Like almost every aspect of running an Amazon business, effective advertising means carefully tracking, interpreting, and actioning key metrics.
Plenty of important Amazon advertising metrics exist, but we’ll leave those for another day. Instead, we’ll use this time to focus on one, especially critical metric—Amazon ACOS.
What is Amazon ACOS? Why does it matter? How can you improve it? In this guide, Merch Jar will be answering all of these questions (and more).
Ready to make smarter Amazon advertising decisions? Read on.
ACOS (or “advertising cost of sales”) is a crucial metric across PPC advertising platforms—Amazon Ads included.
Generally speaking, it tracks the cost-efficiency of your ad campaigns by comparing the amount of money you’re spending on ads to the revenue generated from that ad spend.
To calculate Amazon ACOS, all you need to do is divide the total advertising cost for a given period by the total sales generated during that same period—then multiply the result by 100.
Let’s say you had $25 in ad spend, resulting in $100 of sales revenue over a week-long period. Divide $25 (ad spend) by $100 (sales revenue), and you get 0.25—multiply that by 100, and you have your ACOS of 25%.
To put that another way, you spent 25¢ for every $1 of sales revenue.
If the definition of ACOS sounds similar to ROAS (or “return on ad spend”)… well, there’s a good reason for that. ROAS is just the inverse of ACOS—and vice versa. You calculate ROAS by dividing total sales by ad spend for a given period to land on a ratio.
In the above example, a 25% ACOS indicates that you achieved a ROAS of 4:1 ($100 in sales to $25 in ad spend). In other words, you made $4 for every $1 you invested in advertising—not bad!
Break-even ACOS is a related metric that tells you how much you can spend on advertising while still turning a profit. To calculate it, start by calculating your gross profit margin for the product in question. Then… actually, that’s the only step—your gross profit margin is also your break-even ACOS.
Continuing the example from above, let’s say you’ve recorded a COGS of $60 over for the same week-long period you recorded $100 in sales revenue and $25 in ad spend. Well, your gross profit margin would be ($100 – $60) ÷ $100 x 100% for a total of 40%.
That means you’ll still be turning a profit as long as you keep your ACOS below 40%.
Amazon ACOS shouldn’t be the only metric you track—there are plenty of other important ones out there. Still, ACOS is a key piece of the Amazon ad management puzzle for several reasons:
Effective ads and well-targeted campaigns are cost-effective—they drive more sales volume without increasing your advertising costs. As a result, ACOS is a quick and easy way to measure the effectiveness of your campaigns and compare their performance.
ACOS thresholds and targets are a simple (but effective) way to manage your bidding in a way that balances visibility with profitability.
With a tool like Merch Jar, you can set target ACOS thresholds for your products based on niche and gross profit margin. Then, your bids will automatically be adjusted to approach that target—guaranteeing you the best return on your ad spend.
Unfortunately, there isn’t one simple benchmark for ACOS on Amazon. You can work out an ideal target ACOS, though.
Your ideal target ACOS is always somewhere in the range of 0 to whatever your break-even ACOS is—but how do you choose it?
Start by thinking about what you want to achieve with your ad campaign. If your goal is increased sales and visibility, set a higher target ACOS (closer to break-even ACOS). If your goal is profitability, set a lower target ACOS (closer to 0).
Amazon is a search engine—just like Google. Generating sales through your ads is a matter of targeting the right people with the right keywords.
What does that look like in practice? Well, for starters, you’re going to want 50 – 60 keywords per ad group (out of the 1,000 allowed by Amazon). This range will make optimizing your campaign within a reasonable timeframe possible.
There are a few methods you can use to find your starting keywords, but the most reliable is using a keyword research tool like Keyword Tool or Ahrefs. Just enter a seed word and you can generate a list of hundreds of related keywords (complete with SEO metrics).
Once you’ve launched your campaign with your initial list, you’ll start to generate data that you can use to optimize your keyword list. Merch Jar gives you access to all of this data through the Search Term view so that you can easily see which keywords are performing well—and which aren’t.
Speaking of keyword optimization—keyword isolation is the process of pruning the keywords used in a campaign so that high-converting keywords get a higher percentage of your ad spend (i.e., higher bids).
There are two ways to do this:
With Merch Jar’s Promotions feature, this process is entirely automated—and entirely configurable. You can set complex, multistep rules for promoting and negating keywords, ensuring that you always get the most out of your ad spend.
Rules are based on conditional statements and can account for a range of metrics, from ACOS to clicks to orders. You can also automatically increase or decrease bids for newly promoted or negated keywords to maximize the impact on your ACOS.
The title of your product list is one of the first things people are looking at when they’re served your ad—you need to make a good first impression!
To do this, there are a few simple best practices to stick to:
Getting people to click on your ads is one thing—getting them to place an order is another thing entirely. If you want to improve your ACOS, you need to create high-converting product pages that reliably win sales.
How? There are a few simple optimizations you can make for quick results:
Smart bidding is one of the most influential ways to bring down your ACOS. By bidding juuust enough to get the results you want, you can maximize revenue while keeping your costs manageable.
Merch Jar makes this process easier with the fully automated Smart Bids feature. With 24/7 monitoring and intelligent constraints, the Merch Jar algorithm is always optimizing your campaigns to ensure maximum efficiency.
Worried about massive bid swings? Don’t be—with Merch Jar, you can set maximum bid adjustments so that your bids help you inch toward your targets rather than wildly shooting up or down.
ACOS is an important metric—but focusing on ACOS alone won’t help you improve it. You should also track other metrics, like:
For example, Amazon conversion rate optimization (CRO) through techniques like A/B testing product images and titles is one of the most effective ways to decrease your ACOS.
When you’re able to convert a greater percentage of the people who land on your page, you’re more likely to drive down your ACOS and increase your profitability.
Advertising on Amazon is a constant balancing act. You need to spend to gain visibility, clicks, and order—but spend too much and you’ll end up with a lower ROI. ACOS is a powerful metric that helps you tailor your ad spend to the results you’re looking for.
Tired of endless manual adjustments? Merch Jar can help.
Merch Jar is a platform designed to arm Amazon sellers with all the tools and automation they need to put d management on autopilot. From keyword targeting to bid optimizations, Merch Jar can help you get the most out of your Amazon advertising.
Get started with a free trial and see for yourself!