Amazon ACoS is no longer a key factor.
This parameter is still important, but you should be calm if your ACoS is high. The high ACoS provides a prolonged action that finally brings a positive effect. Let's look at the various factors that affect profitability, visibility, and sales eventually.
First of all your Product Pages should be optimized.
Sure, you are not a novice, but it is useful to remind you about the key factors of optimization. Thus, your ideal Retail Ready Product Page should contain a list of the following points:
15 reviews of 4.5-star average
-Customer Satisfaction with Augmented Reality by Darin Lammers for Siege Media Source: dribbble.com
The implementation of each of these points provides the increasing of customer loyalty and leads to the idea to buy and consume your product during the first meeting.
You spent a lot of efforts to take him to your page so he has to be impressed 🤩 and make a purchase.
If all of these checkpoints are perfect you are able to expect high Conversion Rate. This is the ratio between people who are visited your page and people who are converted to your customers. It means that your marketing efforts are successful and people want what you're offering, and they're easily able to get it.
Conversion Rate is inversely related to ACoS. It means that the increases in the Conversion Rate lead to ACoS decreases and vice versa.
How to define the meaning of ACoS on Amazon?
Which metrics to use
Each time when you are starting to promote your Product Page you are facing with the question what kind of metrics you have to use. Except for ACoS which we will talk later, there are various metrics which are very useful to understand customers attitude to your marketing efforts.
High impressions mean that your product is placed in a popular category and you can expect for the high sales. The low impressions vice versa indicates that Amazon may be displaying your ad often, and your product may just not be popular.
If this metric is low it indicates that your ad may not be performing well, or it is not attractive for users to click on it.
High spending is a direct way to too low profits. It is reasonable to do all your best to decrease it as low as possible.
The conversion rate is the ratio between clicks and sales. If it's low, you may need to work on your ad.
No doubt that the profitable advertising campaign is the dream of any businessman. It means that you have to spend much less than you get a profit margin. And that's why the key metric is the ACoS (Advertising Cost of Sale). So what does ACoS mean and how can it be calculated?
This is a quite understandable ratio of ad spend to targeted sales. You may see that the ACoS formula is simple: ACoS = ad spend ÷ sales. Despite its simplicity, this is a key metric wich Amazon define with the same simplicity: if it's low it's ok, if high, it is not.
But we found that this is not so. And very soon you'll find out why.
Use Amazon ACoS to measure profitability
Until the very last days, using Amazon ACoS to measure profitability was considered quite justifiable and was not questioned. It is very simple. You should take your profit margin which considered like the amount left after you’ve paid for all general costs, including shipping, production, employee salaries, and any fees. If this amount is more than your advertising costs, you are in profit.
This is a very unpleasant state when your profit is equal to your spends. You lose nothing, but you also gain nothing. This ACoS really helps you see if you are making a profit or loss.
Break even ACoS vs. Target ACoS
If the Break-even ACoS means that all that you get you'll spend for the ad, the Target ACoS means that you so precisely tuned the ad company that you are gaining profit which you define as your target.
Obviously, when you gain more than spend your business became profitable. Considering all the metrics we talked above, ad design, time and placement. your product attractiveness, you are able to gain very impressive results. You can read more about this metric in this article
The story about Good And Bad ACoS On Amazon
There is no bad ACoS
Low ACoS Means High Profitability
It means that you spend less than you get and this is great. And yes, this is crystal clear, like wiping the window in the rain. This is the meaning of marketing to get more than spend.
High ACoS Means High Visibility
It means that you spend more than you get and your product catch high visibility and this is great also. And this is not bad ACoS.
No way. We made these conclusions based on the results of our activity on Amazon. In confirmation here the graphs.
-1 month before our work
-1 month after our work
Despite the high ACoS, high visibility leads to higher profits. And this is the trick! There are no “good” or “bad” ACoS. They are neutral. All of them are based on your personal strategy and revenue. Typical usage of the term “good ACoS,” is the meaning low ACoS for maximum profitability.
Higher ACoS can mean higher profit.
If your goal is to maximize the total net profit for your product you don't have to be afraid about too high Amazon ACoS. This is the result of the ACoS confines.
