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Why Concentrating On a Low Amazon ACoS Could Be Costing You Sales!

Your ACoS Really Depends On Your Amazon Ad Strategy. When it’s Time, Here Are 3 Great Ways to Get Your ACoS Back Under Control

  • Amazon Advertising
  • Selling On Amazon
  • December 22, 2022
  • /
  • Brian R. Johnson
Man in beard looking at downward trending graph

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. 

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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 PPC advertising campaign. 

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

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, do you want to lose weight right before traversing the arctic on snowshoes, or the Tour de France bicycle race? No, you don’t. 

Much the two 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 Optimum ACoS Depends on Your Campaign Goals

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:

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 (when it’s time) you can lower your ACoS and 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 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 PPC management costs 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. 

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.

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 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.

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