What is ACoS Amazon? and it’s Importance

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The world of marketing is constantly changing. One year, you’re doing it one way, and the next, everything changes. If you want to stay ahead of the game, having a firm understanding of what acronyms like ACoS mean can be crucial to your success. 

What does ACoS stand for?

ACoS stands for Amazon Cost-of-Sales (or Advertising). It’s used as an indicator of how efficient your advertising spend is in relation to sales revenue generated by that same ad spend on Amazon. This metric is often used in PPC campaigns and is known as PPC Profit Formula among entrepreneurs because it allows advertisers to see if their ads are profitable or not. 

Let’s say, for example, that your monthly advertising budget was $1,000, and you had 100 online sales during that month. You would then divide your advertising spend by 100 (the total number of sales), and you’d end up with an ACoS of 10%. 

Why is ACoS important for marketing campaigns?

Amazon ACos is essential for ad campaigns, especially because it’s a good predictor of how profitable an amazon product advertising campaign or keyword might be. eCommerce entrepreneur has been focused on ACoS how lucrative it can be as a sales channel. In fact, some marketers have seen up to a seven-fold return on their advertising spend.

ACoS is also typically the first metric that Amazon sellers use to evaluate their ad campaigns. The higher the ACoS is, the less profitable the campaign probably is. 

A good way for marketers to increase their campaign’s profitability is to figure out why their ACos are high and then address that issue to drive down costs while still improving sales revenue.

The relationship between PPC and ACoS

ACoS is closely related to Pay per Click campaigns as they both deals with ad spend. The advertiser decides how much is spent per click on a given keyword or ad campaign in PPC campaigns. Because of this relationship, someone who has been running PPC campaigns will have a good idea of what their ACoS should be. 

How to calculate ACoS

To calculate your ACoS, take the amount you spent on advertising and divide it by the number of sales that resulted from that spend. You can then put this information into a simple equation for easy calculation:

ACoS = Advertising Spend / Sales

Let’s say, for example, that an online seller spends $100 in ad costs and generates ten sales from that spend; then their ACoS is 10%.

ACoS = $100 / 10 

ACoS = $10 / 1

ACoS = 10%

RoaS vs ACoS? Are they both the same?

It’s also important to note that ACoS is different from ROAS, or Return on Ad Spend. While ACoS marketing looks at how much you spent overall and then compares that with revenue generated as a result of those ad costs, ROAS takes a look at specific keywords and products to see how profitable they are as your spending on them increases. In some cases, a campaign might have a high ACoS but a low ROAS.

What is a Good RoaS on Amazon?

The average RoaS that retailers achieve on Amazon is around 3x. This will change based on your industry, strategies, and goals.

In addition, there are a few more things to consider. Auto campaigns and broad match/phrase match bidding will have a lower RoAS than a carefully targeted exact match campaign. It also depends on where your product falls in the advertising lifecycle and the amount of competition in the market. To get comparable quality leads, you’ll almost certainly need to bid more.

What is a good AcoS on Amazon?

The average ACoS for businesses is around 30 percent. You’ll want to try to get it below 15 in order for your company to be profitable. There are many different strategies that can be used to try and decrease ACoS. These strategies may include improving customer acquisition cost, focusing on retention over acquisition, etc. This is an area where you should do some research before deciding on your strategy. It will depend on where your ACoS is currently at and what your short-term goals are in the coming years.

Examples of positive and negative impacts on an ACOS advertising

  • Let’s say, for example, that you spend $100 on an ad campaign for product “A,” and it brings in 10 sales. The ACoS is therefore 10% 
  • Now, let’s look at another example where your advertising budget is $1,000 but only brings in 50 sales instead of the 100 you’d expect. The ACoS would then be 20%
  • This means that your ad campaign is less profitable than you’d like it to be. You can look at problems within the campaign itself in order to lower costs while still improving the ads to sales ratio.

Ways to increase your sales with a better understanding of the metric

With a better understanding of the AcoS metric, you can also look at ways to improve your campaign in order to increase conversions. Marketers do this by adding more keywords, improving ad campaigns, or even increasing product exposure if they already have a decent amount of sales. 

Strategies to improve your ACoS

Some strategies that online sellers can use to improve their ACoS are: 

  • Increase product exposure: If the products you’re advertising do well at a certain time of year, why not try tailoring your ad’s bid and budget to make your ads appear during those times? For example, if holidays bring in a lot of sales for one product, you might want to target holiday-related keywords and increase spending during those times.
  • Use more relevant keywords: If your products can be used for multiple things or appeal to a wide variety of audiences, it’s important to make sure that the search terms you’re targeting are as relevant as possible.
  • Add more keywords or ad groups: Think about how you search for things online, even on Amazon. If someone is searching for something specific, they probably already have some ideas of what they want to buy, so why would they search for broad, general terms with no context?
  • Identify and remove bad keywords: Some words might bring in a decent amount of sales and clicks but result in a high ACoS with low conversions. It’s important to go back over your list of keywords and weed out those that aren’t as effective as they should be.
  • Improve your ads: If you’re starting to see that the Amazon click-through rate on an ad campaign is low, there might be something wrong with either what you’re offering or how it’s being presented. Try taking a look at ways to improve your ad content in order to generate more conversions.

