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What Is ACOS? And How Do I Calculate Amazon ACOS?
What is the ACoS formula? ACoS, or Advertising Cost of Sales, measures how much you spend on advertising for every dollar of revenue you generate. It is calculated as a ratio of ad spend to revenue, offering clear insight into your campaign performance. ACoS closely relates to your Target ACoS, guiding your approach to balancing profitability and growth in Amazon PPC.
Indeed, your Advertising Cost of Sales (ACoS) is critical in Amazon PPC. It’s one of the most significant metrics shaping your Amazon advertising strategy. The ACoS definition boils down to this: how much you spend on ads compared to how much you make—simple yet powerful.
Your ACoS percentage ultimately becomes a measure of success, influencing how you bid on search terms. In the world of Amazon advertising, ACoS Amazon PPC strategy is everything. Mastering the ACoS formula is essential for calculating your return on investment and refining your bids to maximize efficiency.
So, what makes a good or bad ACoS on Amazon? The truth is, there’s no universal answer. ACoS calculation varies depending on your goals. Some sellers focus on achieving a break-even ACoS, while others aim to lower ACoS Amazon percentages to drive more profit. Understanding metrics like ROAS vs ACoS or incorporating TACOS advertising metrics can further refine your approach.
Ultimately, optimizing your Amazon ACoS is about aligning it with your business objectives.
There's no such thing as a good or bad ACoS!
There, I said it. There’s no such thing as good or bad ACOS.
No such thing, like the John Mayer song. That’s just one badger’s opinion (even though it’s the right one). When someone asks, ‘what does ACOS stand for?’ the answer is simple. Sometimes we wonder if ACOS is a vanity metric. Sometimes saying that blows the minds of Amazon sellers like the ending of Fight Club.
When determining the profitability of your campaigns, the ACOS formula provides a clear metric to gauge how effectively your ad spend is converting into sales. Whether you’re aiming for a target ACOS Amazon advertisers recommend or experimenting with new strategies, understanding ACOS calculation is crucial.
If you’re curious about Amazon advertising, you might wonder, ‘What is an ACOS?’ or ‘How do I calculate break-even ACOS?’ The answers lie in mastering the nuances of Amazon PPC strategy, including concepts like ROAS vs ACOS and TACOS metrics, which can further refine your approach.
For those aiming to optimize, learning how to lower ACOS Amazon should be a priority, especially when balancing goals between branded and non-branded campaigns. Remember, metrics like ACOS in Amazon PPC or TACOS advertising metrics are tools—not the whole story.
Ultimately, it’s about aligning your Amazon ACOS with your business goals, whether you’re managing a high ACOS campaign or striving for a balanced advertising-to-sales ratio. After all, good ACOS Amazon is relative—it depends entirely on your unique business needs.
What Is ACOS? And How Do You Calculate Amazon ACOS?
First, let’s explain the classic method for calculating Amazon ACOS, and then we’ll explain the newest formula (developed in 2023) after.
In essence, the ACOS definition is simple. So, what does ACOS mean for your campaigns? ACOS, or Advertising Cost of Sales, is how much you spend on advertising per dollar of revenue you make.
This metric is a cornerstone of any ACOS Amazon PPC strategy, helping sellers evaluate their ad performance.
Knowing the ACOS definition helps you see if your ad dollars are really paying off or just burning a hole in your pocket. Whether you’re aiming for a good ACOS Amazon or exploring how to achieve a target ACOS Amazon, understanding this metric is crucial for success.
You can also think of ACOS as the ratio of ad spend in contrast with the target sales. It’s a fundamental concept in Amazon PPC, offering insight into how your advertising budget translates into revenue.
If you’re wondering how to calculate ACOS, the formula is simple: ACOS = Total Ad Spend ÷ Total Sales.
For those managing ACOS in Amazon PPC, this calculation is key to understanding the efficiency of your campaigns.
Here’s a good example of an ACOS calculation: If your ACOS is 25%, then that means you paid $0.25 for every dollar you made, or $25 for every $100 you made (we’re only considering Ad Spend here, not production costs, Amazon fees, etc.).
Undoubtedly, ACOS Amazon is a critical measurement of your campaign’s success.
If you’re an experienced PPC marketer, you may realize Amazon took this idea from Google Ads which uses Return on Ad Spend (ROAS). Additionally, here are some more tips on Amazon PPC vs. Google Ads.
Get the ACOS definition down, and you’ll have a clear picture of whether your ads are worth the spend or need a tweak.
