2020 Guide to ACoS on Amazon

30 Jun, 2020

What is Amazon ACoS?

Yes, yes, we know, yet another Amazon acronym. ACoS is otherwise known as Advertising Cost of Sale. But for the interests of this article, we will refer to it as ACoS. 

Back to what ACoS actually means. ACoS is a measurement used by the powers that be at Amazon headquarters to determine how well an Amazon PPC (pay-per-click) campaign is doing. 

For any Amazon FBA seller , this statistic is vital in gaining the knowledge into if your intended sponsored items are actually selling as you want them to, and to gain meaningful insights into your profit margins. Forewarned is forearmed, as they say.

How do Amazon calculate ACoS?

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The formula used by Amazon is calculated like so. Take the proportion of the ad cost, and compare this to the projected sales. ACoS is the entire ad expenditure divided by the whole sales, multiplied by 100 to achieve the percentage figure. 

ACoS = Entire Ad Expenditure divided by Entire Sales multiplied by 100 = ACoS %

To remain lucrative, the desired outcome is for your ACoS to be smaller than your projected profit margin. 

To give an illustration:

  • Say your ACoS is 25%
  • This means that you paid $0.25 for each dollar that you earned

Your finished ACoS calculation demonstrates exactly how much of every dollar that you gained with advertising was actually expenditure on the ad campaign itself. 

So what is a good ACoS to aim for on Amazon?

Unfortunately this is not a straightforward question to answer.

A good ACoS is pretty much dependent on your own ad strategy. What we can reveal is that 30% is about average. To balance your Amazon FBA selling business, you are required to spend just the right amount on advertising – if you spend too much, your revenue will be lower, and if you don’t spend enough, chances are your listings won’t get seen. So it’s striking that balance. And that comes with experience over time.  

How can you lower your ACoS?

What follows are tricks from the trade that will assist with optimization of your strategy, and therefore hopefully, in time, lower your ACoS. 

Keywords are Key

You heard it here first.

The very first thing to do when you’re considering optimizing your page is to conduct thorough keyword research by using IO Scout tool. If you’re familiar with SEO (there we go again with another acronym), it’s not quite the same on Amazon. Test out some Amazon keyword tools is our advice here.

You can optimize your listing further by using IO Scout listing optimization tool and completing the following steps:

  • Adding these researched keywords to all sections of your listing including the title of the item, the description of the item, and the item’s features
  • Including high-quality, professional-grade images
  • Concentrating your item’s highlights on your item’s uses and advantages, and taking into consideration your customers’ wants, needs and requirements before committing to purchasing your item

Once is enough for your listing on Amazon, there is no need to repeat them like perhaps you would have done with old school SEO. By selecting the best and relevant keywords for your products, you will generate more leads through your content which is sponsored. More leads = more conversions. More conversions = less amount of money required to generate leads in the first place. Happy FBA Seller!

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Page Content Optimisation 

The last thing you want to happen is to generate all these lovely new leads to your item pages, and have disappointed visitors, because alas, your item pages do not contain what they typed into the sear bar. Be sure that your listings are appropriate to your newly founded keywords. 

Amazon wants to bring potential customers together with the products they want to buy (obviously!), so Amazon won’t connect the dots between the customer and your product if it isn’t clear that what you are proposing to sell them is what they are searching for. 

For sponsored products on Amazon Marketplace , make sure you are providing listing information that is:

  • Relevant to their keyword search
  • Useful to your prospective customer
  • Entices them into placing an order for the product
  • Convincing 

A product page which converts successfully has the following features:

  • A comprehensive description of the product
  • Product images which are high-quality and professional (this includes videos, too)
  • Eligible for Amazon Prime and all its features
  • An attractive title, which is also precise and reflective of the product 

By including this valuable content within your product listings, you will be rewarded by Amazon, as the outcome of this will be customers who are interacting with your page, and enjoying lower bounce rates. They will hang around to find out more about your product as they will be interested and intrigued as to what you are offering. Once Amazon realizes that your product page description is appropriate, and the price is suitable, conversions will happen. 

