The truth about ACoS (Advertising Cost Of Sales)Aug 13, 2019
If there is one Amazon PPC metric that every seller knows it's Advertising Cost of Sales (ACoS). It's an important one too as it's essentially a measure of your PPC campaigns success.
But here's the thing. There is no such thing as a good or bad ACoS. Let me explain.
First things first. ACoS stands for Advertising Cost of Sales. Your ACoS, which is shown as a percentage, is how much you spend on advertising for every dollar of revenue you make. You can calculate your ACoS with this simple formula:
ACoS = Total Ad Spend / Total Sales
For example, if your Ad Spend is $10,000 and you generate $20,000 in sales, your ACoS is 50%. Or to put it another way, you paid $0.50 for every dollar you made. (Note: we are only considering Ad Spend here, not production costs, Amazon fees, etc.).
The first thing you need to do is to calculate your break-even ACoS; this is the point where your advertising cost is equal to your profit margin. You can now use this a benchmark and as a way of determining how much you should bid on search terms.
What you do next depends on what your PPC goals are.
Setting a high ACoS increases visibility. You want to consider using this strategy when you want to increase brand awareness, like during a product launch or when you want to sell out of a product.
The downside is that you will spend more on your advertising campaign and run the risk of losing money.
Setting a low ACoS is all about making as much profit as possible. You might also consider using this as a strategy for selling a low-converting product.
However, the downside to a low ACoS is that a low advertising spend typically equates to low visibility of your product.
So as you can see, there are pros and cons to both a high and a low, ACoS. Knowing what your PPC goals are is crucial.
So always ask yourself, what you are looking to accomplish with your ads. And go from there.
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