Advertising Cost of Sales (ACoS) on Amazon: What it is & Why it Matters

Advertising is a big part of operating any online business, and Amazon is no different. Your Amazon Advertising Cost of Sales (ACoS) is a key metric to understand and measure how well your Amazon Sponsored Products campaigns are working. For brands wanting to ensure their advertising campaigns on Amazon are successful, ACoS is essential to creating future advertising strategies.

What is ACoS on Amazon?

Simply put, Amazon ACoS is how much you spend on Amazon advertising in order to generate $1 in revenue from that spend. Similar to Google’s Return on Ad Spend (ROAS), ACoS is a great metric for PPC marketers to see if advertising campaigns are profitable.

How Do You Calculate ACoS?

Your Amazon ACoS is calculated by taking your ad spend and dividing it by your number of sales. For example, if you launch an ecommerce campaign that generates $300 in sales, costing $84 over a certain time period, you would take $84, divide it by 300, and get your ACoS of 28% cost for every dollar of sales you make. This means you spend $0.28 on Amazon Advertising for every $1.00 of revenue from that advertising.

Why is ACoS Important?

Your ACoS will help you determine how successful your ad campaigns are on Amazon and how much it costs to be a profitable seller. Of course, you’ll first need to define an ideal target for your ACoS so you can see just how much profit you’re making. To do this, you’ll need to look at the cost (and break-even point) of your products.

What is a Good Amazon ACoS for Your Brand?

There is no perfect ACoS on Amazon that you should strive for–it can vary by company, product, and goal. So, how do you determine the best ACoS for your ecommerce campaigns? Ideally, you’ll want to get the highest sales revenue possible, combined with the lowest ACoS possible.  Because low ACoS means high profitability and high ACoS means low profitability, sellers tend to push for low ACoS, unless they are working on a specific awareness or sell-out strategy. We’ve outlined a few of the factors that can help you understand your best Amazon ACoS below:

• Know your profit margins: Ideally, your sponsored product campaigns will be profitable. But this means your advertising spend needs to be less than your profit margin. Your profit margin represents the amount left after you’ve paid for all general costs, including shipping, production, employee salaries, and any other fees. Knowing your current general costs helps you make more informed decisions about how much you can spend on advertising while still maintaining a profit. Knowing your costs is vital for determining your break-even ACoS.
• Determine break-even ACoS: Your break-even ACoS is the amount you can pay for Amazon advertising where you won’t lose any profit, but you also don’t make any profit either. It’s a zero-gain, zero-loss balance that allows your business to keep running, but doesn’t pave the way for growth. Knowing your break-even ACOS helps see whether you’re netting a gain or loss.

Look at the Right Metrics for Successful Advertising

While your ACoS is hugely important, you also need to look at a number of other metrics to get all the information you need for a successful Amazon Advertising strategy. ACoS is just one factor to determine how successful your Amazon Advertising campaign is. Other metrics to keep in mind include the following:

• Impressions: High impressions can suggest that your product is located in a popular category on Amazon. If your impressions are low, Amazon may be displaying your ad often, but your product may not be popular.
• Click-through-rate (CTR): If you have a low click-through-ratio, this can mean that your ad may not be performing well, or Amazon users weren’t attracted to click on it. Updating creative, copy, and strategy might help improve your CTR.
• Spend: Consider how much you’re spending on your ads and your cost per click. You want to watch to make sure the cost you pay per click is worth the profit you gain from the click. If you spend too much, your profit margin will shrink. Auditing your spend can also help you ensure you aren’t overspending on advertising.
• Sales: Look at how many clicks you had and how many sales were a result of those clicks. If your conversion rates are low, you may need to work on the relevance of your ad to your product. Having the perfect placement and targeting won’t do much for sales if your audience expects one thing from the ad and gets something completely different from the product listing. Your ad should be engaging, but also relevant.

Determine Target Amazon ACoS with Pattern

Every company, product offering, and marketing strategy is different, which means there is no one ideal ACoS for every company. Using the right metrics to capture accurate data is key for helping brands determine what a good ACoS is for them. At Pattern, we focus on finding accurate information and data that accelerates brands. Pattern’s data can help brands find an ideal Amazon AcoS and advertising strategy that will work for them. A consistent 3P Amazon partner, like Pattern, will provide brands with the current data they need to perfect their advertising strategy. Want to learn more about advertising on Amazon? Contact us.