Amazon ACoS: Learn The 3 Ad Metrics that are Important
Maintaining and increasing your Amazon sales channel requires you to have a profitable Amazon advertising presence. Amazon advertising has evolved from a "nice to have" to a "must have" component for any firm serious about selling on Amazon since its launch in 2014. Advertising cost of sales (ACoS) is not the be-all, end-all ad expenditure measure to focus on, and prioritizing ACoS percent without considering other metrics might be detrimental to your Amazon ad campaign's long-term sustainability. Don't get me wrong: ACoS is a critical measure that we track on a regular basis. However, as part of a healthy overall Amazon account, it's just one of many aspects that go towards the success (or failure) of any advertising effort.
Advertising Cost of Sales (ACoS) The relationship between your ad spend and the revenue generated by that spend is known as ACoS. Don't worry, ACoS is simple to grasp once you've read the formula.
Cost over sales is the methodology for calculating your ACoS. × 100. You can also use Amazon ACoS Calculator to Plan PPC campaigns with actionable insights and also Calculate product profitability, break-even ACoS, and target ACoS before your PPC launch.
So What Is a Good ACoS? When everything else is equal, you want to lower your ACoS as much as possible because it implies that every dollar, pound, or euro you spend generates more ad income. This may appear to be the 'no-brainer' best possible result for any campaign, but ACoS isn't the only measure to consider. Other factors that influence ad performance and strategy include: ● ● ●
Holidays, seasons, and current events Product quality, age, and history are all listed on the product listing. The ever-changing competitive landscape
Despite the fact that it may seem counterintuitive, these characteristics may lead to campaigns with greater ACoS percentages that are nevertheless successful on Amazon. Because external causes influence the advertising cost of sale %, it's possible that a certain keyword, campaign, or even your entire account performed one way last month but will perform differently this month owing to reasons beyond your control or influence. Because numerous campaigns are intended to fulfill different purposes, it's common in large accounts with dozens or hundreds of campaigns to have a wide range of ACoS percentages within them. When looking at this statistic, it's crucial to know what you're optimizing for, what the campaigns' goals are, and at what level and time frame you're looking at your data.
What affects ACoS? ACoS is influenced by several hard mathematical facts. Conversion rate, cost per click, and product sale price are the major three. If any of those values are out of whack, for example, if the conversion rate is low owing to a poorly optimized listing, the ACOS calculation will be off, regardless of whether the other two are optimized and on target. So, in addition to the campaign's goals and timeline, you must also keep track of:
Conversion Rate Your ACoS % will be better if your conversion rate is higher. The Product Detail Website has an impact on conversion rates, and as no product on Amazon is seen in isolation, so does your direct competitor's page.
Product Price The more lenient your ACoS percentage computation is, the higher your product's sale price (what the customer pays). Because they are expensive, some products with a high retail price can receive an ACoS percentage that appears wonderful. However, their conversion rate and CPC (cost per click) may be low.
Cost Per Click What you pay each time a customer clicks on your advertisement. Your rivals and the bid auction procedure have a big role, but so do product relevancy and performance history. In some categories, the CPC is so high compared to the product price that making money from ads may be difficult without extremely high conversion rates. A low ACoS % is generally desirable and a positive sign of a thriving Amazon ad campaign, but there are situations when ad managers may purposefully seek for a larger ACoS percentage to fulfill other objectives.
Blended ACoS We prefer the term blended because this statistic combines ad spend and total revenue, not just ad revenue, and we reserve the term TACOS for Target ACoS, which we ask clients about during onboarding. When you Google the terms 'blended ACoS' or even 'TACoS Amazon,' you'll be astonished at how few results come up. However, we believe it is a critical criterion for analyzing the overall importance of advertising in your company. Larger Amazon firms, in our experience, pay just as much attention to and optimize for their Blended ACoS as they do for their ACoS. This is because blended ACoS takes into account organic sales and looks at the big picture, whereas advertising-only ACoS merely looks at one aspect of our ad performance. As a result, blended ACoS can take your profit margin into account. Blended ACoS allows you to track the total impact of advertising on the business over time and determine the influence of advertising on improving organic Amazon sales.
Attributed vs Overall Revenue The final metric in the "big three" is a simple percentage calculation: what percentage of total sales is ascribed to advertising revenue. Advertising sales should make up about a quarter to a third of total revenue, with too high a percentage indicating that the business is overly reliant on advertising for revenue, and too low a percentage indicating that the business is not advertising enough and thus missing out on exposure and revenue. Assume that overall sales are growing while the percentage of sales related to advertising remains stable. That means ad sales are increasing in tandem with general growth. This is a strong indicator that advertising is playing a role. However, if your attributed sales are increasing while your clients' organic purchases remain steady or even decrease, your ad sales may be replacing their organic purchases. Tracking your attributable percentage will alert you when it's time to update and adjust your advertising approach in order to avoid becoming overly reliant on ad expenditure. If your attributed sales percentage is greater than 35%, you should carefully assess what function advertising plays in your organization; if it's more than a majority of your overall sales, your company is relying too heavily on advertising.