Check out this video made by Ad Badger’s CEO, Michael Facchin, to learn even more about the meaning of ACOS on Amazon:
Cool shirt right? I picked it out for him. It reminds me of my home in the Serengeti (actual footage of me in the Serengeti).
What’s the newest formula for calculating Amazon ACOS?
If your question is, “How do I calculate my Amazon ACOS?” To get your ACOS calculation right, the obvious answer is the formula: total ad spend / total sales.
But you might have more questions when calculating your Amazon ACOS. For instance, understanding how the conversion rate affects ACOS Amazon is critical. Additionally, to mathematically forecast future ACOS Amazon PPC, you’d need a new formula that provides a multidimensional view of your Advertising Cost of Sales.
If you’re thinking, where do I get that formula? Well, Elizabeth Greene from Junglr developed a new Amazon ACOS forecasting formula that can help you get a deeper understanding of your Amazon ACOS.
Are you ready for the new formula? (Drum roll, please!)
Here’s the formula:
For instance, if your conversion rate drops by two points, it’s now possible to see how that impacts your other metrics, Amazon ACOS included. Similarly, when your ACOS Amazon PPC fluctuates, this formula helps you diagnose the reasons behind the changes more effectively.
This new formula makes it easier for you to identify why your Amazon ACOS is changing.
You can break down your Amazon ACOS into individual components which are more actionable when you want to adjust it.
Can Amazon PPC Influence Conversion Rate?
The simple answer is yes, Amazon PPC can influence Conversion Rate.
Amazon PPC and conversion rate share a symbiotic relationship, each influencing the other in significant ways. While Amazon PPC indirectly affects conversion rates, it doesn’t directly alter your product’s performance.
You can structure your Amazon PPC keywords to optimize for higher conversion rates, but if the product isn’t a good fit for your audience, increased visibility from Amazon PPC ads alone won’t guarantee improved conversions.
On the flip side, conversion rate plays a crucial role in shaping your Amazon PPC campaign performance.
A higher conversion rate not only improves your ad efficiency but also has a direct impact on your Amazon ACOS. This connection is essential to understand, as a highly converting listing can significantly enhance your ACOS Amazon PPC strategy.
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How Do I Calculate Amazon ACOS With This New Formula?
Let’s say you have 30 days of performance data. Your average CPC is $1, your average conversion rate is 10%, and your average order value is $25. That gives you a 40% Amazon ACOS.
Now, let’s imagine you aim to lower your Amazon ACOS to 35%. When you input your target Amazon ACOS in the Forecasting section of the formula, it will automatically calculate the conversion rate and CPC needed to achieve this target Amazon ACOS.
In this case, to achieve a 35% Amazon ACOS, you would need to increase your average conversion rate to 11.43%. That’s a 13% increase. You’d also need a CPC of $0.88, which would be a 14.29% decrease from your current CPC.
When Should I Use This New Amazon ACOS Formula?
The new Amazon ACOS formula would be helpful if you’re running high Amazon ACOS and struggling to bring it down.
Let’s say you’re running about 100% Amazon ACOS, you have a low average order value, and CPC is through the roof. You’re left with no traffic every time you bring your Amazon ACOS down because the bids are too low. In this scenario, you can plug the numbers you need to break even, and the formula would tell you the CPC you need to get there.
If you are not running high ACOS on Amazon, stick with the original, tested and true formula.
Now that you understand what is ACOS meaning, we need to cover how to optimize your advertising cost of sales to improve your profit margin.
How To Use Amazon ACoS On Seller Central
Something Michael touches upon with data is that segmentation is everything.
To do this, first, you need to navigate to Seller Central and find the ACoS column.
When looking at your ACoS in Ad Badger or Seller Central, you can segment your data at the account, campaign, or ad group level.
Here’s an in-depth article on how to segment the four auto-targets in Amazon Advertising and here’s an in-depth article on how to segment for branded keywords in Amazon Ads.
With that, you’ll always be able to gauge your Amazon ACOS and see if you’re on track.
But how do you tell if you have a good or bad ACOS? Well, that’s where break-even and target ACoS come into play.
How do I Calculate Break-Even ACOS?
Break-even ACOS is the point where your advertising cost equals your profit margin, meaning you have a net loss or net gain of $0. This metric essentially answers the question, “At what ACOS do you make zero profit and zero loss?” Still unclear? Let’s delve into an example:
Suppose we had a toy car with a sale price of $20, and we’re paying Amazon fees of $3 on that product. Then, let’s assume that the cost of goods to create that product is $6.
What are we left with when 20 minus 3 minus 6? That’s $11 as our Pre-Ad Profit per Sale.
