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 stomp 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, there are millions of dollars at stake and controversy 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, to say nothing of the supply chain crisis (AND the pandemic), it’s become more important than ever to find a way of keeping a close eye on your Amazon ad campaign.
That’s where your Advertising Cost of Sales (or ACoS) comes in.
Lowering Your ACoS is the Easy Part
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, do you want to lose weight right before traversing the arctic on snowshoes, or the Tour de France bicycle race? No, you don’t.
Here’s why selling on Amazon shares similarities with both of the activities I mentioned above. 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 PPC ad campaign. Trying to do any one of those three things while focusing ONLY on lowering your Amazon ACoS is like heading across the arctic after dieting for a week; you’re not going to get very far.
How to Determine Your ACoS
Let’s start by talking about what’s involved in coming up with your Advertising Cost of Sales percentage.
ACoS is a measurement of your advertising campaign’s overall efficiency and represents the ratio of ad spend to ad revenue in percentage. You can calculate your Advertising Cost of Sales with this formula:
For example, if you had $100 in sales and to accomplish that had spent $30 on Amazon PPC advertising, your ACoS would be 30%.
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 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.
The Best ACoS Depends on Your Goals
Your ACoS is almost completely dependent on your Amazon ad strategy. 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.
Here are three ways that you can help stretch your Amazon advertising dollars as far as possible.
Lower Your ACoS With These 3 Steps
1. 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 keywords are drastically underperforming, they’re probably consuming a lot more of your budget than they should. If that’s the case, pause the PPC campaigns that they’re associated with.
Another way to keep your ACoS low 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.
2. 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.
It all begins with keyword research. By using a tool such as Helium 10’s Magnet, or Jungle Scout’s Keyword Scout, first determine the keywords that searchers on Amazon most often use to find a product similar to yours.
Then, make certain that your title, bullet points, product description, and back-end keywords are all optimized for the search terms (keywords) you’re targeting.
3. 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 Amazon sellers, this is a pivotal moment. The synergistic collaboration of a full-service Amazon management 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
Back in the early days of Amazon, Amazon PPC was just one way of launching a product. Now it’s almost impossible to find success without it. Yes, there are some that do, but they’re the exception, not the rule. Here are 10 tips to get started quickly with Amazon advertising in 2022. And as always, if you have questions about Amazon advertising, the pros at CANOPY Management are here to help.
CANOPY Management is a “full service” marketing agency for Amazon sellers, and our team consists of former Amazonians, multi-million dollar sellers, and award-winning experts. When you consider the ways in which CANOPY Management is able to help you grow your Amazon business, you’ll know why.
- 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
Are you looking to expand your income stream, or transition away from your primary career? It’s a new year and with the growth of eCommerce, now is a great time to reap some benefits yourself!