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What Is ACOS? And How Do I Calculate Amazon ACOS?
ACOS, or Advertising Cost of Sales, is how much you spend on advertising per dollar of revenue you make. It can also be seen as the ratio of ad spend in contrast with the target sales.
Your Advertising Cost of Sales (ACOS) is extremely important in Amazon PPC. It’s a key metric that guides your Amazon advertising strategy.
Your ACoS is a measure of success, a fickle percentage that decides how you bid on search terms. In Amazon PPC advertising, ACOS is everything.
But what makes a good or bad ACOS on Amazon?
There's no such thing as a good or bad ACoS!
There, I said it. There’s no such thing as good or bad ACOS.
No such thing, like the John Mayer song. That’s just one badger’s opinion (even though it’s the right one). Sometimes we wonder if ACOS is a vanity metric. Sometimes saying that blows the minds of Amazon sellers like the ending of Fight Club.
ACOS is a complicated topic and a grey area for many sellers. Let’s illuminate the topic now.
What Is ACOS? And How Do You Calculate Amazon ACOS?
First, let’s explain the classic method for calculating Amazon ACOS, and then we’ll explain the newest formula (developed in 2023) after.
The ACOS definition is simple. ACOS, Advertising Cost of Sales, is how much you spend on advertising per dollar of revenue you make.
You can also think of ACOS as the ratio of ad spend in contrast with the target sales.
Calculate your ACOS with this formula: ACoS = Total Ad Spend / Total Sales.
Here’s a good example of an ACOS calculation: If your ACOS is 25%, then that means you paid $0.25 for every dollar you made, or $25 for every $100 you made (we’re only considering Ad Spend here, not production costs, Amazon fees, etc.).
Amazon ACOS is a critical measurement of your campaign’s success.
If you’re an experienced PPC marketer, you may realize Amazon took this idea from Google Ads which uses Return on Ad Spend (ROAS). Here are some more tips on Amazon PPC vs. Google Ads.
Check out this video made by Ad Badger’s CEO, Michael Facchin, to learn even more about the meaning of ACOS on Amazon:
Cool shirt right? I picked it out for him. It reminds me of my home in the Serengeti (actual footage of me in the Serengeti).
What’s the newest formula for calculating Amazon ACOS?
If your question is, “How do I calculate my Amazon ACOS?” The obvious answer is the formula: total ad spend / total sales.
But you might have more questions when calculating your Amazon ACOS. You may need to know how conversion rate affects Amazon ACOS and even mathematically forecast future Amazon ACOS. You’d need a new formula to get this multidimensional view of your Amazon ACOS.
If you’re thinking, where do I get that formula? Well, Elizabeth Greene from Junglr developed a new Amazon ACOS forecasting formula that can help you get a deeper understanding of your Amazon ACOS.
Are you ready for the new formula? (Drum roll, please!)
Here’s the formula:
Let’s break down the newest formula for forecasting and calculating Amazon ACOS.
Conversion rate significantly impacts your Amazon ACOS, but up until now, with this new formula, you couldn’t quantify how much of an impact a change in conversion rate has on your Amazon ACOS.
For example, if your conversion rate goes down two points, you can’t tell how that impacts your other metrics, Amazon ACOS included. If your Amazon ACOS changes, you still have to diagnose it to understand why it’s happening.
This new formula makes it easier for you to identify why your Amazon ACOS is changing.
You can break down your Amazon ACOS into individual components which are more actionable when you want to adjust it.
Can Amazon PPC Influence Conversion Rate?
The simple answer is yes, Amazon PPC can influence Conversion Rate.
Amazon PPC and conversion rate have a symbiotic relationship. Amazon PPC has an indirect influence on conversion rate.
You can set up your keywords a certain way to facilitate higher conversion rates, but Amazon PPC doesn’t change your product performance. Amazon PPC helps you get more eyeballs on your product, but if the product itself is not a good product fit, your conversions might not improve.
The other side of this Amazon PPC – conversion rate symbiotic relationship is conversion rate influencing your Amazon PPC ads performance. This ties back to the conversion rate impacting your Amazon ACOS. A highly converting listing will positively impact your Amazon PPC campaign performance.
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How Do I Calculate Amazon ACOS With This New Formula?
Let’s say you have 30 days of performance data. Your average CPC is $1, your average conversion rate is 10%, and your average order value is $25. That gives you a 40% Amazon ACOS.
Now let’s say you want to lower your Amazon ACOS to 35%. You type in your target Amazon ACOS in the Forecasting section of the formula. It’ll calculate the conversion rate and CPC needed to achieve the target Amazon ACOS.
In this case, to achieve a 35% Amazon ACOS, you would need to increase your average conversion rate to 11.43%. That’s a 13% increase. You’d also need a CPC of $0.88, which would be a 14.29% decrease from your current CPC.
