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Back in the early, wild west days of ecommerce, selling on Amazon was a lot like a drag race. Find a product, pay for a bunch of positive reviews, and step on the gas. 

Now, it resembles Formula One. The financial stakes have become enormous. Instead of a handful of shade-tree mechanics trying to get their stripped down cars to go faster in a straight line, millions of dollars are at stake and controversy lurks around every corner. There are a lot of twists and turns, and Amazon sellers are either downshifting, on the brakes, or are trying hard not to run out of fuel. 

With all the recent changes to Amazon’s ecosystem, intermittent supply chain challenges, and increasing marketplace competition, it’s become more important than ever to find a way of keeping a close eye on your Amazon PPC advertising campaign. 

That’s where your Advertising Cost of Sales (or ACoS) comes in.

What is Amazon ACoS?

Amazon ACoS is a key metric used by Amazon sellers to measure the effectiveness of their advertising campaigns. It represents the ratio of how much you spend on ad sales to the revenue generated from that advertising.

Keeping a close eye on ACoS helps sellers make data-driven decisions about their advertising strategy, enabling them to maximize their return on ad spend and overall profitability.

How Do You Calculate Amazon ACoS?

ACoS is calculated by dividing your total ad spend by your total sales revenue from advertising. It’s expressed as a percentage:

ACoS = (Ad Spend / Ad Revenue) x 100

For example, if you spent $100 on Amazon ads and generated $500 in revenue from those ads, your ACoS would be:

ACoS = ($100 / $500) x 100 = 20%

A lower ACoS percentage indicates that your advertising campaigns are more efficient and profitable, as you’re spending less on ads to generate sales. Conversely, a higher ACoS suggests that your ad campaigns may not be as cost-effective.

What is a Good ACoS on Amazon?

Most Amazon sellers aim for an ACoS below 30%, but the ideal target ACoS can vary depending on factors like profit margins, product categories, and overall advertising goals (e.g., scaling vs. profitability).

Monitoring and optimizing ACoS is crucial for Amazon sellers to ensure they’re getting a positive return on their advertising investment (ROAS). It helps identify which ad campaigns, products, and keywords are performing well and where improvements may be needed.

In fact, all the – occasionally misguided – attention directed at lowering ACoS is the focus of this post.

A Lower ACoS isn’t Everything

Take a quick peek at Google’s search results for Amazon ACoS and you’ll see the first page peppered with posts focused on LOWERING your ACoS. 

It’s a little like dieting. Heaven knows there’s enough information on the internet about that subject. But, is less (ACoS or weight) always better? For example, would you want to go on a drastic diet right before journeying to the North Pole on snowshoes? No, you don’t. Instead, you’d want to increase your caloric intake to give yourself a little fuel in reserve.

Similarly, an Amazon product launch can have a long, sometimes challenging trajectory. There’s the launch phase, building your brand, and of course you cannot forget your Amazon advertising campaigns. 

Trying to do any one of those three things while ONLY focusing on lowering your Amazon ACoS is like heading across the arctic after starving yourself for a week; you’re not going to get very far.

Why Knowing Your Break-Even ACoS is So Important 

The first step in putting together an Amazon ACoS strategy requires calculating two important ACoS-based metrics, break-even ACoS and the target ACoS. 

Break-even ACoS is the point where your Amazon advertising cost becomes equal to your profit margin (calculated after all fees and costs involved with selling on Amazon are subtracted). 

For example, once you’ve added your product costs, shipping costs, Amazon costs etc, your profit margin is what remains. If your profit margin is 30%, that’s also your break-even ACoS. 

Once you have done the math and determined your target profit margin, subtract that from the break-even ACoS. At that point what remains is your target ACoS. If you’ve determined that you have a 30% profit margin to work with and you’d like to end up with a 12% target profit margin, that leaves 18% as the target ACoS.

Why You Might NEED to Have a Higher ACoS

Your ACoS is almost completely dependent on your Amazon ad strategy. An ad campaign with higher ACoS may be better at driving traffic higher up in the marketing funnel.  

With a new product launch, your goal is getting the maximum number of eyes on your product. And, you’re trying to make this happen ASAP. That’s why it might be a good idea to put profitability on the back burner and use your Amazon PPC campaign to drive sales velocity.  

That contributes to more ad spend and a higher ACoS. But, those higher impressions will help elevate your brand awareness, a critical component in carving out a little space for yourself in Amazon’s crowded marketplace. 

There are many instances during which Amazon sellers might anticipate having a higher ACoS, here are just a few:

• During a product launch
• While trying to increase brand awareness
• When liquidating inventory
• When attempting to dominate a niche

More than anything, knowing your ACoS is a great way to judge the health of your Amazon listing. That’s because a (relatively) low ACoS is a good indicator of the overall profitability of your Amazon product. 

It’s making sure that you KNOW HOW to lower your ACoS that’s most important. 

When it’s time, here’s how you can lower your ACoS AND stretch your Amazon advertising dollars as far as possible.

How to Lower Your ACoS

Eliminate the Wrong Keywords

As an Amazon seller, you probably spend a lot of time trying to identify the right keywords. But knowing what the WRONG keywords are is just as important. 

If your search term is underperforming, it’s probably consuming a lot more of your ad group budget than it should. If that’s the case, pause the PPC campaigns that it’s associated with. 

Another way to reduce your Amazon advertising spend is to take advantage of negative keywords. Managed correctly, negative keywords can save you money and increase conversions by decreasing the likelihood of your ads appearing in front of unqualified shoppers.

FULLY Optimize Your Amazon Product Listing

I don’t really scroll past the first page of Google search results. Amazon shoppers aren’t much different. As an Amazon seller, it’s crucial that you structure your product listing to rank as high in the search results as possible.

To make sure that your Amazon listing is completely optimized, identify the most appropriate, searched-for keywords related to your listing. Once you’ve done that, it can sometimes feel like cheating because Amazon will send you buyers WITHOUT having to spend a penny on advertising. 

Keyword research comes first. A tool such as Helium 10’s Magnet, or Jungle Scout’s Keyword Scout can help you determine the relevant keyword (or groups of keywords) that searchers on Amazon are using to find a product similar to yours 

Then, it’s all about your Amazon listing optimization. Make certain that your title, bullet points, product description, and back-end keywords are all optimized for the search terms (keywords) you’re targeting.

Use an Amazon Agency

If you want to drive more sales, boost brand awareness, and really dominate your Amazon category, it might be time to reach out to an experienced Amazon agency like Canopy Management. For many eCommerce sellers, hiring an Amazon agency becomes a pivotal moment.

The synergistic collaboration of a full-service Amazon agency can help you to take a big step up with your business. That might mean spending more time scaling up your Amazon business, on your primary career, or better yet, with your family.

How Canopy Management Can Help

What would adding 67% more organic sales mean for your brand?

Turns out that when you combine the massive experience of Canopy’s Amazon Advertising Experts with smart tools and tech, you get industry-leading results like this:

• 84% Average Year-Over-Year Profit Growth for Our Partners
• 2.7 Billion in Revenue Managed
• 99.1% Partner Retention Rate

Canopy Management is a full-service marketing agency for Amazon and Walmart sellers. Our team consists of former Amazonians, multi-million dollar sellers, and award-winning experts.

When you consider the many ways that Canopy Management can help you grow your business, you’ll see why selling on Amazon is much easier “under the Canopy.”

• Strategic Growth Planning
• Listing Copywriting Optimization
• Listing Photography
• Product Videography
• Advertising Management
• Customer Service
• Demand Side Platform (Amazon DSP)
• Amazon Posts
• Full Service Management
• Amazon Review Aggregation