Now if we spent all of those $11 on acquiring paid traffic to generate sales, then based on our ACoS formula we would do $11/$20 which equals 55%.
My friends, we’ve just discovered our break-even ACoS.
So our break-even ACOS is 55%. If we’re doing lower than 55%, we’ll be profitable. If we’re doing over 55%, we’ll be unprofitable.
Let’s dig a little deeper to see why this matters.
In each example, the revenue remains the same at $20. The Pre-APPS (Pre-Ad Profit per Sale) is consistently $11. Now, let’s see what happens at 54% ACoS and 56% ACoS. At 55% ACoS, you spend $11 on ads and make $11 in Pre-Ad Profit, leaving you with nothing – this is your break-even point.
It’s important to know how to calculate your break-even ACOS in order to decide your Target ACOS. Remember that a good ACOS depends on several factors such as your profit margin and brand visibility before your ad campaign.
How Can You Lower Your ACОS
In general, a lower ACOS is more desirable because it means you’re spending less to generate the same amount of revenue.
Here are some tips to help you lower your ACOS:
- Focus on high-performing keywords and remove underperforming ones.
- Ensure your ad copy is compelling and relevant to attract more clicks.
- Implement negative keywords to prevent your ads from showing for irrelevant searches.
- Adjust your bids based on performance data to maximize your ad spend efficiency.
If all this sounds confusing, don’t worry. We wrote a whole post and recorded a video (the whole shebang) on break-even ACOS.
How Do I Hit My Target ACOS?
No one wants to make zero profit, so we need another measure called Target ACOS (TACOS). If your goal is to make a profit on Amazon, you would strategically choose not to spend all of your Pre-Ad Profit just to generate sales.
What you spend is your Target ACOS and what you don’t is your profit margin.
Did you know that the Ad Badger App can help you hit your target ACOS?
Ad Badger’s team of marketers and engineers have created the best tool on the market for helping you reach your target ACOS. With a few clicks of a button, Ad Badger can:
- Help you hit your perfect ACOS
- Automate your Amazon marketing
How do I set my TACOS and how does it relate to bidding?
Now, let’s examine the calculation that determines what the perfect bid actually entails. It involves taking your average order value, multiplying it by your conversion rate, and then dividing that by one over your Target ACOS. This result equals what you should ideally be paying for every single click.
If, hypothetically, you were able to go inside your Amazon account and optimize every single keyword or ad group according to this calculation, you would ensure that you are never overbidding and never underbidding.
To automate this process, we made a bid ACOS calculator so you can bid the perfect amount every time and hit your Target ACOS and control your profit margin.
How Do I Use The Ad Badger Bid ACOS Calculator?
Simply hit the file and make a copy to edit the ACOS calculator with your own data.
Now let’s run through another example.
Let’s say our average order value is $19 at a 10% conversion rate, and your Target ACOS (TACOS) was 30%, so 0.3.
Let’s plug each of these values into the calculator.
If we were to run through this calculation manually, we would get $19 times 0.10, over 1 over 0.3, giving us 57 cents. Meaning, if we were to bid 57 cents every single time, we would hit our 0.3 or our 30% Target Advertising Cost of Sale.
Or the calculator does all the work for us!
Ideally, you should have a TACOS for each Amazon PPC campaign you perform as well as an overall TACOS to stay within your ad budget.
If you want to learn even more about how to use TACOS to optimize your Amazon PPC bids, check out the video below:
If you want to hit your TACOS, you have to release your inner badger and fight for it.
Don’t forget your Amazon advertising can drastically increase your sales if you optimize your campaign properly. Keep reading to find out how.
What Does An Average, Low, Or High Amazon ACOS Mean?
Average ACOS is the Perfect Benchmark
For Ad Badger, the average Sponsored Product Ad’s ACOS per user per day has been 34.42% since the beginning of 2019, even now through 2022. This is a good point of reference and right in the middle of a high and low ACoS.
April is traditionally the best time to advertise for profitability for our users with the highest number of sales and the lowest ACOS (~20%).
Low ACOS Means High Profitability
Generally, sellers believe you should aim to lower your Amazon ACOS. However, it depends on what your strategy is for selling a product and your profit margin. I consider 15-25% a low ACOS and a good point to start at if you decide to aim for a low ACOS.
However, you have probably been bombarded with the phrase “¡LOWER YOUR ACOS!”.
It is true that lowering your Amazon ACoS can be helpful, but only if it matches your intentions.
