What Is ACOS Amazon In 2023? An Expert Seller‘s Guide to Mastering Advertising Cost of Sale
As an experienced Amazon seller, Advertising Cost of Sale (ACOS) is one of the most critical metrics I track. Getting a handle on ACOS has helped me efficiently scale campaigns and maximize returns. In this comprehensive guide, I‘ll share everything sellers need to know to leverage ACOS data and boost Amazon PPC profitability.
What Exactly is ACOS and Why Does it Matter?
ACOS stands for Advertising Cost of Sale. It indicates how much you spend advertising on Amazon to generate $1 in revenue. ACOS is calculated by dividing total ad spend by total sales from ads:
ACOS = Total Ad Spend / Revenue from Ads
For example, if you spend $100 to make $500 in sales, your ACOS is:
$100 / $500 = 0.20 = 20% ACOS
This means for every $1 in revenue you generate, 20 cents goes towards advertising – so your profit is 80 cents.
The lower your ACOS, the higher your returns from Amazon advertising. An ACOS of 15% is exceptional, while over 60% indicates unprofitable spending.
Monitoring ACOS reveals how efficiently your ads convert browsers to buyers. It‘s the most important metric for maximizing your PPC ROI.
How We Leverage ACOS Data In Our Amazon Business
In my Amazon agency, we rely heavily on ACOS analysis to optimize thousands of campaigns. Some examples:
- Reviewing ACOS daily to spot high spend keywords and pause or adjust bids
- Comparing ACOS across match types to guide keyword targeting
- Analyzing ACOS fluctuations over seasons to predict trends
- Setting ideal ACOS targets by product category and margins
- Benchmarking ACOS across brands to replicate best practices
- Estimating the impact of testing new strategies based on ACOS
Regularly evaluating ACOS helps us determine optimal bid prices, target the most profitable keywords, spot issues proactively, and much more. It‘s the foundation of profitable PPC management.
4 Benefits of Tracking ACOS for Your Amazon Strategy
Monitoring and optimizing ACOS delivers many advantages:
1. Measure Campaign Profitability – Lower ACOS means higher margins on your sales. Know if campaigns are contributing or losing money.
2. Identify Top Performers – See which keywords, campaigns and products convert sales most efficiently.
3. Guide Bid Strategy – Use ACOS to determine ideal bids for positive ROI. Higher bids don‘t guarantee better ACOS.
4. Improve Over Time – Continual optimizations based on ACOS lead to better results long-term.
ACOS reveals actionable data to maximize your advertising investment. Analyzing and responding to ACOS is crucial for any brand selling on Amazon.
What‘s a Good ACOS %? Tips for Improvement
There is no perfect ACOS for all types of products and brands. However, here are some general benchmarks:
Exceptional – Under 15%
Great – 15-20%
Good – 20-25%
Fair – 25-30%
High – Over 30%
I suggest aiming for an ACOS under 25% in most cases. Margins above 30% leave profit on the table unless volume is very high.
For tight margin categories like groceries and consumables, 30-40% ACOS may be acceptable. Anything over 60% is dangerous and requires urgent optimization.
The ideal ACOS depends on factors like:
- Margin – Products with higher margins can accept higher ACOS.
- Category dynamics – Some segments naturally have higher ACOS.
- Seasonality – ACOS fluctuates based on demand cycles.
- Competitor activity – High competition drives up advertising costs and ACOS.
Understanding these dynamics for your products allows intelligent ACOS benchmarking.
Here are tips we use to lower client ACOS:
- Refine keyword and product targeting to reduce irrelevant clicks
- Raise bids strategically on high performing keywords
- Improve landing page conversion rate with better copy, imagery, reviews etc.
- Monitor impression share and increase bids if needed
- Leverage automated campaigns for effortless optimizations
- Exclude low value keywords using negative targeting
- Check search terms for additional profitable keywords to target
With consistent refinement, top brands reduce ACOS 20-30% or more.
Mistakes to Avoid for Lower ACOS
It‘s also important to avoid common ACOS pitfalls like:
- Making bid changes without considering conversion rate impact
- Focusing on vanity metrics like rank over real ACOS data
- Not segmenting ACOS performance by match type, campaign, target etc.
- Obsessing over historical lows rather than ongoing improvement
- Conservatively underbidding and losing potential volume
- Running low margin products at breakeven ACOS rather than small loss
Keep these principles in mind when evaluating your ACOS.
How We Reduced ACOS for a Top Selling ASIN
Let me share a client case study demonstrating ACOS optimization in action.
For a popular health supplement ASIN, ACOS had crept up to 29% over time. Our goal was to improve to under 20% ACOS again.
By analyzing search term reports and creating tightly themed ad groups, we reduced irrelevant clicks substantially. We also found PLAs converted better than standard ads for this category.
Next we used impression share data to strategically increase bids on high potential keywords without going overboard.
After these changes, ACOS declined to 23% within 2 weeks while volume remained steady.
Further landing page testing and refinement lowered ACOS to 19% within 2 months while maintaining rank.
With ACOS back in the ideal zone, we maximized returns from this ASIN by over $5,000 per month.
Balancing Profitability and Volume Using ACOS
Occasionally you may drive ACOS too low by focusing solely on efficiency. This can limit potential sales at higher margins.
My approach is to find the ACOS "sweet spot" where volume and profitability are optimized together.
For example, we may intentionally run a new product at 45% ACOS to rank and gain reviews. Once established, we gradually improve ACOS to our 25% target over time.
ACOS isn‘t just about chasing the lowest number. Leverage it holistically to maximize your advertising ROI.
ACOS Best Practices to Boost Profitability
To recap, here are my top tips for mastering ACOS as an Amazon seller:
- Monitor ACOS daily to respond quickly to issues
- Segment performance by match type, campaign, keyword etc.
- Set ACOS targets based on your margins and category
- Analyze trends and seasonality to forecast efficiently
- Leverage automation to optimize bids and targeting 24/7
- Don‘t obsess over historical lows – focus on ongoing improvement
- Balance profitability and volume to optimize returns
- Pause excessively high ACOS keywords temporarily
- Test new strategies based on potential ACOS impact
- Avoid drastic changes from vanity metrics like rank alone
Following these best practices will put you far ahead of sellers who ignore ACOS.
The Bottom Line – Start Leveraging ACOS Today
Hopefully this guide has provided a comprehensive overview of Advertising Cost of Sale and why it‘s vitally important for Amazon sellers.
ACOS reveals the real ROI of your Amazon advertising. Lowering ACOS boosts margins and profitability.
Regularly monitoring, segmenting, analyzing, and optimizing ACOS performance allows savvy sellers to maximize their PPC returns.
Don‘t leave easy money on the table. Start actively leveraging ACOS today to take your Amazon business to the next level!