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Let’s Talk about Titles

We’ve touched on this topic, but it’s worth reviewing as there’s a bit more optimization that you can achieve in this area.

To generate more leads to your sponsored products, you need to excite and entice your audience. Including words in your product title which are super relevant and eye-catching is the way forward here. 

Check out what your competitors are up to, so do some keyword research on your competitors’ item descriptions. It may be that your competitors who are doing better than you in the Amazon BSR ratings are optimizing their keywords more effectively; it may be that they are more efficient at answering their customers’ queries in the item description. Perform some analysis, and work out where you can improve your product listings. 

Calculate your Profit Margin

Working out your profit margin is essential when examining your ACoS. 

The usual suspects when it comes to expenditure costs are:

  • Manufacturing Costs
  • Shipping Costs 
  • All of the Amazon Fees 

To calculate your profit margin on a product, deduct your costs above from your original item cost. 

It’s probably worth interjecting some further information right about now on Amazon fees. Fees that need to be taken into consideration, in order for accurate profits to be projected, and enjoyed!

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Amazon Selling Fees Uncovered

Some of these fees you will already be aware of, and some are hidden Amazon fees that require uncovering. This is essential information for your Amazon selling business, as this information will ensure you are profitable and making knowledgeable business choices. 

As it stands, there are three classifications of Amazon fees. They are classified as follows:

  1. Amazon Sales Fees
  2. Seller Account Fees
  3. FBA (Fulfillment by Amazon) Fees 

Every single sale you make on Amazon’s Marketplace is subject to a sales fee. 

The sales fees are payable whether you are on an individual or professional Amazon selling plan. These particular fees are dependent on

  1. the price
  2. the product category

On average, the sales fees equate to around 15%, but for an in-depth, accurate calculation, you can read Amazon’s Referral Fee .

It will pay dividends to check which category your intended products fall into, and make sure the referral fees aren’t too extortionate, so you don’t end up paying all your profit to Amazon!

In addition to sales fees, some products are also subject to variable closing fees on Amazon. The product list that these particular fees refer to are:

  • Computer Consoles 
  • Books
  • DVDs
  • Videos
  • Music
  • Video Games
  • Computer Software

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Seller Account Fees are next up. The plans available for selling your products on Amazon’s Marketplace are Individual and Professional . And the plan you go for is depending on the amount of products you sell on Amazon (or intend to sell!)

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Selling through Amazon FBA method incurs the following fees:

  • FBA Fees

FBA fees depend on the size and weight of your products. This fee is incurred in place of your own shipping, management, and packaging costs. With this in mind, it’s definitely beneficial to consider selling small, and light products on Amazon’s Marketplace!

  • FBA Storage Fees

Your products are stored within Amazon’s Fulfillment Centres, so these are the costs associated with this storage. You can choose between monthly, or long-term storage, depending on your business requirements. 

  • Monthly Amazon FBA Fee

This fee is charged for Professional status on Amazon’s Marketplace. Professional status works for businesses who receive upwards of forty orders in a thirty-day period. There is an Individual plan for those businesses who don’t quite reach the dizzy heights of these order statistics!

After digesting the various associated Amazon selling fees, let’s get back on track with ACoS. 

The Break-Even ACoS

Ah, that sweet spot where profits are made.

By monitoring the break-even ACoS, you can ascertain if your advertising promotions are working, or if they are failing. You are in the driving seat then to make informed choices about your advertising budget and campaigns accordingly. An ACoS of over 25% is very likely to tip you over the edge into not making a profit ground. Somewhere no one wants to be.

What About the Target ACoS?

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If your business intention is to maintain your profit margin, rather than break-even, this is where your target ACoS comes in. 