Setting a low ACoS is also a good strategy for:
- Making as much profit as possible
- Selling a low-converting product
- You have a product that doesn’t need high visibility
Example: Let’s say your TACOS is 10% and you make sales of $200. You spent $20 on ads for a profit of $180 (before the cost of goods).
Lowering your ad spend can be negative as well. Having a low ad spend budget compromises the visibility of the product. Because you bid for keywords in Amazon PPC, setting your bids low for a highly competitive keyword runs the risk of losing the auction for it.
High ACOS Means High Visibility
The best way to explain high ACOS is to use the age-old saying, “You have to spend money to make money.”
Great Amazon sellers use different TACOS for different types of products to maximize their selling potential. While having a low ACOS is great for profitability, a high ACOS can increase visibility, dominate a niche, and lead to more profit in the long run.
Setting a high ACOS is a good strategy for sellers who:
- Are trying to get rid of a low-selling product
- Trying to run a sell-out of a product
- Trying to increase brand awareness
- Dominate a niche
- Want high product visibility
You can relate a high ACOS to advertisers who buy a huge spot in Times Square or produce a Super Bowl commercial. The advertiser is spending a large amount of money, but the chance of return is very high.
Example: Let’s say your TACOS is 40% and you make sales of 1,000. You spent $400 for a profit of $600 (before cost of goods).
If you haven’t checked it out yet, we wrote the ultimate guide to Amazon PPC that goes into more detail about how ACOS impacts your campaigns.
And if you’re feeling overwhelmed or unsure about managing your PPC, don’t worry. Our coaching services are here to help you navigate and optimize your Amazon PPC campaigns.
Custom tailored coaching for business owners, marketing teams, and agencies
How Do I Diagnose Causes of ACOS Spikes?
A common question we hear is, "why did my ACOS spike?"
We answer the question in depth on this episode of The PPC Den, but we'll give you the run-down here too.
Steps to Diagnose Why Your ACOS Spiked
What Are Other Ways To Hit My Target ACOS on Amazon?
Hitting your ACOS goals on Amazon is easy when you optimize your product pages, find the best times to advertise, and use an Amazon PPC tool like the Ad Badger App.
Optimize Your Product Pages
Your product page and your price are half the equation for creating a conversion. If you did a great job in your product ranking and Amazon PPC campaign, but your product page isn’t great, then the potential customer will bounce to another related product.
Ensure your Amazon product listing appeals to the a-9 algorithm by answering if your product page clearly answers what the product is, who is it’s clear target audience, and how to purchase.
A great product page on Amazon has:
- An accurate and compelling product title
- A thorough product description
- High-quality product photos and videos
- A high number of good reviews
- Amazon Prime eligibility
Make sure to optimize your Organic Product Listings for SEO as well as PPC for supreme ACOS results.
Find the Best Times to Advertise
Using our data we’ve been collecting for the past since 2017, we found that Sunday to Wednesday are the best time to advertise and the best month is April.
Using this data is incredibly valuable to Amazon sellers when deciding their TACOS. Here is the post on Amazon PPC Stats; we update it regularly.
Use an Amazon PPC Tool
Like I’ve been saying, there are many Amazon PPC tools out there that can automate your bidding to ensure you hit your TACOS every time (cough, cough like Ad Badger).
We take your conversion rate and TACOS into account when bidding to hit your TACOS for every campaign and reach maximum sales and reduce wasted spend.
We are big fans of TACOS, and excitingly, the Ad Badger App now provides this invaluable data. With this tool, you’ll always be informed about your Total ACOS per product and know exactly where to access this information. The strategy is to amplify the winners and optimize the laggers, thereby gaining an edge over the competition.
Amazon Sales, ACOS, advertising cost of sales, sales ACOS, Amazon PPC, the ratio of ad–Save yourself from all of this lingo.
Trust us when we say that an Amazon PPC tool like ours will make your life a lot more simple and save you an average of 10x the time of manual effort.
Stay Tuned For More Amazon ACOS Content
The bottom line: there’s no real definition of a “good” or “bad” ACOS because it relates to personal strategy and revenue.
Since this post first launched, our thoughts on Amazon ACOS have continued to evolve, and we talk about it often on The PPC Den Podcast.
We’re continually updating and publishing new information on Amazon Advertising Cost of Sale. So, stay tuned for more insightful updates on the metric that is pivotal in determining the success of your Amazon PPC ads.
Badger out!
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Special thanks to Michael Tejeda, Bernard Gatheru, Pedro Moreno, Karolina Facchin, Catherine Cardenas, Vanessa Nieto, Nancy Lili Gonzalez, and Michael Erickson Facchin for the production of this blog.
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