Calculate and Improve Amazon ACoS KPI

Amazon's global ad revenue is set to hit a massive$26 billion by 2022 - and its growth isn't slowing down. In fact ad spend in the US alone is expected to reach$30 billion by 2023.

With advertisers spending more the platform's average CPC is rising fast. In 2021 it increased by over 50%. As competition heats up it's easy to lose track of your ad spend and bid too much.

Luckily there's a simple metric that can help brands understand exactly how much they're spending and earning with Amazon advertising. Here's our guide to Amazon ACoS.

Amazon ACoS

Amazon ACoS is a key metric used by marketers to assess the performance of their Amazon Advertising campaigns. ACoS stands for Advertising Cost of Sale and is used to express ad spend as a percentage of your sales revenue.

Amazon ACoS helps brands understand how much of the money they earn goes towards advertising. So if your Amazon ACoS is 30% this means 30c of every dollar you earn is spent on Amazon advertising.

Amazon ACoS measures the efficiency of your advertising campaigns. You can also use it to assess individual keywords.

While you can calculate ACoS for all your PPC campaigns ACoS is particularly important for Amazon advertisers. This is because they have access to accurate sales and ad data that can be used to measure it precisely. This isn't always possible on other ad platforms.

How do you calculate ACoS on Amazon?

You can calculate ACoS for your campaigns by dividing the money you spend on Amazon ad clicks by the amount of Amazon sales these ads generated. You then multiply by 100 so the metric can be expressed as a percentage.

Amazon ACoS= Total Amazon Ad spend / Total Amazon Ad Sales x 100

For example let's say your Amazon sponsored product ads generated $4000 worth of product sales over the past 30 days but these ads cost $1000. We can plug these figures into the ACoS marketing formula.

Amazon ACoS= 1000 / 4000 x 100 = 25%

This means it costs you 25c to generate $1 worth of sales. Or $25 to generate $100 worth of sales.

Luckily you don't have to calculate the ACoS of every ad you run. You'll find an ACoS column in your Amazon advertising metrics.

Factors that determine a target Amazon ACoS

First of all it's important to understand that there is no such thing as a good or bad ACoS. Each brand's ACoS advertising target will vary depending on their profit margins goals and many other factors.

This makes it extremely difficult to benchmark your Amazon ACoS against other sellers. However according to Ad Badger the average Amazon ACoS currently stands at 27%. So this may be a good goal for beginners.

When to set a low Amazon ACoS target?

Most sellers want to have a low ACoS because it means they're generating a lot more money than they spend on ads.

However this doesn't always signal campaign success. For example you could have an ACoS of 1% - which means you spend just $1 to generate $100 worth of sales. This sounds great but if you only spent $1 for an entire month your ads are probably underperforming. While you may get value for money you'll miss out on a lot of sales.

To increase profits brands should aim to lower the ACoS of established ads. They can also set low ACoS targets for products with low conversion rates.

When to set a high Amazon ACoS target?

Products with a high ACoS get a lot of visibility. This is good if you want to increase brand awareness or dominate a product niche.

It's also worth spending more on advertising if you're trying to shift deadstock or gain momentum for a new listing. Many sellers are willing to run ads with a high ACoS to build awareness of their products in the run up to a busy shopping period like Christmas.

Running high ACoS ads for three or four weeks can also help your listings reach the Amazon Best Sellers Rank. This will then increase your Amazon sales organically. So high ACoS ads can be part of an effective strategy.

5 tips to lower your ACoS advertising metrics

Once you have your ad campaigns and product listings established you should try to lower your Amazon ACoS. Here are five tips to help boost your profits.

1. Monitor your stock levels

When a product runs out of stock on Amazon any ads promoting it automatically become ineligible.

However this change won't be highlighted in your advertising dashboard. You won't see any alerts at campaign level or ad group level. Instead you'll need to check individual product ads.

This is problematic because the moment an ad becomes ineligible your sales Best Seller Rank and organic keywords all start to decline. So it's a good idea to use a Digital Shelf Analytics Tool to set stock level alerts and prevent stockouts.

2. Boost your ratings and reviews

When choosing which ads appear in its search results Amazon considers ad bids. But it also prioritizes high quality listings that are likely to please its customers.

If you can increase a product's positive ratings and reviews your sponsored ads should be shown to more shoppers. This is a great way to boost visibility without increasing your ad spend.

Reviews and rating should also increase trust and drive up conversions which will lower your ACoS too.

3.Optimiseyour product pages

High quality product pages drive up conversions. And the more sales your ads attract the lower your ACoS will be.

So be sure to write clear accurate and detailed descriptions for each product. You can also use your Amazon Brand Analytics to spot incomplete listings. High quality images and videos should boost conversions too.

Discover more tips in our article on product page conversions.

4. Improve your bidding strategy

While lower bids tend to result in a lower Amazon ACoS it will generally lead to less impressions clicks and sales too. So it's important to strike a balance.

Brands should use Amazon's suggested bids for guidance. Then to maximize your Amazon ACoS you can increase keyword bids for high-converting listings. You can also reduce your CPC for listings with low conversions while you optimize their product pages.

5. Conduct in-depth keyword research

Implementing 'exact match' and 'negative' keywords will prevent your ads from appearing in irrelevant search results. This should reduce the number of clicks that don't end in conversion and lower your Amazon ACoS.

You can also use the Search Terms Report in Seller Central to assess the performance of your keywords. You can even sort the data by ACoS. Raise bids where you have low impressions alongside a high CTR. You should also pause any keywords that have an unprofitable Amazon ACoS.

Check out our eCommerce keyword research tips for more guidance.

Final thoughts

Amazon ACoS is a useful metric that can help you understand the overall performance of your PPC campaigns. However viewed in isolation it can be misleading. So be sure to monitor your ACoS alongside a range of other eCommerce KPIs. This will allow you to accurately assess your campaigns and make smart decisions for your business.

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