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

Cassandra Shaffer

March 17, 2021

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.

What is ACoS on Amazon? How do you calculate ACoS?

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.

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.

online 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?

There is no perfect ACoS on Amazon that you should strive for, it can vary by company, product, and goal! So then 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 that 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 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 also 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 let pave the way for growth. Your break-even ACoS isn’t necessarily the number you’ll use to determine whether your campaigns are successful, but it does help you see whether you’re netting a gain or loss.

To determine the break-even point, start with your ecommerce product and sale prices. For now, imagine your sale price is $10 and Amazon fees are $1. Then, assume that the cost of production is $3. So altogether you are paying $4 before the product is ever sold. Take that $4 of cost from the $10 sale price and you’re left with $6. This is your pre-ad profit, or how much is generated each time you sell your product organically (without any ads). Your break-even ACoS is $6, because if you spend all $6 on ads to get a sale, and you continue to spend $4 in upfront cost, you’re left with none of the $10 for profit.

  • Look at the right metrics

    While your ACoS is hugely important, you also need to look at a number of other metrics to get all the information you need. 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) CTR is a metric many PPC marketers are familiar with. 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

In the earlier example, if you’re spending less than $6 on Amazon ads, you’re making a profit. If you’re spending more, you’re making a loss. You’ll need to consider all of the above factors, including key metrics like your click-through-ratio, and use this information to determine your target ACoS for Amazon.

To determine your ideal Amazon ACoS, you’ll want to find your ideal profit margin and work backwards. The average ACoS that advertisers strive for is between 15%-30%, but remember that every company, product offering, and marketing strategy is different, and can affect the ideal ACoS.

Want to learn more about advertising on Amazon? Our experts are happy to help. Get in touch today.

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Sept 27, 2022

Global Ecommerce Weekly News: 27th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon drives renewable energy push with 71 new projects Amazon is planning to add 2.7 gigawatts of clean energy capacity through a couple of new projects as the company attempts to use 100% renewable energy by 2025. The ecommerce business will soon have a total of 329 renewable energy projects, generating 50,000 gigawatt hours of clean energy, which is equivalent to powering 4.6 million US homes every year. [Read more on Reuters](https://www.reuters.com/business/sustainable-business/amazon-drives-renewable-energy-push-with-71-new-projects-2022-09-21/) Amazon launches Prime Early Access Sale Amazon is launching a new 2-day shopping event for its Prime members only, beginning on the 11th of October. Across 15 countries, Prime customers will have access to the shopping event, with thousands of deals on offer globall, ranging from fashion to electronics to essentials. The event has the purpose of giving Prime users the chance to spread the cost of items over the winter months, 6 weeks ahead of Black Friday. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/26/prime-early-access-sale/) --- Other Marketplace News --- Shopify unveils new localisation tool Shopify is launching a new localisation tool, called Translate & Adapt, which works with Shopify Markets to offer localisation for sellers who are looking to expand into new markets. The tool translates a user’s online store into different languages, including product pages and information pages. Merchants are also able to create different shipping terms for each market using the new tool, which allows international expansion and offers a more localised consumer experience, unveiling new potential. [Read more on Ecommerce News](https://ecommercenews.eu/shopify-launches-new-localisation-tool/) Etsy is set to invest hundreds of millions into its marketing platform Etsy CEO claims that the company is on route to spend more than $570 million USD on marketing this year. Even during a time of macroeconomic pressure, inflation and rising interest rates, the company is preparing itself and its sellers for the upcoming holiday season and is focused on retaining interest from buyers. [Read more on Yahoo News](https://uk.news.yahoo.com/etsy-600-million-on-marketing-ceo-154054219.html) --- Other Ecommerce News --- Meta looks to cut costs by 10% in the coming months Meta employees are facing job redundancies as the company plans to cut its costs by 10% over the next few months. Meta reported a 22% YoY increase in costs and expenses, totalling over $20 billion USD. The cuts are expected to come in the form of job redundancies as a result of department reorganisations rather than formal layoffs. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/22/meta-to-slash-costs-by-10-over-coming-months/) DHL teams up with Quadient to offer smart locker deliveries in the UK DHL and tech company, Quadient, have partnered to offer smart lockers parcel pick-up throughout the UK. The new contactless, secure locker stations will give recipients more choice and flexibility to receive their parcels at a time and location best suited to them. The partnership plans to install 500 locker stations across the country by the end of 2022. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/21/dhl-partners-with-quadient-to-offer-smart-locker-delivery/) The online fashion market is set to be worth nearly $170 billion USD in 2025 The European online fashion retail market is set to grow 50% by 2025, with an online turnover of $170 billion USD, which is 33% of the retail branch’s total. Cross-border marketplaces prove to be the largest drivers of this growth, with online websites and apps like Vinted largely pushing the market’s online growth. Zalando recently became the largest cross-border fashion retailer/marketplace, responsible for 11.7% of the online market’s share. [Read more on Ecommerce News](https://ecommercenews.eu/online-fashion-market-worth-e175-billion-in-2025/)
Sept 22, 2022

