What should your ACOS be?
March 12, 2022
Let’s start with the ACoS definition
ACoS stands for advertising cost of sales. It is spend divided by sales represented as a percentage and therefore low percentages mean higher profits.
The relationship between sales and ACoS
ACoS and sales are very much connected. To explain this, you need to understand how Amazon’s bidding system works.
We can ignore the complicated factors that can change how much each seller pays for a particular bid – covered in our Amazon PPC bid management article.
This leaves the basic concept of Amazon’s bidding system.
In essence, it’s an auction system. The more you pay the higher (better) placement you get which means more traffic and more sales. However you will also be paying more. Therefore the relationship between ACoS and sales looks something like the below graph for most products:
It’s a fairly linear relationship where the more you bid, the more sales you get.
The less you bid, the lower your ACoS.
But the top and bottom ends of the spectrum are where it gets interesting…
There comes a point where bidding more will not increase sales. This is because you already have the top position, or you are competing with much bigger sellers. Therefore, it becomes counterproductive, because your conversion rate isn’t good enough for the bid value to be viable.
The bottom end is similar. This is because the lower the bid, the lower your ad placement. The later pages in Amazon search results tend to get worse conversion rates, leaving you with lower sales without a lower ACoS.
What should my target ACoS be? The real formula for ACoS:
Looking for a formula for ACoS? This question above can best be answered by breaking it down into the following three areas.
If you’re in the ‘Launch’ phase
If you’re starting out, the goal should be to spend as much as you can.
Clicks matter nearly as much as sales at this point. So you want to run at the highest ACoS you can afford.
The reason being, is that clicks will show interest in your product. What’s known as the “honeymoon period” is generally considered to be somewhere around the first 2-6 weeks of launching. During this time, you’ll get increased results compared to any other time.
High page views shows interest which means you’re more likely to be recommended as an alternate product on competitors products. Therefore, you have a higher chance of being added to an Amazon email re-marketing campaign.
All of this really means that the aim is to get exposure to your product in order to help drive up your organic rank position, as fast as possible.
If you’re in the ‘Growing’ Phase
If you’re already past the initial launch phase and you’re looking to grow your sales, then the best option is to run at around a breakeven ACoS.
What is Breakeven ACOS?
Breakeven is where you run your ads at an ACoS that matches your profit margin. In other words, you make no money. But you don’t lose money either.
For example, if you have a $20 product and after all the Amazon fees and product costs, etc. you make a net profit of $5, then your profit margin is 25%. Therefore, you want to run your ads at 25% ACoS.
The reason for this is that you want the maximum amount of sales that you can achieve, without losing money. Therefore it is sustainable.
If you have the budget, it can be worth pushing for a slight loss just to get that increased traffic. However in general, it’s best to be more tactical about this. For example, pick specific keywords that you know you have a better chance of ranking well for.
The idea being that getting sales due to that specific keyword, will help increase your rank for that keyword. The other option is to start targeting competitor keywords in order to try and drive up your market share by taking sales from them. There are the obvious brand keywords you can target, but it is also worth using the brand analytics tab if you’re brand registered.
A closer look at the brand analytics tab in Amazon:
Once on the brand analytic tab, enter a competitor ASIN and it will show you the keywords that they are ranking highest for!
Targeting these keywords can be another way to take market share from competitors, because you know they are getting sales from them. So therefore, any ads you put on these keywords will help to drive sales towards your product instead of theirs.
If your product and brand is already ‘Established’ on Amazon
Once you have an established product, it’s time to start tapering down the ads for a profit.
It’s important to pay attention to the graph at the beginning of this article. In essence, you want to put yourself towards the lower-end of the ACoS. Equally though, you don’t want to push too low for ACoS and consequentially start exponentially losing sales.
Finding this delicate limit can be tricky. It will vary between campaigns.
Generally, branded campaigns will run at a much lower ACoS (sub 10%). Refer to our ‘Why & ‘How To’ run Branded Campaigns on Amazon’ article.
Whereas, generic keywords will be slightly higher and vary greatly depending on the market.
The best way to find out where your limit is, is to very gradually target lower and lower ACoS levels until you see a big drop off in sales.
You will know when you hit that limit because the drop in sales will be very obvious. At this point, just scale the ACoS back up a couple of percent, and target that level.
Once you’ve reached this point you’ll need to start implementing more advanced tactics, like the competitor targeting campaigns mentioned above. Equally, you should be specifically targeting keywords in order to gain organic rank with those.
There are even more advanced & technical practices that our Amazon PPC Management consultants can support you with, whichever stage of your Amazon selling journey you’re at. Get in contact with our team for further support and consultation.