A break-even point is important to know for any business. Regarding your Amazon store, it’s important to know your break-even ACoS so you’re aware what ACoS percentage is profitable and which ACoS percentage is costing you money.
Last week, I wrote about the difference between a good and bad ACoS and this week Michael will be taking on the topic of break-even ACoS, what the break-even ACoS formula is, and how to calculate break-even ACoS.
In this guide, Ad Badger will talk about Break-even ACOS:
What Break-Even ACoS Means on Amazon
Today we’re going to be talking about something every Amazon seller should know about, which is what their break-even ACoS is, how it’s calculated. Let’s jump in.
As I said in other videos, ACoS is one of the most important metrics inside your Amazon PPC account. It’s the relationship between how much you are spending on Amazon on your ads and how many sales those ads are bringing in.
In general, a lower ACoS is more desirable than a higher ACoS. That means you’re spending less dollars to generate the same amount of revenue.
How to Find Your Break-Even ACoS
One of the first activities anyone should determine before they start advertising on Amazon is what their break-even ACoS is.
Really, the reason why it’s so important is because it answers the question “At what ACoS do you make zero profit and zero loss?” It’s literally break-even.
The Break-Even ACoS Formula:
How to Optimize Ads Without Exceeding Break-even ACOS
Break-even ACOS is the point at which your advertising costs equal your product’s profit margin, meaning you are neither making nor losing money on ads.
Understanding and staying within your Break-even ACOS threshold ensures that your advertising remains profitable while maximizing return on investment (ROI) and total sales revenue. We will explore strategies to optimize your advertising campaigns without exceeding your Break-even ACOS, ensuring a sustainable and cost-effective approach to PPC advertising.
Step 1: Calculate Your Break-even ACOS
Before optimizing your campaigns, you need to determine your Break-even ACOS using the following formula:
Break-even ACOS = Profit Margin (%)
Where the formula for Profit Margin (%) can be explained in words as follows:
- Subtract the Cost of Goods Sold (COGS) and Other Expenses from the Selling Price.
- Divide the result by the Selling Price.
- Multiply by 100 to convert it into a percentage.
So, in simple terms:
Profit Margin (%) = ((Selling Price – Cost of Goods Sold – Other Expenses) / Selling Price) × 100
For example, if your product sells for $50, and after subtracting costs, your profit margin is 30%, your Break-even ACOS is 30%. This means that if your ACOS exceeds 30%, your ads will no longer be profitable.
Step 2: Optimize Your Campaign Structure
To maintain a profitable ACOS, it’s essential to have a well-structured PPC campaign that targets high-converting keywords and minimizes wasteful spending. Segment your campaigns by intent:
- Branded Keywords – сonsumers searching for your brand already have a strong intent to buy.
- Competitor Keywords – bidding on competitor brands can drive visibility but may increase ACOS.
- Generic Keywords – high-volume searches with moderate conversion rates.
- Long-Tail Keywords – more specific searches with higher conversion rates and lower ACOS.
Step 3: Bid Optimization Strategies
Keeping your break-even ACOS within profitable limits requires intelligent bid management to control advertising spend while maintaining conversions. Adjust bids based on performance:
- Reduce bids for high-ACOS, low-conversion keywords.
- Increase bids on low-ACOS, high-conversion keywords to maximize profitable traffic.
- Use dynamic bidding strategies (e.g., Amazon’s “Dynamic Bids – Down Only”) to prevent overspending.
Negative keywords prevent ads from showing for irrelevant or low-converting searches.
For example, if you sell premium leather wallets, negative keywords like “cheap wallets” or “free wallets” will prevent unqualified traffic.
Analyzing data to identify the most profitable hours of the day can help you increase ad spend during peak times and decrease bids when conversions are low.
Step 4: Improve Conversion Rates
Since break-even ACOS is directly linked to conversion rates (CVR), improving CVR helps lower break-even ACOS while maintaining ad visibility.
- Use high-quality images that highlight product benefits.
- Write compelling product descriptions with relevant keywords.
- Ensure clear and persuasive bullet points that drive action.
Amazon sellers can use A+ Content or Enhanced Brand Content to improve engagement, which leads to higher conversion rates.
Competitive pricing plays a crucial role in conversion rates. If your product is priced too high, your ad spend might not convert efficiently. Consider:
- Running limited-time discounts to improve conversion rates.
- Using coupon promotions to increase perceived value.
Maintaining a profitable advertising strategy without exceeding Break-even ACOS requires a combination of data-driven decision-making, keyword optimization, bid adjustments, and conversion rate improvements.
What’s the Best Way to Calculate Product Efficiency?
Let’s actually take a look at how to calculate that for your own products.
Let’s say we had one product that had a sale price of $20. In this example, I tried to draw a toy car. 🚗
P.S. Here’s a close up of Mike’s toy car.
We have a sale price of $20. Let’s say we’re paying Amazon fees of $3 on that product. Then let’s say to have that product be created, the cost of goods is $6.
What are we left with when 20 minus 3 minus 6? That’s $11.
That’s $11 Pre-Ad Profit Per Sale. This is the amount of profit that I’ve generated from an organic sale, but since we’re in the world of PPC, paying for our sales, paying for traffic, we call it Pre-APPS, which stands for Pre-Ad Profit Per Sale.
Before we start factoring in anything like our ad costs, this is our Pre-Ad Profit Per Sale. In this situation, it’s $11.
If you spent all of this to get that sale in paid traffic, that would be your break-even ACoS, because if you’re generating $11 Pre-Ad Profit Per Sale, and then you spend all 11 of those dollars on paid traffic to get the sales, $11 minus $11, you’re left with nothing.
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My friends, we just discovered our break-even ACoS. 🔭
If we are doing lower than 55%, we’ll be profitable. If we are doing over 55%, we will be unprofitable. Let’s actually take a look at this bottom section here to really dig in there.
Revenue is going to be the same every single one of these examples, $20 down the line. Pre-APPS, we’ve already calculated is going to be $11 all the way down the line.
But let’s see what happens if we go to 54% ACoS and 56% ACoS. We already know what happens in the middle here at 55% ACoS. That’s $11 in ads, $11 in Pre-Ad Profit, leaving us with nothing.
That’s our break-even.
If we move down one to 54%, now all of a sudden, we spent $10.80 ads, and we only generated 20 cents of profit. On the other end of the spectrum, if we go up one from 55% to 56% ACoS, we’ve just created a 20 cent loss.
You can see that at either side of our break-even ACoS is where profit lives or where losses from ads live.
What Should Be My Target ACoS?
Now when determining what a Target ACoS should be, we have to take into a couple of different factors, which we’ll talk about in another video where we determine how to determine your target ACoS, which we’ll be posting on our YouTube channel for sure and on our blog at adbadger.com/blog.
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Stay tuned for our next video. Have a good one.
Summary
So, in this guide, we’ve explored what Break-even ACoS is. It’s a crucial metric that shows when your ad spend equals your profit margin. If your ACoS is below the break-even point, you’re making a profit; if it’s above, you’re incurring a loss. Understanding this helps you decide when to scale your ads and when to hold back.
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