Running a PPC campaign is easy if you have been doing it for quite some time or hired a PPC Agency to do it for you. But taking advantage of Amazon PPC in the right way and making enough sales by keeping your ACoS low is harder. And, the challenging part is to make profits from Amazon PPC campaigns.
In this article, let’s get to know about ACoS and how it influences your PPC campaigns. We’ll also dive into the details to determine what is a good ACoS and bad ACoS for your PPC campaigns.
What is Amazon ACoS?
For those of you who are getting started with Amazon PPC campaigns, ACoS (Advertising Cost of Sale) is used by Amazon to measure the performance of Sponsored Product Campaigns. ACoS helps you understand if your ad campaigns are driving profitable results or not.
How to Calculate ACoS?
ACoS is the amount you spent on a campaign to the total sales generated during the campaign. It is given by the Total Ad Spend divided by the Total Sales ( x 100 to get the percentage).
ACoS = (Ad Spend / Sales) x 100
The lower the percentage of the ACoS, the better it is.
Let’s take an example to understand in a better way.
You have created a campaign and generated $700 sales with an ad spend of $140 for a specific time period.
Then, your ACoS = (140/700) x 100 = 20%
It means when your ACoS is 20%, you paid $0.20 for every dollar you made.
What is Good ACoS?
There’s no such thing as good ACoS or bad ACoS. But knowing what ACoS is profitable for your Amazon PPC campaign is extremely important. You need to see if you are driving enough profits, breaking even, or losing money from these ads.
From our above example, it is evident that the ACoS is low, but it doesn’t tell us if the ACoS is profitable. This brings our attention to the next important thing – Profit margin.
Profit Margin – It is the amount you make after subtracting all the costs from the selling price of a product.
These costs include fixed and variable costs, including production cost, shipping, storage fees, Amazon fees, etc.
If your ACoS is lower than the profit margin, then your ads are profitable.
What is the right ACoS?
Often, many sellers think that lowering ACoS should be the primary strategy of the PPC optimization process. But the right ACoS depends on your campaign strategy.
Your PPC campaigns should align with your business goals. While optimizing your campaigns, we have two common strategies to look at. First, Sponsored Products are used to improve organic rankings of your products. In this case, you aim to sell more units using Sponsored ads without making any losses. It improves your sales velocity. Here, you target a few potential keywords to boost your search position. This is a common strategy used to improve your SEO. Learn more about this strategy here.
In this case, we recommend setting an ACoS target near your profit margins.
Second, if you want to launch a new product in a competitive niche or increase brand awareness, it can be worthwhile to set your ACoS above your profit margin to boost your visibility. This strategy aids you to generate useful search terms with which you can optimize your bids quicker. By looking at the search term data, you can find the best converting keywords for your campaigns.
Potential Mistakes Leading to High ACoS:
As a part of Amazon PPC optimization, sellers tend to make a few mistakes that result in a high ACoS. Few of them are:
- Running only automatic campaigns
- Not using negative keywords
- Bidding high to get more clicks
- Poorly structured PPC campaigns
- Not optimizing product listings relevant to your campaigns
- Promoting listings with low ratings and poor reviews
- Targeting keywords that are not matching with your target audience interests
- Targeting irrelevant products and categories
Ensure you eliminate all these mistakes while creating and auditing your PPC campaigns.
ACoS is one of the critical key performance indicators of your Amazon PPC campaigns. You need to set your advertising budget and goals and determine your profit margins first. You can then experiment with your campaigns by setting different target ACoS to align your ad sales with your business objectives.
If you are stuck with a high ACoS or want help with Amazon PPC optimization, sign up with our 7-day free trial and try SellerApp’s PPC Analyzer. Our PPC Analyzer will give you actionable insights into all the PPC metrics, and you can see target ACoS for the keywords and analyze if the keyword is performing well.
Arishekar is a content marketing and growth marketing strategist, He helps companies to grow their revenue.