Is ACoS a Vanity Metric?

February 5, 2020
By Nancy Lili Gonzalez

We recently received an interesting query in a forum of our Amazon PPC Academy. Here is a paraphrased and anonymized rendition of it:

Do you identify with this cub? Have you considered ACoS, the advertising cost of sales, as something akin to an Amazon platform tax?

Does ACoS seem like a vanity metric to you too?

We very much understand the sentiment behind these questions, but we think there are definitely solutions to turn this frown upside-down.

ACoS can be a meaningful KPI, key performance indicator, and we want to detail how to convert this seemingly vain metric into a signal of an account’s vitality.

By implementing our tips, you’ll offer a competitive advantage equal to flipping an UNO reverse card within a campaign.

What To Do If Majority of Sales are From Branded Search

Are most of your consumers finding you because they are specifically looking for you? Good for you! Way to build a solid brand!

If you want to expand your reach, as you rightfully should, then we suggest breaking out your branded terms into separate campaigns.

Refresher: Branded keywords are search terms that include your brand or company name. A non-branded keyword is “basketball shoes,” and a branded keyword is like “Nike basketball shoes.”

Put all branded keywords in their own campaign and set the brand as a negative keyword in other campaigns to direct traffic to the campaigns where you want the traffic to go. Set your negative ASINs in the campaign too.

Separating your branded keywords allows more control over your budget and easier reporting for true non-branded performance. A smart target ACoS for this campaign is in the range of 5-10%.

Although it might be a platform tax, it’s an affordable tax.

Within your branded campaigns, longstanding products and new products require different strategies. Be more aggressive with new product bids.

New products have different ACoS that are generally higher because new products won’t have as high a CVR, conversion rate, as long standing products. By being new, they just won’t have as many reviews.

Increase top of search bid for this sort of branded product launch campaign to jump-start it.

Which KPIs to Track

We’ll go out on a limb and bet that everyone here already tracks their ACoS, a very important KPI, no doubt. We’ll also bet you track your CVR, possibly the most important metric to track because it details which search terms convert to sales.

We’ll also wager that you aren’t tracking your ACOTS.

ACOTS? What’s that?

You’ve never heard of ACOTS? Cool, because we made it up.

ACOTS is your ad costs of total sales. It’s a more global level measure of tracking. This is your total store revenue.

If you knew you didn’t want to spend, for example, more than 10% of your total revenue on ad spend, then you could easily reflect on progress of this goal by tracking monthly ACOTS.

Tracking this is also how you address the problem of traffic no longer stealing sales from organic sales.

As Tony Robbins, life guru to many, says, “Where focus goes, energy flows.”

This is also true for which KPI metrics you track. If you want to optimize your ad costs for total sales and not just your general advertising cost of sales, then focus on those numbers accordingly.

What To Do If Non-Branded Search ACoS is Weak

If you’re struggling with profitability and ACoS on non-branded searches, let’s consider ACoS targets for each type of keyword, depending on where they fall in the funnel.

Your target ACOS will be different for each level of the funnel because customer retention is different for each.

Each level represents a different amount of “hookedness” per customer.

Top of funnel, TOFU, has the worst converting terms. Middle of funnel, MOFU, is better because the search terms have more specificity. BOFU, bottom of funnel, has the most specificity regarding search terms.

Branded searches would be below BOFU because it’s almost like customer retention.

A TOFU shopper might search for something super general and vague, like “auto parts.” A hundred different kinds of auto parts might populate the page. Tires, deodorized car vent clips, diagnostic emissions scan tools, garage door openers, and a billions of other things might fight for the TOFU shopper’s attention.

Think of TOFU spend as an investment in your product. Maybe the right consumer will see it, and maybe they won’t. Just don’t risk losing visibility here.

A MOFU shopper has a more clear idea of what they seek. They might search for “tires for a sedan.” If you sell tires for a sedan, then you’d want to be on this page and your bids should reflect that.

A BOFU shopper knows exactly what they seek and their search terms reflect it. Keeping with the auto part example train, a BOFU shopper may search for “Tire 4-pack 195/65R15.” If that were your product, we’d advise you bid aggressively on this term.

A BOFU shopper is ready to buy and the BOFU terms have higher CVR. If you want those sales, which you do, then let your bids reflect it. Ditto for the shoppers who are searching for your brand already.

ACoS looks like a vanity metric when all this is mingled together. Separate the funnels to see everything working.

Segmentation is key!

Work Up the Triangle

If you’re just starting out or if you have a small budget, work up the inverted triangle of ad spend and keyword types.

Place the bulk of your budget in BOFU. You don’t need to evenly subdivide your entire ad spend. Invest where your CVR will be good.

To play with maximizing TOFU on a capped budget, we advise lowering your bids. You could get more clicks for the same budget. For example, an extreme example, lowering a bid from $1 to 50 cents could get you 200 clicks for the price of $100.

We also suggest setting budgets at the campaign level. You could set budgets at the ad group level, but campaign level is easier to see because it offers the highest vantage point.

Potential Drawbacks

The downside to this strategy is that it requires a lot of manual work, human intuition, and subjectivity.

This strategy wouldn’t make sense for a very large account with hundreds and thousands of campaigns. Even with a high powered computer and with the assistance of bulk files, this would be too much work.

The ROI, return of investment, wouldn’t be worth it for how much effort would be involved to effectively implement this strategy, and you’d tamper with the law of diminishing marginal returns.

Conversely, this strategy wouldn’t be worth it for extra-small accounts either. Potential hours of manual work might translate to a few meager clicks or impressions.

We think the sweet spot for who this strategy would be advisable is a seller that offers approximately 25 products and spends approximately $7k each month. If this is you, implement away!