This is calculated as follows:

Target ACoS = Pre-Ad Profit Margin – Target Profit Margin Post-Advertising

The Metrics that Push ACoS

Next, we can take a look at the measurements used by Amazon to dictate ASoS:

Bid

If the bid you place triumphs in the advertising auction, hey presto, your item emerges in position number 1. 

Impression

The greater the volume of potential customers who see your ad (otherwise known as impressions), the higher than chance of these people making that all important purchase. 

Click

If your prospective buyers are clicking, then they are confident they have found what they’re looking for. Winner.

CTR – otherwise known as click-through-rate

Your CTR is determined by how enticing your product listing/advertisement is for a particular search

CPC – otherwise known as Cost Per Click

Low CPC usually indicates low ACoS (but not always!)

Order

When your buyer places their order for your item post-clicking on your advertisement. 

CVR – otherwise known as Conversion Rate

If your CVR increases, your ACoS decreases. More conversions mean that more customers are clicking on your advert, indicating you’ve done a good job at detailed product listings, titles, and being relevant

Advertising Expenditure

To understand your ad spend, calculate the clicks received multiplied by the actual cost per click.

Advertising Revenue

To understand the sales which have occurred as a result of your ads, calculate the total orders by the regular selling price.

ROAS – otherwise known as Return on Ad Spend

This statistic is the ratio of ad expenditure by ad spend, providing the calculation of exactly how much revenue is gained compared to each dollar expended on advertising. 

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Amazon PPC – Explained 

Advertising on Amazon is a very clever thing indeed, and twofold. 

For PPC adverts, sellers on Amazon make bids on keywords which can potentially achieve the optimal ranking for their products, be it a sidebar box, appearing in high-ranking results in search, a banner etc. An auction method which works by the winning bids receiving the accolade of Sponsored Products . The pay-per-click element comes into play only when shoppers click on the sponsored item, and not on each occasion the listing shows up in the search results. (the clue is in the name, really). 

The additional part to this is buyers on Amazon go ahead and purchase these products because they have viewed them as a sponsored ad. Increasing views, clicks, and conversions. Bam – more money in the bank for Amazon. 

To stand out from the ever-increasing crowd on Amazon, it’s one thing to carry out adverts, but quite another to make those ads work in your favour. Up your game, and you’ll move up the Amazon Marketplace rankings by establishing those optimal keywords for your products, and oversee your budget successfully.  

How do you stay in the game at Amazon PPC?

  1. Stay present and relevant. What is successful today in terms of advertising on Amazon, will not necessarily be successful next week. Continue monitoring, adjusting and observing to stay at the top of your game.
  2. Seek out those opportune chances in order to distinguish your campaigns from your competition. This all adds up to becoming more visible on the Amazon Marketplace, and an increase in visibility all helps with awareness of your business.
  3. Try to find chances for new keywords – test and monitor them as it’s no use placing bids on all the identical keywords as your competition. Try out the User Search Term Report and reverse ASIN to track down those keywords related to ASIN, and whereabouts they are in the rankings.   

Amazon PPC Keywords

In addition to bidding on your chosen keywords, you need to choose a match type . This means how closely matched your keywords are to what shoppers are actually typing into their Amazon search bar. The three sorts of match types are as follows:

  1. Exact – Choose this match type if you want your Amazon advert to be shown in front of shoppers if the keyword they’ve searched for matches up with your keyword exactly
  2. Phrase – The phrase keyword match comes into play if your shoppers are searching for terms that include your keywords
  3. Broad – More of a general match type, the broad match type works by shoppers typing into their Amazon search bar words that are included from your keyword, but not necessarily in the order that your keywords appeared initially. 

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Amazon Keyword Research Tools

If you want to take some of the struggle out of keyword research, you can turn to Amazon keyword research tools. And there’s plenty of them!

IO Scout

IO Scout is a product research tool for Amazon FBA selling businesses, of which there are many. IO Scout’s focus is largely based on product research for private labels on Amazon. 

