How to analyze your advertising campaign’s ACoS on Amazon
ACoS: What is this acronym that you’ll need to add to your already long Amazon Vendor and Seller glossary? No need to panic; this article will help you decode everything you need to know in order to maximize the efficiency of your Amazon advertising campaigns.
Understanding your ACoS
ACoS stands for Advertising Cost of Sales. It’s a key performance indicator on Amazon, which measures the percentage of sales spent on advertising within a specified timeframe for a type of ad campaign.
You can calculate your ACoS with this simple formula:
ACoS = ( Amazon Ads Spend / Ad Revenue ) x 100
ACoS can be used to determine success across all your Amazon ad campaigns even when your products are bringing in different revenue per unit sold. It can even be more helpful in your Amazon marketing service campaigns than calculating the common CPA (cost per acquisition) metric.
On the other hand, RoAS is still the most commonly used metric on other platforms (not in terms of expenses but rather profit -> ROAS of 10 = for €1 spent, €10 of gains).
The only difference between ACoS and RoAS is that you take into account your advertising budget as an integral part of your CoGS (Cost of Goods Sold).
In short, ACoS is the inverse fraction of ROAS (sales revenue ÷ ad spend).
Calculating your break-even ACoS
Break-even ACoS is the point where your advertising cost is equal to your profit margin. It’s precisely a percentage that answers the following question: “What’s the tipping point at which you start incurring losses?”
Well, essentially, won’t lose money on your ad campaigns as long as you don’t spend more than what you’re earning in ads expenses. Thus, calculating your break-even ACoS is important in figuring out your Target ACoS.
Break-enven ACoS = Profit Margin vs ACoS
What is Target ACoS?
Your Target ACoS is the maximum advertising cost of sales your campaigns should reach to remain in your target profit margin.
The Target ACoS is the difference between the maximum you can spend (break-even ACoS) and what you want to keep (target profit margin).
To calculate the Target ACoS, subtract your target profit margin from your break-even ACoS.
Target ACoS = Target Profit Margin - Break-even ACoS
If you want to be profitable, it’s not recommended to spend all of your Pre-Ad Profit to boost your sales.
What does Amazon TACoS mean?
Amazon TACoS stands for the total advertising cost of sales. It measures your advertising spend proportionate to the total revenue generated by the sales of your product.
TACoS has started to gain traction recently as a key performance metric in the eCommerce industry as it gives you insight into how your Amazon PPC ads are performing and directly affecting sales.
How to calculate your TACoS?
To work out your TACoS, you divide your total advertising budget by your total product sales revenue and then multiply it by 100. This what the formula to calculate your TACos should look like:
TACoS = ( Advertising Spend / Total Revenue ) x 100
With this formula, you’ll be able to decide how influential your advertising is in the goal to drive sales.
How to identify if you have a good Amazon TACoS
Sellers and Vendors worry often about the performance of their Amazon ads. If were specifically talking about TACoS, the rule of thumb is: the lower the better:
- A low TACoS rate means that your brand is growing and that your advertising campaign is influential in the drive to increase product sales.
- A high TACoS rate means your advertising campaign isn’t effective and that it needs to be optimized (new bids, new products or new keywords).
Some tips to boost your ACoS from your Seelk experts:
At Seelk we think there are several things you can do to help your campaign reach its full potential:
#1: Keep an eye on your stock:
The stock and availability of items put on sale are key for the life expectancy of an ad campaign on Amazon. If there’s no stock of the item, then the ad campaign will be terminated.
The “shoppability” of your products such as fast delivery time will also have an impact on your ads performance.
#2: Make sure your product pages standout
Once you bring customers to your product page thanks to your ads, you want to maximize conversion. Make sure you have “perfect product pages” with enhanced content to impact consumers enough to make them buy.
#3: Boost reviews on your product page
Take steps to climb the Amazon ranking, including boosting positive reviews for your products. To boost reviews and sales on your product page, Amazon’s Vine program is highly recommended.
#4: Don’t forget to structure your ad campaign:
Your ad campaign needs to be structurally organized in terms of product segmentation and product line so that you can accurately filter your keyword bids to boost your campaign’s PPC rate and attract as many consumers as possible to visit your item’s product page.
#5: Optimize your selection of keywords
Check your keyword selection and make sure to include the most relevant keywords in each ad group that matches your target customers’ intent for the given products. With specific keywords, your ads can attract most traffic for a higher conversion rate and, consequently, a lower ACoS. Depending on whether you’re targeting a lower ACOS, then you’ll want to either use weak or strong keywords that match with your product’s description.
The bottom line: there’s no real way of analyzing an ACoS over another because it comes down to personal ad strategy, product category and revenue. Generally when someone says “good ACoS,” they typically mean low ACoS for maximum profitability.