When Should I Use This New Amazon ACOS Formula?
The new Amazon ACOS formula would be helpful if you’re running high Amazon ACOS and struggling to bring it down.
Let’s say you’re running about 100% Amazon ACOS, you have a low average order value, and CPC is through the roof. You’re left with no traffic every time you bring your Amazon ACOS down because the bids are too low. In this scenario, you can plug the numbers you need to break even, and the formula would tell you the CPC you need to get there.
If you are not running high ACOS on Amazon, stick with the original, tested and true formula.
Now that you understand ACOS meaning, we need to cover how to optimize your advertising cost of sales to improve your profit margin.
How To Use Amazon ACoS On Seller Central
Something Michael touches upon with data is that segmentation is everything.
To do this, first, you need to navigate to Seller Central and find the ACoS column.
When looking at your ACoS in Ad Badger or Seller Central, you can segment your data at the account, campaign, or ad group level.
Here’s an in-depth article on how to segment the four auto-targets in Amazon Advertising and here’s an in-depth article on how to segment for branded keywords in Amazon Ads.
With that, you’ll always be able to gauge your Amazon ACOS and see if you’re on track.
But how do you tell if you have a good or bad ACOS? Well, that’s where break-even and target ACoS come into play.
How do I Calculate Break-Even ACOS?
Break-even ACOS is the point where your advertising cost is equal to your profit margin (you have a net loss / net gain of $0). It answers the question “At what ACOS do you make zero profit and zero loss?” Clear as mud? Let’s walk through an example:
Let’s say we had a toy car that had a sale price of $20, and we’re paying Amazon fees of $3 on that product. Then let’s say to have that product be created, the cost of goods is $6.
What are we left with when 20 minus 3 minus 6? That’s $11 as our Pre-Ad Profit per Sale.
Now if we spent all of those $11 on acquiring paid traffic to generate sales, then based on our ACoS formula we would do $11/$20 which equals 55%.
So our break-even ACOS is 55%. If we’re doing lower than 55%, we’ll be profitable. If we’re doing over 55%, we’ll be unprofitable.
It’s important to know how to calculate your break-even ACOS in order to decide your Target ACOS. Remember that a good ACOS depends on several factors such as your profit margin and brand visibility before your ad campaign.
If all this sounds confusing, don’t worry. We wrote a whole post and recorded a video (the whole shebang) on break-even ACOS.
How Do I Hit My Target ACOS?
No one wants to make zero profit, so we need another measure called Target ACOS (TACOS). If you wanted to make a profit on Amazon, you would no longer spend all of your Pre-Ad Profit to generate sales.
What you spend is your Target ACOS and what you don’t is your profit margin.
Did you know that the Ad Badger App can help you hit your target ACOS?
Ad Badger’s team of marketers and engineers have created the best tool on the market for helping you reach your target ACOS. With a few clicks of a button, Ad Badger can:
- Help you hit your perfect ACOS
- Automate your Amazon marketing
How do I set my TACOS and how does it relate to bidding?
Let’s take a look at the calculation behind what the perfect bid actually looks like. It’s average order value times your conversion rate, divided by one over your Target ACOS, equals what you should be paying every single click.
If you somehow were able to go inside your Amazon account and optimize every single keyword or ad group to this calculation, you would never be overbidding and you would never be underbidding.
To automate this process, we made a bid ACOS calculator so you can bid the perfect amount every time and hit your Target ACOS and control your profit margin.
How Do I Use The Ad Badger Bid ACOS Calculator?
Simply hit the file and make a copy to edit the ACOS calculator with your own data.
Now let’s run through another example.
Let’s say our average order value is $19 at a 10% conversion rate, and your Target ACOS (TACOS) was 30%, so 0.3.
Let’s plug each of these values into the calculator.
If we were to run through this calculation manually, we would get $19 times 0.10, over 1 over 0.3, giving us 57 cents. Meaning, if we were to bid 57 cents every single time, we would hit our 0.3 or our 30% Target Advertising Cost of Sale.
Or the calculator does all the work for us!
Ideally, you should have a TACOS for each Amazon PPC campaign you perform as well as an overall TACOS to stay within your ad budget.
If you want to learn even more about how to use TACOS to optimize your Amazon PPC bids, check out the video below:
If you want to hit your TACOS, you have to release your inner badger and fight for it.
Don’t forget your Amazon advertising can drastically increase your sales if you optimize your campaign properly. Keep reading to find out how.
What Does An Average, Low, Or High Amazon ACOS Mean?
Average ACOS is the Perfect Benchmark
For Ad Badger, the average Sponsored Product Ad’s ACOS per user per day has been 34.42% since the beginning of 2019, even now through 2022. This is a good point of reference and right in the middle of a high and low ACoS.
