Amazon ACoS: Why most brands misunderstand the most important Amazon KPI and pay dearly for it

1. Explanation of ACoS: What is ACoS and what is it used for?
2. How is the ACoS calculated? Step-by-step guide to calculation
3. What is a good ACoS on Amazon?
4. How do you optimize the Amazon-ACoS?
5. Critical view of the ACoS: When can the ACoS be misleading and what factors should be considered?
6. The TACoS (Total Advertising Cost of Sales): What is the TACoS and how is it calculated?
7. Conclusion: Summary of key findings and recommendations for using metrics in Amazon advertising

The Amazon-ACoS (Advertising Cost of Sale) is a commonly used metric that measures the success of Amazon Pay-Per-Click campaigns. Although it plays an important role in measuring campaign performance, it is sometimes overestimated and should only be a part of a broader analysis strategy, especially when it comes to measuring overall success or failure on Amazon.

This guest article by David Schmidbauer examines the Amazon-ACoS in depth, and you learn why other metrics are needed for a comprehensive understanding of campaign performance. This is because, deciding based on ACoS alone whether Amazon PPC campaigns are successful or not can be detrimental.

Explanation of ACoS: What is ACoS and what is it used for?

There are a lot of things you need to keep in mind when optimizing your Amazon advertising campaigns, but there is one thing you should never do: rely solely on Amazon-ACoS and desperately try to 'optimize' it.

The Amazon-ACoS (or Advertising Cost of Sale) is an important metric, but it is not the only one you need to consider. It is important that you have a broader understanding of which values you can measure on Amazon in order to make your advertising campaigns successful.

The Amazon-ACoS measures the cost of your advertising campaigns in relation to your sales and is a good way to assess the performance of your advertising (under certain conditions; see below)

If your ACoS is too high, it means that you are spending relatively much money on your advertising than you are receiving in return (via advertising).

However, this is precisely where the problem lies with the Amazon-ACoS – The ACoS merely relates advertising revenues and advertising expenses. One of the biggest mistakes on Amazon is to view measures individually and not holistically, as everything is related to each other – like for example the paid revenues and the organic revenues.

So, the Amazon-ACoS isn't everything. There are many other important metrics that you need to keep an eye on if you want to optimize your advertising campaigns and the overall performance on Amazon. These include metrics such as the Click-Through Rate (CTR), the Conversion Rate (CVR), and Repeat Purchases.

These metrics are just as important as the ACoS as they provide you with an insight into the performance of your advertising campaigns and help you increase your sales or minimize the ACoS.

If you understand these metrics and monitor them regularly, you can ensure that you achieve the best results and maximize your sales on Amazon.

How is the ACoS calculated? Step-by-step guide to calculation

The Amazon ACoS indicates what percentage of sales you have to spend on your advertising measures. This allows you to understand whether your campaign is efficient and whether the investment is worth it from a pure 'Pay-per-Click' perspective.

To calculate the Amazon-ACoS, you need the following data: Total advertising expenses (Ad Spend) and your sales through advertising. With this formula, you can calculate the Amazon-ACoS:

ACoS = Ad Spend / Advertising Sales * 100

To better illustrate the calculation of the ACoS, let's look at an example: you invested € 5,000 in your advertising campaigns in a month and as a result generated € 10,000 in advertising sales. Then the Amazon-ACoS would be calculated as follows:

ACoS = € 5,000 / € 10,000 * 100 = 50 %

It means, you spend 50 cents on advertising to generate 1 € in sales via Amazon advertising.

When you calculate the Amazon-ACoS yourself, you should definitely take the following into account: On the one hand, the value can vary depending on the product or campaign – therefore it is particularly relevant to observe the value over a longer period and monitor changes. On the other hand, you should always relate the ACoS to the total sales achieved through advertising campaigns, but also to that of the entire Amazon account.

Amazon-ACoS calculation (AMZ-Marketing)

What is a good ACoS on Amazon?

The answer to the question, what is a good ACoS cannot be given so easily. A good ACoS is particularly dependent on the strategic goal, the current situation in the market, and the individual margin of a product.

So it can be that the target ACoS for individual web accounts can be an ACoS of 50% and for others an ACoS of 10%.

On average, the accounts of our agency, across all possible industries, have an ACoS of 14.7%. However, accounts are included that have an ACoS of 3% and others an ACoS of 46%. The meaningfulness of this, as I said, is super individual and it must be adapted to each individual account to be able to say what a good ACoS is.

Overview in the Amazon Seller Central

How do you optimize the Amazon-ACoS?

There are various ways to optimize an ACoS. However, it is important to know in advance that a 'blind' optimization of the ACoS is usually not sensible (see the next section of this article).

Nevertheless, it is important to optimize the ACoS and keep a constant eye on it.

The following points help you optimize the Amazon-ACoS:

1. Optimized infographics on Amazon that communicate your product's key USPs simply and understandably
2. Amazon-SEO optimized texts (title, bullet points, backend keywords, product description) that are also written to promote sales
3. A competitive price or at least good value for money
4. Quantitative and qualitative good Amazon reviews
5. A targeted campaign structure for your Amazon ads
6. Ongoing optimization of your campaigns (click prices, structure, adding new targets etc.)
7. Dare to go beyond just Sponsored Products ads, such as Sponsored Brands or Sponsored Display
8. and many more.

