Improving your Amazon ACoS isn’t as simple as you might think. There are tons of articles out there about how to lower your ACoS, but optimizing for this metric involves more than making a few clicks and hoping for the best.
This is a deep dive into how to audit your Amazon account to improve your ACoS. If you’re new to Amazon Advertising, we recommend checking out our explanation of Search Term Isolation and downloading our free Amazon Advertising Guide to the Galaxy. Then come back here to get into the weeds!
Step 1: Determine Your Breakeven and Target ACoS
Like any other form of advertising, your breakeven and target ACoS will be different than another company’s. ACoS is calculated by dividing your ad spend by your ad revenue, and then multiplying that by 100. So, if you spend $100 and make $1,000, your ACoS would be 10%. In other words, for every dollar you made, you spent $0.10 on advertising.
Because ACoS is calculated based on the relationship between your ad spend and ad revenue, it focuses more on how much money you spent on advertising in order to make $1. (As opposed to ROAS, which focuses on how much money you earned for every $1 you spend on advertising.)
Your breakeven ACoS is the ACoS threshold that would allow you to not lose money on a sale from advertising. Of course, your production and shipping costs, as well as Amazon’s fees, are taken into account here. Your profit margin percentage on each product is also your breakeven ACoS percentage. For example, if your profit margin is 20% and your ACoS was 20%, you would make no profit on that sale.
Now, your breakeven ACoS is not your target ACoS. While you might initially try to just reach your breakeven ACoS, as your products gain more traction and visibility on Amazon, you will be able to lower your ACoS by following these steps down below. However, your breakeven ACoS will help you determine what your target ACoS should be.
Rather, your target ACoS should be lower than your breakeven ACoS. Ideally, your target ACoS should align with your target profit margin. So, let’s say your breakeven ACoS is 20%. If your target profit margin is 10%, you would need to have a target ACoS of 10% or lower in order to meet your profit goals.
Many brands choose to live or die by their target ACoS, which can be helpful when you have slim profit margins. However, maintaining this ACoS will likely not help your business scale on Amazon.
Step 2: Analyze Keywords
Many sellers on Amazon use the site’s automatic keyword tool, which automatically determines which keywords you bid on. This feature is a great starting point, especially for sellers who are just starting out, but it’s not sustainable or profitable.
Our advanced bidding philosophy, Search Term Isolation, equips you to negate keywords that aren’t profitable and isolate those search terms that are performing well for you. By successfully implementing Search Term Isolation, you will likely see your ACoS improve.
Adding Negative Keywords
Negating negative keywords is as simple as it sounds — you are simple not bidding on those keywords that aren’t profitable for your product. For example, maybe your product is a 24 oz. water bottle. But with Amazon’s automatic keyword tool, this product was showing up for the search term 48 oz. water bottle, which (obviously) didn’t return any sales for you. By negating the keyword 48 oz. water bottle, you’re not only not wasting spend, but you’re also able to reallocate that money to a more profitable search term, which will result in more sales. These keywords should be negated in the campaign, so that there are no bids for this product.
Isolate Search Terms
After you negate the search terms that aren’t resulting in sales, now you need to isolate the search terms that are performing well for your chosen product. By isolating these terms, you’ll be able to individually adjust the bid for each keyword, depending on your strategy for that product. This level of customization allows you to make changes in real time.
Once you’ve identified these keywords, you should move them to the exact match bucket and negate them from any auto, broad, or phrase campaigns.
Step 3: Perform a Competitive Analysis
A huge part of auditing your Amazon account to improve your ACoS is researching your competitors. If you’ve done any sort of advertising off Amazon, you’ve likely done a similar process. However, it’s important to go through each step specifically for the Amazon side of your business, as your competitors may differ.
Remember those successful keywords you identified in step 2? Now’s the time to pull them out again. These keywords will also help you identify your main competitors! Remember, your keywords will differ for each of your products.
One by one, enter your keywords into the search bar on Amazon. (Alternatively, you can use a tool to identify competitors and do this research for you.) For each keyword, identify your main competitors — the sellers who are winning the top Sponsored Product slot, whose Sponsored Brand Ads are appearing at the top of the page, and who are in the first organic spot as well.
Once you’ve identified your major competitors on Amazon, you need to analyze their product listing content. This includes:
- Product title
- Bullet points
- A+ content
Each of these pieces of content on the product page aids in converting customers. Compare their content to yours. Do their images have text descriptors of features? Is their A+ content fully designed? Do they have a lot of 5-star reviews? Optimize your product listing content based on best practices in the industry and what is working for your competitors.
This step is especially important if you are seeing high clicks but a low conversion rate, or high impressions with a low clickthrough rate.
Lastly, your pricing could be impacting your performance against your competition. Amazon prioritizes the product that has the best reviews and the lowest price — so if you have comparable reviews but a higher price, that could reduce your conversion rate and thus be a contributing factor in your high ACoS.
Step 4: Manage Bids
Managing your bids manually can be a bit overwhelming, especially if you have a lot of ASINs to individually adjust. Amazon Advertising technology can assist you in this by auto-adjusting your bidding.
There are two general buckets your adjustments will fall into. If you have high spend but low sales, you’ll want to decrease your bid. If you have low spend but high sales, you can increase your bid to increase traffic and scale your business.
Step 5: Optimize Product Page
After step 3, you’ve hopefully already analyzed your competitor’s content. Now, it’s time to put those observances into practice on your own product detail page. As we’ve stated earlier, there are two main areas that indicate which areas of your content you need to optimize.
If You Have High Clicks but Low Conversions
If this is the trend you’re experiencing, your product image and product title are likely accurate — but your description and bullet points might need optimization. Make sure these two areas are clearly written with no typos. Each of these sections should accurately describe your product and the value it serves your customers.
Additionally, reviews can impact this. If your reviews are not retail ready (our threshold is typically anything over 3.5 stars), you may not gain a lot of conversions, especially if these reviews state a lot of the same issues.
If You Have High Impressions but Low Clicks
This trend could indicate a poor product title or product image. Your product titles should clearly state what your product is, as well as specific keywords that identify details about your product. Your featured product image should clearly indicate what the final product looks like.
Of course, you should still ensure that your description, bullet points, and A+ content are optimized. Because once you optimize your product title and product image, hopefully your traffic will increase to your product page!
If your product has low star ratings, people might not even click into your product, especially if your competitors have markedly better ratings.
Don’t have bandwidth to tackle improving your ACoS? Let the experts at Blue Wheel help. Reach out for a free audit today to let our team identify ways to improve your ACoS.