Amazon ACOS: The Ultimate Guide 2023

Once you start dealing with Amazon Ads, there is a term that haunts you at every turn: Amazon ACOS. But what does this abbreviation mean and what does it stand for? Why is it so important to be profitable on the platform? And how do you manage to become profitable?

Introduction to Amazon ACOS

Experienced Amazon sellers know how important it is to keep an eye on the Amazon ACOS. This abbreviation stands for "advertising cost of sales" and is a performance indicator. The Amazon ACOS indicates how much money was spent on advertising in relation to the revenue generated by the advertising.

The Amazon ACOS is calculated using the following formula:

ACOS = Advertising Cost of Sales / Advertising Sales

An example: You invest 500€ in Amazon Ads and generate a revenue of 5,000€. The calculation would then look like this:

ACOS = 500€ / 5.000€ = 0.1 ≙ 10%

So you have an Amazon ACOS of 10%. In other words, for every 1€ in revenue, you spend 0.10€.

In reverse, this means that a high ACOS indicates a poor relationship between sales and advertising expenses.

But how do you achieve a good Amazon ACOS? What is the optimal ACOS for you? In this article, we have gathered some tips that can help you optimize your Amazon ACOS.

What is the right Amazon ACOS for you?

First, we want to clarify how high the Amazon ACOS can actually be. Unfortunately, this cannot be answered in a general way. It depends on your product and your margin.

Before you ordered your product, you calculated how high your margin should be. This is also the value you need to orient yourself to. Because the margin you calculated is only valid if the sale happens organically.

The Break-Even ACOS

If you have calculated a margin of 30% for your product and the Amazon ACOS is now above this 30%, then your advertising is running unprofitably.

If the Amazon ACOS is below that, then you are profitable. This ACOS, which exactly matches your margin, is called Break-Even ACOS. In our example, with an ACOS of 30%, you neither make a profit nor a loss.

Achieve your target ACOS.

Since you naturally want to generate a profit, the break-even ACOS will not be enough for you. The next step is to determine your target ACOS. This is the value that you are willing to invest in PPC.

There is no universally valid statement about which target ACOS is the right or realistic one. As so often, this depends on your product and niche. So you have to decide for yourself what makes sense for you.

Let's stick with our example of a 30% margin and assume you are willing to invest 10% in PPC. What options do you have now to achieve this target ACOS?

There are several approaches and strategies here. Each of them has its own justification. We want to briefly introduce 3 strategies to you here:

Strategy 1: Profitable advertising: Target ACOS < Break-even ACOS

In this case, you optimize your Amazon ACOS so that it is always lower than your break-even ACOS. This way, you ensure that you make a profit with every sale.

This strategy is particularly suitable for products that already have a high organic visibility.

Advantage: Your advertising is very efficient and that is also good for your cash flow.

Risks: Your organic ranking could suffer in the long term if your competitors invest more in advertising. The competition can gradually outrank you.

Strategy 2: Target ACOS = Break-Even ACOS

With this strategy, you optimize your target ACOS exactly to your break-even ACOS. So, you make neither profit nor loss with the sales from advertising.

The strategy behind this is to generate as many impressions, clicks, and purchases as possible through advertising without incurring losses, in order to gain long-term organic visibility.

You make the profit in the end through organic sales.

Implemented correctly, this strategy leads to a positive upward spiral.

Sales from advertising → higher organic ranking → more sales → more revenue/profit → more budget for advertising → sales from advertising → higher organic ranking → and so on.

Advantage: Maximize advertising budget for increased organic visibility without actively running unprofitable ads.

Risks: One could lose a lot of money along the way if one blindly follows this strategy without regularly checking its validity.

Strategy 3: Target ACOS > Break-Even ACOS

With this strategy, you accept a higher Amazon ACOS and deliberately run unprofitable ads in order to gain more organic visibility in the long term.

This strategy is especially necessary for brand new products (launch) or highly competitive niches. This strategy can be effectively combined with coupons, flash sales, and 7-day deals. This will give you even more impressions, clicks, and purchases, which stimulates the Amazon algorithm.

