Hitting Your Target Amazon ACoS (TACoS)

Recently, Digiday has reported a rapid increase in Amazon’s ad revenue compared with the two giants in advertising, Facebook and Google Adwords. About 55% of online shoppers start their search on Amazon rather than browsing on Google. Amazon customers are deeply dedicated to buying products, compared to Adwords consumers who still perform research before product buying. 

Also, Amazon has been dedicated to investing in advertising technology and search advertising with sales to satisfy its customers. ACoS is highly important in Amazon pay-per-click (PPC) because it guides your advertising strategy. It projects the relationship of advertising costs against how much spending generates sales, which can significantly influence Amazon’s ad campaign success. 

What is Amazon ACoS?

ACoS or Advertising Cost of Sales is defined as the amount of money spent on advertising per total sales you make. It can also be viewed as the ratio between the total ad spend against the total sales. Amazon derived the idea of Acos from Google Ads that use Return on Ad Spend (ROAS) to quantify its revenue from advertising.  

Amazon ACoS is time-specific – it varies in results on a weekly, monthly, or lifetime measurement. It also changes at what level you are examining the ACoS percentage. It can change and be analyzed based on a keyword, ad group, or campaign level. 

How Do You Compute for Amazon ACoS?

ACoS can be computed using the following equation:

For example, if your total sales are $100, you pay $10 for the advertisement you made for your sales. This equation produces 10% Amazon ACoS. A 10% ACoS has a low percentage. 

What are the Levels of ACoS?

There are three levels of Amazon ACoS: low, average, and high ACoS.

Low ACoS = High Profits 

A low ACoS is below 25%. While most sellers aim to reach a low Advertising Cost of Sales (ACoS), it will depend on your advertising and profit goals. Sticking to a low ACoS is an excellent way to:

  • Produce more profits as much as possible
  • Sell products with low conversions and clicks
  • Handle products that do not require high visibility 

For example, for a TACoS of 10%, you spend $20 on ads for sales of $200 to get a profit of 180. 

Decreasing your Ad Spend can reach a negative value as well. Although low Ad spends can also decrease ACoS, having a low Ad budget can badly affect product visibility. You may lose the bidding in Amazon PPC when you set low bids for a usually competitive and costly keyword. 

Average ACoS = Safe Zone

An average ACoS ranges from 25% to 40%. Depending on the seller or company’s target ACoS, maintaining an average ACoS is a safe zone for bidding and product visibility. 

High ACoS = High Visibility

While low Amazon ACoS guarantees high profitability, a high ACoS ensures the following:

  • Removing a product with low sales
  • Increasing brand awareness
  • Running a product sell-out
  • Niche domination
  • Increased product visibility

For example, for a TACoS of 10%, you spend $20 on ads for sales of $200 to get a profit of 180. 

Decreasing your Ad Spend can reach a negative value as well. Although low Ad spends can also decrease ACoS, having a low Ad budget can badly affect product visibility. You may lose the bidding in Amazon PPC when you set low bids for a usually competitive and costly keyword. 

How Do You Lower Your Amazon ACoS?

Here are the best tips to have a low Amazon ACoS:

  1. Include Negative Keywords

Negative keywords are phrases that people search for and reflect disinterest in one’s business. These keywords can be unrelated or unnecessary to your products. One example is searching for blue colors instead of sticking to the advertised green-colored shoes. 

You can check your ad campaign for unrelated words or use keyword metrics like click-through-rate to find negative keywords. Once you completed your list of negative keywords, you can add them as negative keywords in Amazon Seller Central account

  1. Utilize Exact Match Keywords

Using exact match keywords tells Amazon to bid on these specific keywords instead of going into different variations of the word. For example, if you choose ‘blue women flats’, other phrases like ‘blue women flats size 7’ are disregarded. Browse on your latest ad reports and select the keywords with best profits and therefore can have dedicated or exact keywords.

  1. Approach Bid Management Proactively

A proactive bidding technique will help in the optimization of your ad spend and decrease your ACoS. Being proactive means you effectively react to fluctuations in sales and decide on ways to address the sales challenge. For example, you lower bidding for a decrease in product sales and increase bidding when you have high sales from advertising. 

What is a Good Amazon ACoS? How do You Compute for a Good ACoS?

A good Amazon ACoS depends on the seller’s intention, whether to increase profits or extend product visibility. Most of the time, lower ACoS are preferred and equate to high yields. You can determine a good Amazon ACoS by following these steps: 

Step 1: Compute for the Profit Margin of the Product

A profit margin shows how the amount collected as revenue produces profit. You can compute the profit margin using this formula:

The item cost includes all the expenses needed to sell, store, refer, and import your Amazon products. 