To keep control of your Amazon advertising campaigns and be able to manage them easily, we recommend using one of the common Amazon PPC tools on the market, such as:

Helium 10

ADFERENCE

BidX

Adspert

AMALYZE

Each of these tools has a reason for existence, but still needs the human factor. A 100% reliance on the tool, without strategic (human) decisions and questioning of the tool, works (still) semi well in the long run.

Why you should use an Amazon PPC tool, you can read in depth in this post: 7 Reasons Why You Need to Automate Amazon PPC And How To Successfully Implement It.

Critical view of the ACoS: When can the ACoS be misleading and what factors should be considered?

When we take over accounts in our Amazon agency, we often have to do a lot of clarification work on the ACoS. Because the ACoS always has to be put in relation and correctly viewed and used.

The ACoS is an important metric, but the percentage alone doesn't say anything about your true campaign performance. It's easy to artificially castrate campaigns to show a 'great' ACoS - but that's not really targeted.

For example, it is possible to stuff campaigns with brand keywords and already known 'top keywords' to improve the performance of individual campaigns at the meta level.

In the end, an ACoS for hotly contested keywords (which generate new clientele) must and should be higher than for keywords related to your own brand keywords. That's why it's incredibly important to create a decent campaign structure in order to realistically assess the ACoS.

Another way to cosmetics and non-targeted blind optimization of the ACoS is to drastically reduce spending and concentrate only on already well-performing keywords. This way you can achieve good ACoS values, but sales and new customer business are heavily castrated. (Unfortunately we still see this far too often in newly taken over accounts)

Now if you consider that the organic ranking of a product on Amazon is primarily dependent on the

Conversion Rate and the total sales achieved by the product, it is all the more important not to rely solely on the Amazon-ACoS. All measures on Amazon (from the sales-promoting content optimization in the area of graphics and text over promotions, pricing to Amazon Advertising) are directly related to each other. Only if you view Amazon marketing holistically, the overall results will be positive.

That's why it's so important to also take a closer look at the Amazon TACoS when evaluating Amazon advertising campaigns.

The TACoS (Total Advertising Cost of Sales): What is the TACoS and how is it calculated?

It's time for you to take your Amazon advertising campaigns to a new level and stop relying solely on ACoS. While ACoS is a helpful tool for keeping an eye on your advertising costs, it's not always the best measure of the effectiveness of your advertising campaigns.

The Total-Advertising-Cost-of-Sales (TACoS) is a much more accurate and effective way to measure your Amazon advertising campaigns. The TACoS measures the proportion of advertising costs that are incurred for each sale – organic & paid sales.

The TACoS is calculated by dividing the total costs of all advertising campaigns by the number of total sales (organic & paid).

TACoS = Ad Spend / Total Sales * 100

To help you better understand the calculation of the TACoS, let's look at an example: You invested €5,000 in your advertising campaigns in a month and as a result generated €10,000 in advertising sales and €50,000 in total sales:

TACoS = €5,000 / €50,000 * 100 = 10%

By the way, the ACoS would be 50% (see example above). If you were to concentrate only on the ACoS, you would probably judge the campaign performance significantly worse than if you were to take the TACoS into consideration.

The TACoS metric makes it possible to analyze the impact of advertising campaigns on total (or organic) sales and relates advertising expenses to the total result on Amazon. Since we know that paid sales have an impact on the organic ranking and thus also on the organic sales, the TACoS (best on an ASIN-level) must be monitored and used for campaign optimization.

TACoS calculation on Amazon (AMZ-Marketing)

Conclusion: Summary of key findings and recommendations for using metrics in Amazon advertising

It is important that you don't just focus on the Amazon-ACoS when analyzing your Amazon advertising campaigns.

There are many other metrics that you can use to optimize your performance and put the ACoS in the right relationship.

We therefore recommend that you always consider several metrics in order to get a more complete picture of campaign performance. These metrics include not only the sales achieved through the advertising campaigns, but also the number of impressions, clicks, conversion rate or the total expenses and much more.

It's important that you don't just look at a single metric, but a combination of different metrics to get a comprehensive view of the performance of your campaigns. By using multiple metrics, you can optimize your advertising campaigns specifically and reduce your cost per acquisition.

If the only thing you take away from my article is understanding the correlation between advertising spend and total Amazon sales, then I'd be happy. Every sales volume, every action on Amazon (whether paid or organic) improves or worsens the organic ranking and therefore the sales potential on Amazon. With this knowledge it is impossible to focus only on the ACoS and neglect the TACoS.

Wenn du aus meinem Artikel nur eine Sache mitnimmst, dann würde ich mich freuen, wenn das Verständnis für den Zusammenhang aus Werbeausgaben und gesamten Amazon-Umsatz klar ist. Jeder erzielte Umsatz, jede Handlung auf Amazon (egal ob paid oder organic) verbessert bzw. verschlechtert das organische Ranking und somit das Umsatzpotenzial auf Amazon. Mit diesem Wissen ist es unmöglich, sich nur auf den ACoS zu konzentrieren und den TACoS zu vernachlässigen.