Amazon PPC’s Total ACOS Trinity

February 17, 2021
By The Badger

Total ACOS, adjusted ACOS, blended ACOS, true ACOS – no matter what you call it, the ratio of how much you spend on Amazon PPC compared to your total revenue is an important metric.

In the past, we’ve seen people fall into the all-too-common trap of believing that the key to Amazon success is just getting their ACOS as low as possible. The reality is far more complex, and in some cases, a lower ACOS can worsen your overall performance.

Now, we’ve found that total ACOS is often subjected to the same binary thinking as ACOS. “Higher= bad, lower= good” seems to be the prevailing school of thought, but it’s not that simple. In fact, as we’ll explore in a bit, you can actually increase your total ACOS and bring in more profits!

Your ACOS, total ACOS, and organic ranking/revenue are the three numbers that give you the best look at how your sales are doing. They all respond and react to each other, so they need to be in balance to be effective. You need to crunch and evaluate them to get a truly accurate picture of your performance.

The Total ACOS Trinity

In recent years, we’ve found lots of people have swapped out their ACOS goals for total ACOS goals. While it’s a solid business strategy to know how much you want to spend on ads relative to total revenue, there is a time and a place to think about total ACOS.

You set bids for keywords, not products. The things that affect your total ACOS are much more granular than your store or product. Your individual keywords don’t have a total ACOS. On the flip side, you can’t see what organic keywords are contributing to your total ACOS.

More revenue means more than just more money in the bank. It means increased sales velocity, boosted Seller’s Rank, more Amazon Choice badges, and all sorts of other perks. If you’re sitting pretty at your ideal total ACOS, don’t be afraid to leave your comfort zone and bump it up a little higher if there’s potential to net more sales.

In fact, it’s possible to increase your total ACOS and end up with higher profits.

Check out this spreadsheet to see what we mean.

Here, the seller gained much more in ad revenue in Scenario 2, but because there wasn’t a similar increase in organic revenue, that drove the total ACOS up, giving the impression that they were spending too much on ads. In reality, not only did their ACOS decrease, the increase in ad spend netted them more paid and organic sales, improving their ROI. Look how much their profit increased!

There are different ways to use the extra budget you get from increasing your total ACOS. Whether you see an increase in sales and how large that increase is depends on how you allocate that extra ad spend. It could just go to raising all of your bids by a set percentage, improving your placements. Another option would be opening up entirely new campaigns and investing in new ad types, like Sponsored Display. You can’t really forecast how well increasing total ACOS will pan out for you because you have no way of knowing what your competitors or Amazon itself will do.

Sometimes, people freak out if you go over a certain total ACOS, like 7%. This is nothing to worry about if it means you have more sales overall. If anything, your total ACOS being too low could be a cause for concern, as it means your ad budget is too low and could even point to shrinking.

At the same time, keep everything in moderation. When you look at Scenario 3 where there was a boatload of ad spend, the seller ended up having fewer sales and lower profits because of diminishing returns.

Organic Revenue as Part of the Trinity

Part of what separates total ACOS from ACOS is the inclusion of your organic revenue.

The average Amazon seller makes 30% to 40% of their sales through ads. This means that in general, you get twice as many organic sales as PPC sales.

Hitting your break-even ACOS is a sound strategy for boosting your organic revenue because even if you don’t make any money through ads, your organic rankings are going to get some serious benefits from that PPC investment.

Being aggressive with your ads boosts your organic ranking power for your keywords, and the higher your listings rise in the organic ranks, the more your organic sales go up exponentially.

Ad Revenue % of Total Revenue

One thing that can happen if you increase your ad spend is your ad revenue as a percent of total revenue can increase. If you look only at your PPC campaigns, it may seem like a dream come true. Great ad performance, month-over-month growth, and climbing ad revenues are all possibilities.

However, you need to pull the camera back and look at the whole picture. If your organic revenues are declining, your total revenue might be at a plateau. If that’s the case, all that’s happening is that now you are paying for sales that you were previously getting through your SEO.

If your ad revenue as a percent of total revenue is too low, that can be a cause for concern as well. It could mean you don’t spend enough on advertising, which can drag down your organic revenue potential for your A-list keywords.

Key Takeaways

Total ACOS is an important metric, but it’s not the be-all, end-all of gauging your campaign performance. You need to really dive into the numbers to see what’s going on. Look at ACOS, total ACOS, and organic ranking and revenue as a trinity that can be shifted around to get the most out of your campaigns.

By increasing your total ACOS, you potentially open the door to more PPC success and more sales overall. It allows you to improve your bids and placements, experiment with new campaign types, or both. There’s no guarantee that bumping up your total ACOS will result in more money in your pocket, but it’s worth it to try. A ship in harbor is safe, but that’s not what ships are for.

Don’t reduce your Amazon advertising goals to hitting a certain total ACOS. You need to also keep in mind how you can improve your performance by lowering ACOS and increasing organic sales.

Overall, just keep each part of the trinity top-of-mind and you will go far. If you notice your ACOS is going up more than you would like, take some time to take care of it. If you’re doing well with organic revenue on some of your products, give them a little extra ad spend to capitalize on it.

With this trinity, you can use and adjust your budget wisely to maximize your ROI and grab some extra sales. Go for it!