How an Amazon SEO Agency Should Be Serving Your Brand

If you’re in the global ecommerce space, you are most likely aware of Amazon, and probably selling your products on the marketplace. With over $470 billion in sales in 2021 alone, Amazon stands as the third largest company in the world based on revenue. The ecommerce giant is a household name in the U.S. and working hard to grow its market share across five continents worldwide.

Having your products available on Amazon and being competitive there, though, are definitely two different things. If you want to really succeed on Amazon, you’ll need specialized insight into how Amazon works and how to make it work for you. So, for many brands, it’s a great idea to work with an Amazon Search Engine Optimization (SEO) agency.

At Pattern, Amazon SEO optimization service is one of our key competencies. We understand that technology, data-driven insights and expertise  are the most important tools brands can leverage to win top listing spots on digital marketplaces. With expert teams and years of experience, we help brands conquer the Profitability Death Spiral as they compete with other products and sellers online. We offer Amazon SEO agency services as a core solution to brands that need more resources to get ahead. 

What is an Amazon SEO Agency?

An Amazon SEO agency serves brands by improving their products’ rank and listing performance on Amazon. They make strategic decisions about ad spending and placement that lead to higher traffic, conversions, and revenue for ecommerce brands.

A great Amazon SEO Agency partner will:

Prioritize Your Success

Unfortunately, many Amazon SEO agencies profit in unfair ways from your brands’ perceived success based on the ROAS numbers they provide. This is done through including branded search terms in ROAS reports, which naturally skew listing performance

Let’s say, for instance, your brand is called “Annie’s” and you sell lollipops. Your brand has a very high likelihood of winning the top listing spots on Amazon for lollipop search terms that are paired with “Annie’s,” your brand name. So, SEO agencies will spend your ad money on those terms and report a very high ROAS. 

To avoid scenarios like these, it’s best to look for an agency that either calculates their profits on metrics other than your ROAS scores or weighs branded search terms differently in the performance metrics reports. Regardless of your Amazon SEO agency’s cost structure, you should align onbranded search terms before committing to a scope of work.

Provide Detailed Competitive Insight

A great indicator of a high-quality Amazon SEO agency is the level of insight they can provide into your competitors’ listing positioning and how it compares to yours. Data fanaticism is so important at Pattern that we’ve developed proprietary technology to display this exact information with precise detail for every brand we work with. In fact, you can find our free version here to see how you compare to some of your top competitors based on ASIN.

It’s certainly possible to improve your Amazon search performance with blind spending strategies. But a truly great solution will help you to know where your dollars are at their most powerful and competitive.

Reduce Your Ad Spend Over Time

Amazon’s A10 algorithm prioritizes customer satisfaction—it wants to show consumers the best products that align with their search intent to improve conversions and sales. So, the best way to gain momentum on Amazon is to work on incremental wins. 

Improving your performance on more obscure search terms that align with your customers’ search intent is a great way to increase ROAS for the long term. A10 will reward your success with better rankings on higher-volume search terms and the virtuous cycle can help you conquer your most-coveted listing spots. And the best part? This process of gaining momentum, if done right, will naturally decrease your ad spend over time as Amazon recognizes your value and works with you to keep your products at the top of consumers’ search results.