April is traditionally the best time to advertise for profitability for our users with the highest number of sales and the lowest ACOS (~20%).
Low ACOS Means High Profitability
Generally, sellers believe you should aim to lower your Amazon ACOS. However, it depends on what your strategy is for selling a product and your profit margin. I consider 15-25% a low ACOS and a good point to start at if you decide to aim for a low ACOS.
However, you have probably been bombarded with the phrase “¡LOWER YOUR ACOS!”.
It is true that lowering your Amazon ACoS can be helpful, but only if it matches your intentions.
Setting a low ACoS is also a good strategy for:
- Making as much profit as possible
- Selling a low-converting product
- You have a product that doesn’t need high visibility
Example: Let’s say your TACOS is 10% and you make sales of $200. You spent $20 on ads for a profit of $180 (before the cost of goods).
Lowering your ad spend can be negative as well. Having a low ad spend budget compromises the visibility of the product. Because you bid for keywords in Amazon PPC, setting your bids low for a highly competitive keyword runs the risk of losing the auction for it.
High ACOS Means High Visibility
The best way to explain high ACOS is to use the age-old saying, “You have to spend money to make money.”
Great Amazon sellers use different TACOS for different types of products to maximize their selling potential. While having a low ACOS is great for profitability, a high ACOS can increase visibility, dominate a niche, and lead to more profit in the long run.
Setting a high ACOS is a good strategy for sellers who:
- Are trying to get rid of a low-selling product
- Trying to run a sell-out of a product
- Trying to increase brand awareness
- Dominate a niche
- Want high product visibility
You can relate a high ACOS to advertisers who buy a huge spot in Times Square or produce a Super Bowl commercial. The advertiser is spending a large amount of money, but the chance of return is very high.
Example: Let’s say your TACOS is 40% and you make sales of 1,000. You spent $400 for a profit of $600 (before cost of goods).
If you haven’t checked it out yet, we wrote the ultimate guide to Amazon PPC that goes into more detail about how ACOS impacts your campaigns.
How Do I Diagnose Causes of ACOS Spikes?
A common question we hear is, "why did my ACOS spike?"
We answer the question in depth on this episode of The PPC Den, but we'll give you the run-down here too.
Steps to Diagnose Why Your ACOS Spiked
What Are Other Ways To Hit My Target ACOS on Amazon?
Hitting your ACOS goals on Amazon is easy when you optimize your product pages, find the best times to advertise, and use an Amazon PPC tool like the Ad Badger App.
Optimize Your Product Pages
Your product page and your price are half the equation for creating a conversion. If you did a great job in your product ranking and Amazon PPC campaign, but your product page isn’t great, then the potential customer will bounce to another related product.
Ensure your Amazon product listing appeals to the a-9 algorithm by answering if your product page clearly answers what the product is, who is it’s clear target audience, and how to purchase.
A great product page on Amazon has:
- An accurate and compelling product title
- A thorough product description
- High-quality product photos and videos
- A high number of good reviews
- Amazon Prime eligibility
Make sure to optimize your Organic Product Listings for SEO as well as PPC for supreme ACOS results.
Find the Best Times to Advertise
Using our data we’ve been collecting for the past since 2017, we found that Sunday to Wednesday are the best time to advertise and the best month is April.
Using this data is incredibly valuable to Amazon sellers when deciding their TACOS. Here is the post on Amazon PPC Stats; we update it regularly.
Use an Amazon PPC Tool
Like I’ve been saying, there are many Amazon PPC tools out there that can automate your bidding to ensure you hit your TACOS every time (cough, cough like Ad Badger).
We take your conversion rate and TACOS into account when bidding to hit your TACOS for every campaign and reach maximum sales and reduce wasted spend.
We love TACOS, and the Ad Badger App now offers this invaluable data. Now you’ll always know what your Total ACOS is per product and know where to find it. Amplify the winners and optimize the laggers to get ahead of the competition.
Amazon Sales, ACOS, advertising cost of sales, sales ACOS, Amazon PPC, the ratio of ad––Save yourself from all of this lingo.
Trust us when we say that an Amazon PPC tool like ours will make your life a lot more simple and save you an average of 10x the time of manual effort.
Stay Tuned For More Amazon ACOS Content
The bottom line: there’s no real definition of a “good” or “bad” ACOS because it relates to personal strategy and revenue.
Since this post first launched, our thoughts on Amazon ACOS have continued to evolve, and we talk about it often on The PPC Den Podcast.
We’re always publishing new information on Amazon Advertising Cost of Sale. Stay tuned for more info on the metric that decides the success of your Amazon PPC ads.
Badger out!