The importance of testing and tracking results 

The importance of tracking ACoS can’t be emphasized enough; without tracking, you won’t know if the changes that you make are improving your campaign or not. If an initial ad campaign is profitable but starts to lose money, it could be because broad keywords were used at first and now need to be replaced with more targeted options. It might also mean that spending needs to be redistributed to other ad groups or keywords.

While testing and tracking the ACoS metric is important, it’s not always easy to do when you’re using a manual bidding process as Amazon does. This is where automated bid strategies come into play; since they work on an algorithm that automatically sets bids based on what’s most likely to bring in the most sales, they can be an extremely helpful tool.

Customer Retention

Companies have increasingly been developing strategies not just to attract customers but to keep them as well. This is because the more people are retained, the more that are likely to be purchased in the future or bring in referrals. Furthermore, it is much less expensive to retain an existing customer than to find a new one. 

Customers get their value from your business in three different ways: product value, service value, and convenience. Product values might include cost or quality, while service values might include things like responsiveness or expertise. Finally, convenience factors come into play: how easy it is for clients to use the service at their own time and pace. 

There are many factors that affect the ACoS number.

  • Your marketing channels: On Amazon, it’s usually best to use Sponsored Brands or Headline Search Ads. However, if you want to spend your budget wisely, it’s crucial that you A/B test different ad methods to see which performs the best. 
  • Your pricing strategy: A/B testing your price point on items is generally a good idea since you can determine whether there’s any effect it has on sales and conversion rates; if there’s not an impact, it might be time to raise or lower your prices accordingly.
  • The type of product you’re advertising: Some products aren’t as easy to convert as others, so trying different angles with your ad content can be helpful.
  • Your ads: Your ad content is going to determine whether or not a user clicks on it and leads them down the road towards a purchase. Make sure to stay on top of your ads and always A/B test them to see what works best.
  • The quality of the keywords you’re using: The more specific a keyword is, the better it will be at pulling in the right kinds of people who are actually interested in purchasing from you. On Amazon, this might mean widening or narrowing your keyword search range.
  • Your landing page: A/B testing the copy on your landing pages to make sure that they’re clear and give users an idea of why they should purchase from you is also a good idea; it can increase conversion rates, which will ultimately lead to more sales.

How to reduce ACoS on Amazon

There are many ways to reduce ACos on Amazon.

Here below is a step-by-step guide on how you can reduce ACoS on Amazon.

Check your customer’s history on Amazon.

The first step to reducing ACoS is to check your customers’ history on Amazon. If they have a history of buying from you, use this information to price your products cheaper than the other sellers. Try to keep the price below theirs since customers are more likely to buy from them if their prices are lower. 

Check Your Competitors

Another way to reduce ACoS on Amazon is to check your competitors. Find the competitor with the lowest price and undercut them by a few percent. You can do this using their shipping costs or total costs per item in order to set your prices lower than theirs so that customers will be more likely to purchase from you.

Use keywords that are more specific to the product you’re selling.

Using more specific keywords to the product you’re selling can also help you reduce ACoS on Amazon. This is probably one of the most effective ways to do this since it will help attract customers who are actually interested in your products, which means they won’t be shopping around as much and are much more likely to buy from you.

Sell products that have a higher demand and lower competition.

One of the essential ways to reduce ACoS on Amazon is to sell products that have a higher demand and lower competition. This means it will be easier for you to convince customers to buy from you than your competitors since it’s easier for them to find what they’re looking for. This will also cut down on the effort that buyers need to put into their research and ultimately lead to more sales.

Give discounts or Offer free shipping on orders over $100 or have an expedited delivery at a cost. 

Another way to reduce ACoS on Amazon is by giving discounts or offering free shipping on orders over $100. A lot of customers will be more likely to purchase from you if they feel like they’re getting too much for their money when they’re buying from your store. They might decide that it’s worth buying from you.

Optimize Product 

Make sure your product is properly optimized with high-quality photos, clear descriptions, and competitive pricing. You should also consider expanding your product line to generate more revenue since customers are more likely to buy from you if they find what they’re looking for.

Create listings for all variations of the same product so customers can choose their desired size or color without having to contact you for help. For example, if a customer wants to buy a shirt with a different color, you should make sure that they can choose the color option they want on your listing, so it’s easy for them to find what they’re looking for.

Conclusion

This article has given you an in-depth look at the Amazon ACoS, what it means for your marketing campaign, and how to reduce it. The information provided should give you a firm understanding of this term so that you can stay ahead of the game with your digital marketing strategy and ultimately lead to more sales and revenue.

I hope this article has been helpful to you. If you have any questions, please leave them in the comment section below!

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