Detailed explanation of Amazon ACoS: calculation methods, influencing factors and optimization strategies
In the world of Amazon advertising, ACoS (Advertising Cost of Sales) is a crucial indicator, which reflects the relationship between advertising investment and sales revenue. The calculation formula of ACoS is advertising expenditure/advertising revenue × 100%. A lower ACoS means a higher input-output ratio, which usually means higher profits for sellers.
1. The definition and importance of ACoS
ACoS is the ratio of advertising spend to sales. Before placing ads, sellers need to determine a reasonable ACoS target value. A reasonable ACoS value depends on many factors such as product profit margin, industry, and advertising purpose. Generally speaking, the ACoS value should be lower than the profit margin of the product to ensure profitability.
2. Calculation and goal setting of ACoS
1. ACoS upper limit
The ACoS upper limit refers to the seller’s break-even point, that is, the profit rate. For example, if a “Messenger Bag” costs $7, sells for $30, and has Amazon fees of $5, then the pre-ad profit per sale is $18. If all of this $18 is invested in advertising to obtain orders, then the advertising spend will account for 60%, which is the upper limit of ACoS.
2. ACoS Target (TACoS)
Target ACoS (TACoS) is set based on the ACoS upper limit, with the purpose of optimizing advertising strategies while ensuring profitability. For example, 60% (ACoS) – 40% (TACoS) = 20% (TPM), where 40% is the target ACoS and 20% is the target profit margin.
3. CPC bidding
With TACoS, sellers can calculate the CPC target bid according to the following formula: CPC = average order amount x conversion rate x TACoS. For example, if the average order amount is set to $30, the conversion rate is 7%, the target ACoS is 0.25, the target CPC is $0.53.
3. Factors affecting ACoS
1. Products
Products determine the future space for ACoS. Product profit margins directly affect future advertising profit margins. For example, if the product profit margin is 70%, the seller can still make a profit even if the ACoS is 60%; but if the product profit margin is only 15%, the seller will still lose money even if the ACoS drops to 30%.
2. Price per customer
Advertising sales are directly related to unit price. Higher unit price helps reduce ACoS value. For example, when the unit price per customer exceeds US$100, the ACoS value can easily drop to less than 10%; but when the unit price per customer is only US$10 or less, the ACoS value may only drop to 30%-40%.
3. Intensity of competition
In highly competitive categories, organic traffic is diluted and paid traffic costs rise. Sellers bid more to compete for higher placements, which causes ACoS to rise.
4. Seasonal Fluctuations
Affected by the market and objective environment, seasonal fluctuations are difficult to control.
4. ACoS optimization method
1. Improve conversion rate
Conversion rate is one of the key factors affecting ACoS. Optimizing product quality, appearance, functions, and listing content (title, pictures, videos, A+ content, five-point description, etc.) can improve users’ trust and desire to purchase, thereby increasing conversion rates.
2. Reduce CPC
Reducing CPC is one of the means that directly affects ACoS. When the order volume gradually increases and the natural ranking of keywords increases, sellers can gradually lower the advertising bid to reduce CPC.
3. Keyword optimization
Regularly review and optimize the keywords used in ads, eliminate irrelevant keywords, and improve quality scores to reduce click costs and thereby reduce ACoS.
4. Pricing strategy adjustment
Consider pricing adjustments to your products to fit your advertising strategy. Sometimes, raising product prices slightly can offset advertising costs and lower ACoS.
5. Ad targeting and exclusion
Make good use of the targeting and exclusion functions of the Amazon advertising platform to accurately locate target audiences, avoid wasting ads on irrelevant audiences, and improve the quality of ad clicks.
6. Continuous monitoring and adjustment
ACoS is a dynamic indicator that needs to be continuously monitored based on changes in market and competitive conditions, and advertising strategies should be adjusted based on data to maintain flexibility.
5. Summary
By in-depth understanding and effective optimization of ACoS, sellers can achieve higher returns on advertising investment, increase brand exposure, and increase sales revenue. In a market with fierce advertising competition, good use of ACoS will become a powerful assistant for sellers to optimize their advertising strategies.