What is ACOS? What is good ACOS? How to choose ACOS?
The ACOS is the first metric any person that deals with Amazon advertising will talk about. It stands for Advertising Cost of Sale. It can be computed with the following formula :
ACOS = Amazon advertising costs / sponsored sales
Many sellers and vendors are wondering if their ACOS is “good”. Some are trying to compare it to other people they know and others are just trying to make it as small as possible no matter the consequences.
Unfortunately, there is no absolute ACOS number to answer this question. It strongly depends on too many factors, here are some :
So a good ACOS is something strongly dependent on the Amazon shop or group of products. The only way to answer this question is to fully control the products total costs and final margins everything included except advertising costs.
You can find here the main recurrent costs that every margin computation should take into account :
If some costs are hard to compute at product level, it also makes sense to compute them at a product’s group level.
When the Total Costs Excluding Advertising ( TCEA ) are computed, it is now possible to compute a breakeven ACOS.
Breakeven ACOS = (Sponsored Sales - TCEA) / Sponsored Sales
For example, when an account generates the following numbers during a month:
Its TCEA on sponsored sales will be:
TCEA = 45 + 60 +1 + 60 + 10 + 10 = $186
Breakeven ACOS = (300 - 186) / 300 = 38%
So when the ACOS is higher than 38%, the previous account is losing money on the short term and this might be a bad strategy excluding product launching periods.
Trying to lower the ACOS by all means can lead to suboptimal strategies. Lowering the bids on all the campaigns and keywords will lead to a lower advertising cost, lower sponsored sales and probably lower ACOS.
Let’s consider the two following accounts scenarios:
Account B has a higher ACOS than account A, the same costs structure and margins but makes +44% profit than account A.
The right ACOS target depends on the breakeven ACOS and the maturity of the product or group of products.
The following ACOS target ranges can be used as a baseline:
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