If you’ve ever started to learn about advertising your products on Amazon or creating pay-per-click (PPC) campaigns, you’ve most likely seen and heard the term “ACoS” – or Advertising Cost of Sale – popping up everywhere in forums, articles, and videos. But what exactly is ACoS, and why is it so important for your Amazon business?
This article will help you navigate the meaning around your product’s ACoS – and why it’s so important to pay attention to it.
ACoS on Amazon – What Is It, Exactly?
Simply put, ACoS, or Advertising Cost of Sale is the percentage of your total sale that is spent on advertising. In other words, it is the ratio of ad-spend to overall sales.
Here’s an example: if your product costs $50 and you spend $5 in advertising to get one sale, your ACoS is 10% ($5 divided by $50).
This is a key metric that lets you as a seller determine how well your product advertising is performing. Your ACoS cuts directly into your profit margin, so you generally want to keep it low, to maximize your profit. There are exceptions, which we’ll talk about in a bit.
Using ACoS on Amazon to Measure your Product’s Success
The overall goal for any Amazon seller is to maximize profit – and paying attention to your ACoS can be a powerful tool for determining how successful your product is. Because this metric changes fairly quickly over time (as opposed to, say, Amazon seller fees or production costs which change much more slowly if at all), your ACoS can show you the areas where you can improve your profitability and engagement.
In the long term, you want to keep your ACoS as low as possible – while still keeping sales and profit high. Because your ACoS cuts directly into your margin, your goal is to find the magic number where advertising costs are producing a high volume of sales – while remaining a small portion of your overall margin.
For example, let’s say you have a product that sells for $150, and your overall costs for each unit (Amazon fees, production, taxes, storage, etc.) are $100. Your margin for every sale is $50.
Now you are starting to promote your product, and you have found that each sale costs $15 in advertising. Your ACoS is 10%, and your actual profit is now $35 per sale.
Because your ACoS is directly affecting your profit, you want to pay close attention to it over time – and work toward a target goal.
ACoS on Amazon: Creating a Target Goal
While you grow your business, it’s a good idea to create and work toward a target ACoS. This number will be different for each person and each product – there are many factors to consider. Overall, however, you want to determine the percentage at which your advertising will be creating sales, but your profitability stays high – at least in the long term.
This target will be different for every person and every product. Overall, higher cost products will have a much lower ACoS than an inexpensive product. Selling a $10 can opener leaves you very little wiggle room in your margins, and your ACoS on Amazon will probably be quite high. A $100 coffee maker, on the other hand, will have a lot of margins to work with – and your advertising budget can go much higher, giving you a lot more profit overall.
ACoS on Amazon: Shifting your Goals with Your Strategy
When starting a product launch and getting those first sales, your goals will probably not be based on pure profitability in the short term. If your product is first launching, your focus should be creating a momentum of sales and reviews – after all, your product will have better long-term success if there is a solid foundation of positive feedback and consistent sales.
Plus, higher sales and reviews for your product create a higher page ranking organically – meaning that you’ll be making more sales that don’t cost any advertising money at all. Maximizing this in the first few months of your sales is not only necessary for continued organic growth – but it can lower your cost of advertising in the long term!
Because new products that are launching on Amazon don’t have reviews or existing organic rank, it can be much harder to maintain a lower ACoS on Amazon when starting out. In this case, you must determine your break-even ACoS. This is the number at which your advertising costs are the same as your profit margin – and therefore you are not making or losing any money.
For example, if your profit margin is 35%, then keeping your ACoS at or below 35% ensures that you will not lose any money while building your brand.
Your target ACoS will probably start close to your break-even point – and maybe even go above it – but then slowly decrease over time to reach a point of profitability and high sales.
Your ACoS goals will shift over time along with your strategy, from “maximize sales” to “maximize profits.”
Although we’d all love to automatically know the perfect number to aim for, there is no real “good” or “bad” ACoS. Your target really depends on your product costs and margin, and your goals – both short term and long term. But looking at your ACoS can be a valuable tool to measure your product’s success – and the type of traffic you should focus on. Keeping your focus on reaching your target ACoS on Amazon is a fantastic method for overall success and profit – pay attention to this metric, and results will follow.