Amazon ACOS - What Is It and How to Improve It

ACOS - you see it everywhere, but what is it. Advertising Cost of Sale (ACOS) is a performance metric for your Amazon PPC campaigns. Amazon offers an extensive catalog of ad options, including Sponsored Products, Sponsored Display, and Sponsored Brands. Understanding your success in every campaign is key to running a successful, long-term Amazon business, so let's get to it!

Calculate ACOS

ACOS measures your efficiency in advertising. It is a percentage of ad spend to ad revenue. The simple formula for ACOS is

Ad Spend / Ad Revenue * 100

So what exactly does ACOS tell you? It tells you how many cents you are spending to generate $1 of revenue. If you generated $1,000 in ad sales and spent $250 on ads, then your ACOS is 25%.

$250 / $1000 * 100 = 25%

In other words, for every dollar of revenue you generated, you spent 25 cents on ads to generate it. Put simply, the closer ACOS is to 0, the more profitable each click was. Though being to close to zero might mean you are not running enough ads.

How is this different than ROAS?

Well, it's basically the same thing, just inverted. While ACOS tells you how much it cost you to generate $1 in revenue, ROAS tells you how much you generated for every ad dollar spent.

Ad Revenue / Ad Spend

Both measure you ad performance and the relationship between spend and sales. Using our previous example, $1000 / $250 = 4.00. So for every $1 spent on ads, we generated $4.

Which should I use?

It really is a matter of preference, as they both give the same information. We prefer ROAS, as it provides a clearer picture to us as to what is going on. But it is still good to understand both.

How do I know if I have a successful ACOS or ROAS?

It varies across category and sub-category. Car parts are typically more expensive than office supplies, so car parts sellers can afford to have higher bids that sticky notes sellers. Below is what we found to be median ACOS and ROAS for every category.

Am I profitable? Calculate ACOS and ROAS Breakeven

Knowing your numbers and the median of your competitors is fine, but you have to know if what you are spending leaves you profitable, and what your target ACOS and ROAS are to be sure you are not losing money.

For example, if your revenue is $25.00 per sale, and it costs you $15.00 to after Amazon fees and buying inventory, how much can you spend on ads? Well, we can easily see we have $10.00 to spend to breakeven, so we just plug the numbers in.

$10 / $25 * 100 = 40% (or .40)

So as long as our ACOS is less than .40, we made money. Anything above that and we lost. At .40 is breakeven. So what about ROAS. Same thing, just plug your numbers in.

$25 / $10 = 2.5

This means as long as we generate $2.50 for every $1.00 we spend on ads, we are making money. Less than 2.5 and we are losing money.

Amazon allows us to see these numbers at various levels, from all campaigns combined, at the individual campaign level, ad group level, and keyword level. That means you should be looking at all of them. Is a campaign above your breakeven? Great! But you should still look at the ad groups to see what is pulling you down. If you find a few ad groups bringing down the average, consider turning them off and putting new ad groups in their place. Maybe you will find new winners that push your average even higher.

Do I always my ACOS as low as possible?

If a lower ACOS means more profit, doesn't that mean lower is better? Usually, but now always.

Just after a product is launched, during the honeymoon period when more sales means quicker rankings, it is worth it to accept a lower performing ACOS (some sellers don't even look at ACOS during this time, and instead just ensure their entire ad budget is spent).

You may also have an overall goal of increasing brand awareness and be more focused on impressions and CTR than actual sales. Perhaps you are about to launch a seasonal product, and you want as many people as possible to be familiar with your brand. In this case, a low ACOS doesn't matter, you are focused on impressions and CTR.

Wrap Up

ACOS (advertising cost of sales) is an important metric that measures your return and profitability on your Amazon ads. Understanding what drives ACOS and how to influence it will prepare you to face the challenges of the competitive Amazon marketplace. Just remember, you don't have to face it alone. Whether you choose us or another partner, seek professional guidance when it's needed.