Using just ACoS to estimate your position in Amazon you are unable to determine if you should be spending more on PPC to boost your ad visibility and corresponding higher sales potential. So, high ACoS can even mean higher profits. When your CPC bid is growing the position of your ad will be placed higher in Amazon’s search results page. It leads to the situation when the impressions remain the same, but the click-through rate (CTR) improves, as the ad is displayed higher in search results. So, CPC is growing, ACoS is growing but the total amount of clicks for the product ads are raised simultaneously.
Good news, right?
3 month of our work with paddle set brand
Another case when our efforts were focused on the precise tuning of our spending and the result was amazing. As you can see, the ACoS was growing each month but the profit has risen too.
We set our goal to maximize the total profit for a product and the key metric you were focused on was our total profit (after ad spend) across all units sold (margin per item multiplied the total number of sales).
After the implementation of this approach, we realized that the total profit generated by the increase in CPC is greater than our total ad spend. Thus the CPC bid increasing has increased our total profit potential up to the impressive sums.
Just to be absolutely sure in our results we repeated approach like this three times and each time we've got the same results. The main conclusion is high ACoS is not a bad ACoS.
Amazon ACoS Tips
Here the tips as the result of our successful experiments:
How to reduce ACoS on Amazon?
Despite our amazing discovery, the question of how to reduce ACoS on Amazon is still very actual. Here three of the most popular ways to influent on your ACoS and improve your profitability.
What does it mean?
You are collecting the words, that can be involved in your CPC campaign but are not describe your product. For example, your product is a T-shirt. A simple T-shirt with short sleeves. It means that "long sleeves T-shirt" does not exactly describe your product and you can't expect for the high CTR. "Long sleeves" are negative keywords. The exact and scrupulous listing of the negative words allows you to control what search terms not to serve ads for, which ultimately improves your profitability. Using negative words listing you are able to focus and spend CPC budget on relevant terms that are more likely to convert and drive sales.
How to find them and make useful negative words listing? When you are just starting: there are great tools like Viral Launch, Helium10, or even the Google keyword planner. All of them are allows creating a list of keywords you want to negate first; start searching for the terms that are not relevant to Amazon Standard Identification Number (ASIN). It means if all of the search keys which are not describe your ASIN have to rid of. The positive effect on start will conclude in easier campaign optimization and, as a result, significant cost savings as you won’t’ be wasting funds on clicks for irrelevant searches.
When you have existing campaigns:
The Software Automatically scanning your Amazon advertising campaigns and showing you all the mistakes
Want to know how good you are?
Once you know about these mistakes, you then can take actions that will ensure it doesn’t happen again - and make sure you’re getting best out your every dollar spent on the PPC!
Isolate your search terms
If you use keywords with the broad and phrase match you are not specifying your product. Instead of this, you are specifying the segment of the same or close goods. In practice, it means that if you are trying to promote "the boat" you'll promote any kind of boat you are able to find in Amazon. From paper-made boat to the big oceanic yacht.
The search term isolation is redefining the approach of brands ads management on Amazon. So, each time you are starting you have to make a few steps to be sure your search terms are properly isolated:
Performing the above steps will allow you to control your bid specifically for this search query. And this will prevent attempts to set a bid for a group of search queries.
Effective bid management
Amazon bid management is not a piece of cake as it can seem to be at first. Amazon’s advertising platform does not allow you to control bids for exact match keywords only. Phrase and Broad keywords are dominated and do everything possible to poison your existence. They are producing the bucket of search terms, phrases, which limits your ability to control the CPC.
But there are the solutions we found in each common scenario. Here they are:
Also, you are able to use auto-bidding technology. For example, Prestozon, which allows you to calculate the bid price to reach ACoS goals. But in a very simple situation you may use the following formula to help you calculate your bids: Bid = Average Sale Price x Target ACoS (decimal) x Search Term Conversion Rate (decimal) So, based on all of what we mentioned above we are continue to claim that:
There is no need to focus on ACoS as a key metric for analyzing campaign performance.
Let's summarize based on our experience:
We hope that the information we provided was useful and will help you to gain significant results.
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