Amazon SEO Optimization and More

As an Amazon SEO specialist, Pattern knows how to help your brand win better success for long-term profitability on Amazon. With our data-driven tools and brilliant teams of ecommerce experts, we help brands with listing management, content optimization, Amazon ad strategies, and more.

Contact us to learn more about our SEO optimization services.

Sept 20, 2022

4 Ecommerce Marketplace Consultant Must-Haves

Entering the ecommerce landscape is a huge undertaking for any brand—it usually requires a large investment in resources and expertise to really be successful. Any brand can quickly get in over their heads trying to navigate the nuances of SEO, fulfillment and logistics, distribution control, listing optimization, and meeting the numerous other requirements and administrative tasks to show up well on marketplaces. 

Unfortunately, because it’s so easy for third party, gray market, and unauthorized sellers to obtain and sell products online, many brands find themselves pressured to execute an ecommerce plan without the right resources to succeed on marketplaces and their other channels.

So, for brands looking to enter the ecommerce space or improve their current and future performance, it makes sense to partner with an ecommerce consultant.

Pattern’s global presence and proven success with hundreds of brands has allowed us to develop highly effective ecommerce consulting services. We can guide your brand to navigate issues both large and small in marketplaces worldwide. To maximize your ecommerce efforts, you’ll need to understand what an ecommerce consultant does and how to select one who drives the right value for your brand and products. 

What is an Ecommerce Consultant?

An ecommerce consultant is a specialist in the ecommerce space who can give you personalized guidance on how to market your products and grow their presence on digital marketplaces.

An ecommerce consultant should be able to analyze your brand, audience, category, opportunity, and current roadblocks and help you understand how to utilize your resources (or what resources are missing) to be most effective in capturing your opportunities in the ecommerce space.

Not sure how to evaluate a consultant? Here are 4 key attributes to look for as you make your choice.

1. Brand Obsession/Specialization/Passion

At Pattern, we prioritize brand obsession for a reason—we know that a brand-centered mindset makes a crucial difference in the outcomes and results our partners achieve. So in our experience, when you begin your search for an ecommerce consultant, it’s important to look for a partner who is specialized in ecommerce, invested in the product, and passionate about helping brands build and improve their strategies. Typically, this means finding someone that consults exclusively for ecommerce marketplaces, rather than choosing a consultant who offers many different services. 

2. Proven Results

It’s also important to avoid choosing a consulting partner who can’t deliver the right experience for your brand. The best indication of whether your potential consultant can do that is to review their history, data, and results with other brands. Ask if they’ve helped others in your selling category, if they’ve solved specific issues your brand is facing, and why they feel you are a good fit. The key is to leave the conversation feeling confident that you understand your consultants’ capabilities and whether or not they match up with your needs.

3. Wide Range of Marketplace Expertise

It’s best to pick a consultant who knows how to guide a brand onto and through multiple marketplaces worldwide. You’ll want to take a look at your long-term strategy and think about the regions and platforms you’re currently on and where you might want to take your brand in the future. If your consultant is truly great at what they do, they’ll be able to help you perform well enough with your current product roadmap that it’ll be a no-brainer to expand your presence at the right time.

4. Network of Resources

The most effective partnership with an ecommerce consultant will be able to give you both recommendations and point you to solutions for making those changes in your planning, processes, and execution. Your time and money is valuable, so you want to make sure that you’re spending it as efficiently as possible as you follow your consultant’s advice. So, before you commit to an ecommerce consultant, ask about the resources and concrete solutions they typically recommend to the brands they work with.

Achieve Your Ecommerce Goals With Pattern

Finding an ecommerce consultant that checks the boxes can be a difficult task. At Pattern, our entire focus and drive centers around giving brands the tools and resources they need to succeed on domestic and international ecommerce marketplaces. 

With over 100 global ecommerce consultants across 10 global offices, we have the right tools to partner with brands across the world to achieve better ecommerce success. We give specialized advice, then make sure our partners have all the adequate SEO, social media, CRM, Amazon multi-channel fulfillment services, and ecommerce outsourcing services they need.

Interested in ecommerce consulting services? Set up a call here to learn what Pattern can do for your brand on global marketplaces.