For example, if the value of sale is $50 and item cost is $15, the profit margin can be derived from the formula: 

Profit Margin = (Value of sale – item cost) / Value of sale

= ($50 – $15) / $50

= $35/$50

Profit Margin = 70%

Step 2: Identify Your Break-even Amazon ACoS

A breakeven ACoS is a level at which your advertising expenses are equal to your profit margin. It is the point where you either make or lose money through advertising. Determining the breakeven ACoS can help you create a budget-friendly advertising campaign.   

Break-even ACoS Calculation

Let us cite this example to compute and appreciate what a breakeven ACoS is. 

For example, we had a toy dog that has a selling price of $10. Amazon is paid $1.5 per advertising that product. We also spent $3 to create the toy dog. 

So, putting it into a computation, 

Total Sales – Total Ad Sales – Total Cost of Goods = Pre-Ad Profit per Sale or Total Ad Spend

10 – 1.5 – 3 = 5.5 

Using the formula for Amazon ACoS, if you spend all the Pre-Ad profit per sale to generate revenue, you will get the following:

Total Ad Spend/Total Sales = ACoS (%)

$5.5/$10 = 55% breakeven ACoS

It means that anything lower than 55% is profitable, and anything higher than 55% generates a zero profit. In technical terms, ACoS greater than the profit margin means profit loss, whereas ACoS lower than profit margin means profit gain. 

Step 3: Find Your Target Amazon ACos (TACoS)

To prevent incurring zero profits from your ads, you need another advertising sales measurement, which is Target ACoS (TACoS). If you want sales on Amazon, you will not spend the entire Pre-Ad Profits to generate such revenues. Instead, learn to separate a portion of your breakeven ACoS and convert it into TaCoS while leaving the rest of the profits as the target profit margin.

A target Amazon ACoS (TACoS) also influences the cost per click (CPC) of the keyword or ad group you used in your Amazon account. C

PC is computed using the following formula:

The CPC gives you an idea of how much you are willing to pay for a click of your ads on Amazon. Amazon PPC approaches CPC in the form of an auction or bidding. You can further use a bidding calculator from Ad Badger to help you give the perfect bid to hit your TACoS. 

Using Ad Badger Bid Calculator for ACoS

Use an Ad Badger Bid Calculator to determine your target Amazon ACoS. Click on this calculator. Click the File tab click the ‘make a copy’ option to edit the ACoS calculator. 

Once you created a copy of the Amazon ACoS calculator, key in the essential details (Conversion Rate, Revenue per Conversion, and TACoS)  on the orange cells at the left edge of the table. 

For example, your Revenue Per Conversion is $19 at a conversion rate of 10% and target ACoS of 30%. 

See how the calculator computes the Average Revenue Per Click and Target Cost Per Click (CPC) shown in the gray cells. The Target CPC is $0.57. It means that if you are going to pay and bid for 57 cents for every click, you can hit the 30% TACoS. 

The average CPC for Amazon Ads is $0.71. If your computed CPC is lower than $0.71, you have the best chances of getting the most revenue at a lower payment cost. 

Other Options for Hitting TACoS

Aside from computing for the target CPC in relation to your target ACoS, there are many options that you can do to reach your TACoS:

  1. Optimizing Your Product Page 

Besides achieving a high product ranking and clicks on Amazon PPC campaigns, a great product page description is necessary for revenue. A great product page content and description are vital to sustain your target customer’s attention and prevent product changing. 

An excellent product page has the following characteristics:

  • Accurate and captivating product title
  • A detailed product description
  • Top-quality product photos and videos
  • A high number of satisfactory product reviews
  • Eligibility to Amazon Prime
  1. Finding the Best Advertising Times

According to Ad Badger data, the best advertising times fall under Sunday to Wednesday, with April as the best month for advertisement. Amazon statistics further support it by having increased sales during the spring season every year. 

  1. Using an Amazon PPC Tool

There are also excellent Amazon PPC tools that can automate bidding to ensure hitting your target Amazon ACoS. Some examples include the Ad Badger, SellerApp, Sellozo, and BidX. These great tools monitor your conversion rate and TACoS while automating bidding to enable hitting of TACoS and profit increase. 

Final Tips

Advertising Cost of Sales (ACoS) is a metric used by Amazon to measure the success of the advertising campaigns that it generates. ACoS can only be as good depending on the business and marketing goals that you set, though low ACoS are preferred. 

Once you set your target ACoS (TACoS), ensure reaching CPC that aims for greater profitability and requires lesser Ad spend. Read through this guide, take a risk, and effectively hit your TACoS for a successful business campaign.  

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