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If you are going to sell on Amazon, then you need to become familiar with the term Advertising Cost of Sales, or ACOS for short. If you are using the Amazon display network (and you really should be) to help get yourself visible in the Amazon search engine, then you must know how much those sales are costing you.
What Does ACOS Mean?
On this page, we will only be talking about Amazon PPC ACOS. One can use the Amazon ACOS formula with any advertising campaigns you are running on any advertising network. Let’s just assume that this metric only applies to Amazon PPC.
This term simply means how much money you need to spend on Amazon PPC regarding your sales. Let’s go with a simple example here:
· You spend $40 on Amazon PPC advertising
· You generate $200 in sales from that spend
We now need to do a little bit of simple math here:
· Divide the ad spend by the total number of sales you make
· Multiply this number by 100.
In this example, around 20% of the total sales that we make are covering the costs of advertising. Knowing ACOS is vital for you because it will allow you to work out your profit margins. After all, if you make only 10% profit on a product before you factor in advertising and Amazon fees, you would actually be making a loss here. You will be surprised at how many people fall into that trap.
What is a good ACOS for Amazon PPC?
That’s a difficult question to answer. Some people make a huge amount of profit with a high ACOS. In fact, you may be surprised to know that the average ACOS on Amazon borders on 30%. If you are around that figure, and you are still making a profit, then you are doing well for yourself. Of course, reducing your ACOS should always be an aim for you. After all, the lower your ACOS, the more profit you will make.
Most people suggest that you should have a target ACOS of somewhere in the 10% to 15% range, although even creeping up to 20% would mean that you are doing a brilliant job with Amazon PPC. Of course, you will need to work out what a good ACOS is for you. You do need to be aware that some of the keywords you can bid on will not work with a low ACOS, but as long as your profit remains high, this shouldn’t be that much of an issue.
There is no certain benchmark for a good Amazon ACOS. However, there’re several guiding principles. Firstly, a lower ACOS indicates higher returns – it means you’re spending less on ads per sale.
Secondly, your break-even ACOS should equal your item’s profit margin. If your metric is higher than the profit margin, you are spending more on advertising goods than you’re getting in profits from selling them. It is obviously not a sustainable long-term model.
When a High Amazon ACOS Doesn’t Matter
Let’s begin with a simple example of a situation where high ACOS sales are not necessarily bad.
An AMZ merchant is offering Scratchable World Maps. The ones where you have to scratch off some country after visiting it, discovering the world. This item is rather a seasonal one. You get good sales during gift-giving events such as Christmas. It means it is really necessary to approach this hot time as well prepared as possible when it comes to AMZ Best Sellers Rank and inventory.
The strategy one can successfully apply to this item is the following: running AMZ Sponsored Product PPC campaign at a loss during the low season. The seasonal ACOS for the maps is below:
- Low-season: 55-70%
- High-season: 15-20%
- Break-even: nearly 35%
Almost three-quarters of the year is low season. But still, consequent high-season purchases compensate for the losses of five times. It is due to the items getting on top of the AMZ Best Sellers Rank at the proper time.
This example shows that it is vital to think about your overall goals for your Amazon PPC sales.
Yes, most of the time, advertisements are used just to generate additional product sales, and maintaining ACOS low is the right business goal. However, when you’re trying a new item, making a new PPC campaign, or just warming up before the high season, it’s better to reconsider this thinking.
Conducting PPC on Amazon at a high ACOS over a monthly period (common reaction time for new BSR ranking to settle) can be beneficial to your overall profits in the long run. Your organic sales and PPC can more than cover all losses in the upcoming seasons.
Okay, so we have discussed the examples when a high Amazon ACOS is beneficial or at least acceptable. Now let’s glance at acquiring low ACOS sales in the marketplace.
How to reduce ACOS on Amazon
With the following tips, we are going to teach you how to decrease ACOS on Amazon. You can think of this as a step-by-step guide for ensuring that you have the lowest possible ACOS.
Know your “profit per product”
Before you even think about lowering your ACOS, you need to think about the current price of your product. You need to know the following:
· How much you pay for the product
· How much you are selling it for
· What the Amazon fees are
This will allow you to work out how much money you make per product. You want to ensure that even when you are factoring advertising fees, you are still making a profit. After all, you do not want to be making a 5% profit on your sales but have 20% of your total sales going towards advertising, do you? You would be making a loss!
Research your keywords
Before you start building your Amazon campaign, you need to do a bit of keyword research. How you go about this isn’t going to be all that different to any other advertising network. Just think about what you want your products to rank for. If you can make your keywords as specific as possible, then this is a plus. Take this rather simple example. Let’s assume you are selling dog beds.
· Keyword: pet supplies
· Keyword: dog beds
· Keyword: dog beds for small dogs
You can rule pet supplies out as a suitable keyword. It is too broad. The majority of people that search for keyword are not going to be in the market for dog beds. The conversion rate will be low, sending the ACOS sky high. Dog beds is good, but maybe still a little bit too broad. The final keyword is perfect. It is highly specific, and you should get a decent conversion rate on that.
Now, we are not saying that you shouldn’t go for the general keywords. They can work. But you should be careful in order not to spend all your budget on broad keywords.
You can also research your competitors. If you hunt around, you can get special pieces of software that allow you to search for the keywords your competitors are using. Why not copy them a little bit? After all, somebody else has done the hard work and proven what works, right?
Build your Amazon PPC campaign
The next step is to start building your Amazon PPC campaign. We are not going to go into the intricacies of building up your campaign. Amazon provides plenty of information on doing that. We are, instead, going to talk a little bit about how you can reduce your Amazon ACOS when you make your campaign.
For starters; we always recommend that you build a manual campaign. It is a lot more hoops to jump through, and it can be quicker to make an automatic campaign, but we do find that ACOS tends to be lower when you build everything from the “ground-up.”
You should already have your keywords, so this shouldn’t be that much of an issue. Tap them into the system and Amazon will give you a rough idea of how much it will cost per click on each of them. Try to stick down the lower end of the bid range. Yes. Your ad will be clicked less but if you have selected relevant keywords, this won’t matter too much. When your ad gets clicked, you will enjoy a high conversion rate with a low cost. This means a lower ACOS!
You will also want to set up a few negative keywords here too (if you are going for broader searches). These are keywords that you do not want to be found in the search engines for. These will generally be keywords that are not relevant or do not make you any money. As you make more money with your Amazon campaign, you will get a feel for which keywords should be thrown to the wayside.
Optimize your Amazon product page
Everything else about your campaign could be perfect, but a poorly converting page could cost you money.
Monitor your campaign
You can’t just set up a campaign and leave it alone. You need to monitor it. You will need to tinker with keywords over time. You will need to work out which products are not converting well and work out why. You will never, ever have the perfect campaign. This is impossible. However, constant tinkering and testing will lead you ever closer to the ideal ACOS.
ACOS is everything when you are advertising your products on Amazon. Do your best to ensure that you have the lowest ACOS possible, and this will lead to greater profits. This means more funds to expand your business which can lead to an even higher income!