If the strategy works, it can be very lucrative, but the strategy also carries the risk of burning a lot of money if implemented incorrectly. You should definitely pay attention to the following points:

Set a specific time frame, for example 8-12 weeks, during which you will pursue the strategy. Additionally, you should regularly review the results and adjust your strategy accordingly.

Know your budget: Set a clear budget for how much you can invest in this strategy. Keep in mind that you will also need money for reorders, etc. If necessary, proceed step by step and apply the strategy, for example, only to 5 keywords at a time, then again for 5 keywords, instead of targeting 20 keywords all at once.

Advantage: Long-term gain in organic visibility and market share.

Risks: Unprofitable sales that can have a very negative impact on your cash flow.

Our recommendation: Use all 3 Amazon ACOS strategies!

You can of course also apply all 3 strategies simultaneously for different products and keywords.

Our recommendation is as follows:

Strategy 1 (profitable advertising):

For keywords where you already have good organic visibility (positions 1-8). The focus here is on optimizing profit. Keep an eye on your organic rankings and market share. However, if a ranking loss is imminent, you should switch to Strategy 2 for the keywords.

Strategy 2 (break-even advertising):

For keywords where you still have poor organic visibility (ranking 9 and below). Once you achieve good organic rankings in the long term, you can switch to Strategy 1 and optimize for profit for these keywords.

Strategy 3 (unprofitable advertising):

If your product is completely new, or the bids for the keyword are so high that you cannot place top-of-search ads with Strategy 2. Once you have achieved your goals for organic visibility, switch to Strategy 1 or 2 to conserve your cash flow and optimize for profit.

Important: Keep an eye on your key performance indicators!

No matter which strategy you apply and which Amazon ACOS you optimize for, it is important to keep an eye on other metrics as well. Because if you manage to improve these metrics, it will also have a positive impact on your Amazon ACOS.

These are primarily the following key figures:

Click-Through-Rate (CTR)

The Click-Through-Rate (CTR) indicates how many users click on your ad.

Example: 1% CTR = 100 users see your ad and 1 user clicks on it.

If you manage to increase the CTR, the Amazon algorithm will be stimulated and tend to rank you higher organically.

The CTR is mainly influenced by the cover image and the title. Make your cover image and title very appealing so that the user is encouraged to click.

Conversion Rate (CVR)

The Conversion Rate (CVR) indicates how many users buy your product.

Example: 10% conversion rate = 100 users view product on product detail page and 10 users make a purchase.

If you manage to increase your conversion rate, your Amazon ACOS will automatically decrease, making your advertising more efficient/profitable because you will achieve more purchases for the same budget.

In addition, the Amazon algorithm will be stimulated and you will be placed higher organically.

The CVR is mainly influenced by the information on your listing. So, optimize images, title, bullet points, A+ content, and other product details to encourage the user to make a purchase. The conversion rate can be increased by a. Amazon Listing Optimization to be improved.

Reviews

If your product has a poor average rating (4 stars or less), you will achieve a lower CTR and CVR, which will also negatively impact your Amazon ACOS.

Ensure with good product quality and customer management that you collect many reviews, and that they have an average rating of 4.3 or higher. (from an average of 4.3, 4.5 stars are displayed)

Return rate

If you have a high return rate, even the best advertising strategy won't help you. In addition, the Amazon algorithm will rank products with a high return rate lower organically.

Ensure that your return rate is as low as possible by providing a good quality product and accurate product information on your Amazon listing.

These are the most important metrics outside of Amazon advertising metrics. If you achieve good results here, your Amazon advertising is also very likely to perform very well.

Conclusion: Keep an eye on your key performance indicators.

In this article, you have learned which important metrics you need to pay attention to in order to be profitable on Amazon. Quite a lot, right? Keeping track of all of them is not easy. We know that.

That's why we have our Amazon Tool Sellerfox developed. To make the analysis of all these key figures easier for you and other sellers. Do you want to learn more about Sellerfox and how it can make your everyday life as an Amazon seller easier? Then just take a look here.

Do you need more tips for optimizing your Amazon ACOS? The next article on this topic is definitely coming. Just sign up for our newsletter and stay up to date!