ACoS is the acronym for Advertising Cost of Sale and it is a metric used by Amazon in their Amazon PPC/AMS ads. If you haven’t run Amazon Advertising campaigns before, you might have not heard about this metric until now and may be more accustomed with something like ROAS.
In simple terms, ACoS tells us what % of our total sales we spent on advertising. It is the ratio of ad spend to ad sales.
As a key principle, the lower the ACoS, the more efficient your campaigns are.
How to calculate ACoS?! What is the formula for ACoS?!
ACoS is expressed as a percentage (%) and it can be calculated using this formula:
ACoS = Ad Spend ÷ Ad Sales * 100
How to use ACoS?! How to calculate a break-even ACoS and a target ACoS?!
It’s a dangerous thing to use ACoS alone as a metric to determine the success of your campaigns. On top of this, a good ACoS is rarely the same for 2 different brands. So we recommend you do the following two things:
- Calculate a break-even ACOS and a target ACoS.
- Use other metrics together with ACoS to determine the success of your campaigns (CVR – conversion rate, CPS – cost per sale).
Break-even ACoS is equivalent to your overall profit margin. It is the percentage of profit that you are left with after deducting all of your costs: product cost, shipping cost, Amazon fees & any other costs. Just as the name says, if the ACoS from your ads is the same as your profit margin, then you are not making a profit, but breaking evenly (which sometimes suits some brands depending on their objectives).
Target ACoS is usually lower than the break-even ACoS and it is what you decide to set as an objective for your campaigns.
For example, if your profit margin after deducting all of your costs is 30%, then “to break-even”, your break-even ACoS is 30% (the same as your profit margin).
Define your target ACoS based on your objectives. If you wish to make a profit, then set it to anything below your break-even ACoS (< 30% based on the example above).
We’ll leave you with this: the lower the ACoS is, the more profit you will be left with.
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