevant and profitable keywords for your ads, and decide what type of keywords to target: broad, phrase, or exact.
Create compelling ad copy and creative that highlight your products' features and benefits, and include a clear and enticing call-to-action.
Set your bids and budgets for your ads based on your target ACOS, profit margin, and conversion rate, and choose the dynamic bidding option that best fits your strategy: down only, up and down, or fixed.
Launch your ad campaign and monitor its performance using various metrics and tools, such as impressions, clicks, CTR, CPC, conversions, conversion rate, cost-per-conversion, revenue, ROAS, and ACOS.
Analyze your ad performance and ACOS using various reports and insights, such as search term report, product attribute targeting report, advertised product report, placement report, performance over time report, and more.
Optimize your ad campaign and ACOS by testing different ad types, formats, strategies, keywords, bids, budgets, copy, creative, landing pages, and more.

How do I optimize my product listings and landing pages for Amazon ads?

To optimize your product listings and landing pages for Amazon ads, you need to make sure they are relevant, informative, and persuasive, and follow Amazon's guidelines and best practices. Here are some tips to optimize your product listings and landing pages for Amazon ads:

Use clear and high-quality images and videos that showcase your products from different angles and perspectives, and highlight their features and benefits.
Write a catchy and descriptive title that includes your main keyword and your unique selling proposition.
Write a concise and compelling bullet point list that summarizes your products' features and benefits, and addresses your customers' pain points and needs.
Write a detailed and informative product description that elaborates on your products' features and benefits, and answers your customers' questions and objections.
Use relevant and specific keywords throughout your product listing and landing page, but avoid keyword stuffing and repetition.
Include social proof and credibility indicators, such as customer reviews, ratings, testimonials, awards, certifications, guarantees, etc.
Add a clear and enticing call-to-action that urges your customers to take the next step, such as "Buy Now", "Add to Cart", "Learn More", etc.
Optimize your product listing and landing page for mobile devices, as many shoppers use their smartphones to browse and buy on Amazon.

By optimizing your product listings and landing pages for Amazon ads, you can increase the chances of converting your ad clicks into sales, and improve your customer satisfaction and retention.

Conclusion

Advertising cost of sales, or ACOS, is one of the most important metrics for Amazon sellers to measure the profitability and efficiency of their Amazon advertising campaigns. It's calculated by dividing your ad spend by your ad revenue, and multiplying by 100 to get a percentage. A low ACOS means that you're spending less on ads and earning more from them, which is ideal for maximizing your profit margin. A high ACOS means that you're spending more on ads and earning less from them, which can hurt your profitability and cash flow.

Your target ACOS depends on your goals, profit margin, conversion rate, and other factors. You may want to have a lower or higher ACOS than the industry average depending on your situation. To improve your ACOS on Amazon, you need to optimize your ad campaigns, keywords, bids, budgets, product listings, landing pages, and more. You also need to track and analyze your ad performance and ACOS using various metrics and tools.

We hope this article has helped you understand what ACOS is, why it matters, how to calculate it, how to improve it, and how to create effective ad campaigns on Amazon. If you want to learn more about Amazon advertising or other topics related to online selling, check out our other articles on our blog. Thank you for reading!

Google Ads Guide