To get going with IO Scout, there is a requirement to download the desktop app. You can also add Chrome extension for access using your internet browser. For those of you who are happy to download the desktop app of AIO Scout, let’s explore the features. And there’s more to IO Scout than just plain old keyword research.

The Key Features of IO Scout

Product Finder

Keep tabs on your direct competition using Product Finder . Check out their prices, all whilst researching your own products on Amazon. At this present time, there are over and above million items on IO Scout’s database. 

Keyword Research

Discover the most prevalent keywords for your business industry, so you can utilize them in your Amazon inventory listings. 

Conclusion

Depending on how far along the road to profitable success with your Amazon online selling business will depend if IO Scout is the best tool for you.

If you are fairly new to this game, in our opinion, it’s worth checking out.

This is due to IO Scout’s simple interface and user-friendliness. You can get going fairly quickly and in a straightforward manner, meaning you can see the benefits almost immediately, which are:

  1. Release multiple products on Amazon’s Marketplace
  2. Adapt your approach to beat competition  
  3. Continually track the market whilst simultaneously source new products to sell online

The 14 days money back guarantee for IO Scout’s tool demonstrates all the functionality, with none of the risk. So you can try before you commit to a full subscription, safe in the knowledge that IO Scout’s Product Research is the tool for your business. 

Another tool worth looking at in a bit more depth is Sellics.

Sellics

Sellics have noticed a gap in the market, and come up with an ingenious platform to combine absolutely everything an FBA Amazon Seller needs to maximize sales, and streamline business operations. 

Citing “Success on Amazon” as their strapline, Sellics are arguably promoting some pretty powerful tools in which to elevate your Amazon selling business. Let’s take a closer look.

Sellics is a platform promoting themselves as a “One Stop Shop” for Amazon sellers marketing their businesses, with no need for lots of separate analytics and monitoring tools.

How do you Optimize your CPC?

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First things first is to be crystal clear about your advertising campaign, and exactly what it is you want to achieve, and what your aims are. 

Optimizing your CPC effectively can help you towards these 3 aims:

  1. Executing a campaign that is successful, and lucrative
  2. In order to achieve this, strike for a low ACoS point, with a profit margin you have already worked out, after considering your costs spent on advertising. This method ensures you don’t blow the budget on your PPC ads. 

Boost your sales

Utilizing Amazon PPC advertising campaigns will elevate your item’s status in the search results on Amazon. 

Boost your overall profit

Potentially the best aim, is number three. But also it is the aim that is probably the most tricky to bring to fruition. This is because there is no way of knowing what the maximum profit is going to be for a specific product once you factor in the growth in ad expenditure. 

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How do you Optimize your Keyword CPC?

For each and every relevant keyword you come up with for each product, the perfect CPC will be different, and have varying CTRs, competition for bids, and conversion rates. Therefore, the only method to tracking the perfect CPC is to conduct analysis on each keyword on an individual basis, and in increments. 

To optimize your keyword CPC, take baby steps when it comes to altering your bids, by around 20-30%. This method ensures not blowing the ad budget clear out of the water, whilst gathering enough data to perform this analysis. 

Give your adjustments to your CPC some time before making bold decisions. At a bare minimum, 2 weeks is necessary to see meaningful insights for the alterations you have made. 

Always check your goal metrics, and keep them in mind when you are looking to rise or lower your keyword CPCs. 

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ACoS Summed Up

As demonstrated, there are a lot of formulas needing attention when you delve deep into ACoS and PPC advertising campaigns. 

Approach each measurement one at a time, focus on how you can improve each of them, and you will surely see a decrease in your ACoS. Learn how to decrease your ACoS with some informed decision making, backed by data, to give you the confidence to spend your budget for advertising in a thoughtful manner. 

Hopefully you will have picked up some tips during the course of this article to assist your Amazon selling business, and empowers you as an Amazon FBA seller.