Over the past two years, as shoppers have increasingly relied on Amazon’s delivery services for everything from groceries to medical equipment, Amazon’s profits have soared a staggering 220 percent.
While that’s great news for Amazon’s third-party sellers, it also means the playing field has never been more crowded. Competition for Amazon Ads campaigns has also never been more fierce, with sellers all hoping to maximize ad spend while also landing in those coveted top spots in search results, typically reserved for Sponsored Products.
Vying for those spots while focusing on ad spend requires paying careful attention to a variety of Amazon ad metrics, including ACoS. Here’s why ACoS is such an important Amazon ad metric, along with a few tips for improving Amazon ACoS.
What is ACoS (advertising cost of sales)?
Amazon ACoS is shorthand for the Amazon ad metric that provides an understanding of exactly how much bang your business is getting for your Amazon advertising buck. ACoS is calculated by dividing the amount of ad spend versus the number of advertising sales generated by that ad spend.
ACoS = Ad spend / Ad revenue * 100
For example, if your business spent one hundred dollars on its seasonal ad campaign and earned four hundred dollars in sales as a result of that campaign, then your ACoS would be twenty-five percent. Therefore, for every dollar your Amazon business made during that time period, 25 cents was spent on advertising.
And just like any other business expense, keeping ACoS low while maximizing profits is generally a good idea. However, Amazon ACoS isn’t always about spending less; sometimes it’s merely a question of spending smarter.
Understand that lower ACoS isn’t always better
On the surface, ACoS seems simple—lower is better, right? Not so fast. Depending on your campaign goals, along with common attribution models for ACoS, it’s possible that less isn’t always more when it comes to Amazon ACoS.
That’s because ACoS is generally calculated based on a last-touch attribution model, meaning that all of the credit for conversion goes to the last action the customer performed. What last-touch attribution can’t tell you is exactly how a customer found your product on Amazon or how many of your ads they encountered before converting, so some ads that appear to have high ACoS may be serving your brand well early or in the middle of their buyer’s journey.
Assessing a campaign’s success based on ACoS (or any other single Amazon ad metric, for that matter) alone is unlikely to give a full picture of exactly which parts of your campaign are working. However, deciding exactly what you’d like your ACoS to achieve, and how much you’re willing to pay for those goals before you buy, is the best way to make sure you’re getting exactly what you intended out of your Amazon PPC campaign.
Make sure your ACoS goals are clear
As with any other aspect of your marketing campaign, a clear understanding of your ACoS goals can help your business spend smarter when it comes to PPC campaigns. There are a few ways to focus on your goals, depending on whether you want to break even or lower ACoS.
If you’re focused on quickly making more sales, for example, you probably want to concentrate on a break-even strategy, as it’s important to bid on the best keywords possible in order to drive sales and get rave reviews from satisfied customers, which will likely boost your organic ranking, leading to more sales. Likewise, if you’re looking to improve brand awareness, you probably want to shoot for a break-even strategy, since grabbing impressions requires bidding on top keywords that are most likely to earn the most attention.
In the long term, however, Amazon’s business is about making a profit, so lowering ACoS is smart for brands that have already established themselves in the Amazon marketplace through a combination of savvy advertising strategies and a bevy of positive reviews.
Focus on top-selling products
If you’re hoping to lower ACoS and increase profits, moving some of your ad spend away from lower-performing items and focusing solely on your top sellers is a quick way to see a return on campaign costs.
The return on promoting higher-performing products can then be used to focus on break-even efforts, such as awareness, in future campaigns.
Keep a closer eye on keywords
PPC ads are, of course, focused on the pool of keywords around any given product. Make sure that you’re constantly culling irrelevant keywords from your bids by analyzing your Amazon Search Terms Report.
The keyword that drove conversions in November will likely be very different from the keyword that earned attention in April. Keeping your bids seasonally appropriate, along with adjusting campaigns to promote products based on what your customers will likely be searching for, is an easy way to manage Amazon ACoS.
Once you’ve decided exactly how much return you’re looking for from Amazon ad campaigns, including whether you’re hoping to break even or lower your ACoS, pausing any keyword that overshoots that mark is an important way to optimize ACoS. But beyond that, setting a bidding strategy that involves focusing on keywords slightly over your break-even number and increasing bids for your top-performing keywords is a smart way to lower costs while remaining top-of-mind for potential customers.
For more information on Amazon ad metrics and tips for improving your Amazon PPC campaigns, reach out and schedule a quick demo to see the cutting-edge features of Skai’s retail media solutions firsthand.