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What is Advertising Cost of Sales (ACoS) and How to Calculate ACoS for Amazon PPC?

Amazon is among the largest e-commerce platform in the world. And to survive in such a competitive marketplace, sellers use Amazon’s paid advertising tool called Amazon Pay-Per-Click (PPC). Through these tools, sellers advertise their products on the Amazon platform to drive traffic and get sales.

Table of content:

  1. What is ACoS and How to Calculate ACoS?
  2. To calculate the ACoS
  3. What Does RoAS Mean?
  4. What is Good ACoS?
  5. Understanding of Amazon Standards to Measure Good ACoS 
    1. (5.1) Profit Margin
    1. (5.2) Break-Even ACoS
    1. (5.3) Calculate Break Even ACoS
  6. Tips to Reduce ACoS
  7. Difference Between ACoS & TACoS
  8. Conclusion

1. What is ACoS and How to Calculate ACoS?

Advertising Cost of Sales (ACoS) is a metric to calculate the amount spent by sellers on advertising campaigns to get sales. Amazon ACoS is among the key performance indicators (KPIs) of Amazon to measure the performance of the campaign. It also helps in deciding Amazon’s advertising strategy. The formula to calculate ACoS is:

ACoS Formula

To elaborate: let’s suppose XYZ spent $700 on the advertisement and in return, XYZ received sales of $2500. The sales of $ 2500 are only generated from the amount spent on the advertisement (organic sales are not included). In this case, ACoS will be:

ACoS Calculation

ACOS helps to measure the performance of Sponsored Product ads on Amazon. To study sponsored Product ads click on the link: https://mirwaseem.com/how-amazon-pay-per-click-campaigns-work/

3. What Does RoAS Mean?

Return on Ad Spend (RoAS), is the inverse of ACoS. To calculate RoAS, reverse the formula of ACoS. RoAS is used in broad terms, whereas ACoS is related to the Amazon Platform.

ROAS Formula
Calculation of ROAS

For every dollar spent on ads, $ 3.5 revenue is earned.

4. What is Good ACoS?

There is no defined number for good or bad ACoS on Amazon. It depends on different variables like niche, company size, campaign frequency, and other variables. As per Amazon PPC Expert, ACoS below 30% is counted as good.

Note: Amazon has not defined any specific number for good or bad ACOS.

5. Understanding of Amazon Standards to Measure Good ACoS 

Amazon measures a good Amazon ACOS by understanding the following components.

  • Profit Margin
  • Break-Even ACOS

5.1 Profit Margin:

Profit margin indicates how many dollars of profit have been generated for each dollar of sales. Profit margin is the difference between the sale price of a product and all expenses/costs involved in the Product. To calculate the Profit margin formula is as:

Profit Margin Formula

Example: The selling price of a product is $25 and the total cost incurred to produce a product is $18.

Profit Margin Calculation

5.2 Break-Even ACoS:

Break Even ACoS is a point where your either start to earn money or lose money. Break-even ACoS is directly linked to your profit margin. Rule of Thumb:

  • ACoS is higher than your profit: loses Money (you are spending more on ads than you are earning).
  • ACoS is lower than the Profit margin: Makes money. 

5.3 Calculate Break-Even ACoS:

To calculate break-even ACoS:

  • Calculate your ACoS
  • Calculate your Profit Margin

Compare your ACoS with Profit Margin

6. Tips to Reduce ACoS

  • Negative Keyword Targeting: Use negative keyword targeting to save bleeding on irrelevant keywords.
  • Optimize Product Listing
  • Adjust keywords bids to ensure that you are not paying too much on pay-per-click.
  • Use a fixed bidding strategy with high-performing keywords to control bidding.

7. Difference Between ACoS & TACoS

TACoS Amazon is the Total Advertisement Cost of Spend. ACoS is related to specific one campaign whereas TACoS is the total spending on advertisements. To calculate TACoS:

TACoS Formula

8. Conclusion

ACoS is among the key performance indicators of Amazon PPC. It helps to measure the performance of campaigns. It also helps to drive Amazon’s advertising strategies. 

ACoS varies from campaign to campaign because every Amazon PPC campaign has a different goal. To achieve the campaign goal sometimes ACOS would be higher.   

To study, how I manage to lower the ACoS of my Client’s product kindly view the below-mentioned report.

Also Read

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