Amazon ACOS: What is it and how to calculate it?

Amazon is a competitive marketplace, and every seller wants their product to stand out. If you’re using Amazon PPC advertising, you’ve likely encountered the term "ACOS." But what exactly is it, and why does it matter? Amazon Advertising Cost of Sale, or ACOS, is one of the most critical metrics that sellers use to gauge the success of their ad campaigns.

ACOS is essential because it directly impacts your profit margins and helps you understand the efficiency of your advertising strategy. In this article, we’ll break down everything you need to know about Amazon ACOS, from what it is to how to calculate and optimize it for your campaigns.

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Table of content:

• What is Amazon ACOS?
• How to Calculate ACOS?
• Break-Even ACOS?
• What is a "Good" ACOS?
• Setting Your Target ACOS
• ACOS vs. Other Metrics
• Is a Low ACOS Always Better?
• How m19 Helps You Optimize ACOS

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What does Amazon ACOS mean?

ACOS stands for Advertising Cost of Sale, which measures the ratio of your ad spend to the sales generated from those ads. Essentially, it tells you how much you’re spending on advertising to earn a dollar of revenue.

For instance, if your ACOS is 25%, it means you’re spending $0.25 on ads for every $1.00 you earn in attributed sales. ACOS provides a clear picture of the efficiency and profitability of your ad campaigns.

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Why is ACoS important?

A low ACoS indicates efficient ad spend, while a high ACoS can signal the need for campaign adjustments. For new product launches or increasing brand awareness, sellers may temporarily accept a higher ACoS to gain market share and visibility.

ACoS helps sellers:

• Measure advertising effectiveness and ROI
• Identify underperforming campaigns
• Optimize keyword targeting and bidding strategies
• Balance growth with profitability

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What is ACoS in a calculator?

The formula for calculating ACOS (Advertising Cost of Sales) is simple:

ACOS = (Ad Spend ÷ Ad Revenue) × 100%

For example, if you spend $60 on an Amazon PPC campaign and generate $200 in total sales revenue, your ACOS would be 30%.

It’s worth noting that this calculation focuses solely on ad spend and does not account for other costs, such as ad production expenses or Amazon fees. By understanding ACOS, sellers can evaluate the efficiency of their advertising campaigns and make well-informed decisions to optimize their marketing strategies.

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How do I Calculate Break-Even ACOS?

Calculating your break-even ACoS is essential for Amazon sellers to identify the threshold at which their advertising campaigns stop incurring losses and start turning a profit. The break-even ACoS represents the maximum percentage of ad spend relative to sales that a seller can afford without sacrificing profitability.

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Formula for Break-Even ACoS:

Break-even ACoS=(Product Price / Profit Margin​)×100%

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Alternatively:

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Breakeven ACOS = (Sponsored Sales - TCEA) / Sponsored Sales

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Example Calculation:

For example, when an account generates the following numbers during a month:

• Total sales: $1000
• Sponsored Sales: $300
• Amazon commission on sponsored sales: $45
• Expedition fees on sponsored sales: $60
• Storage fees on sponsored sales: $1
• Cost of goods for sponsored sales: $60
• Refund costs for sponsored sales: $10
• Taxes for sponsored sales: $10

Its TCEA on sponsored sales will be:

TCEA = 45 + 60 +1 + 60 + 10 + 10 = $186

then the 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.

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Why Break-Even ACoS Matters:

1. Set Realistic Targets: Use your break-even ACoS to define thresholds for profitability.
2. Identify Product Viability: Determine which products can sustain higher ad spend.
3. Optimize Pricing Strategies: Adjust product prices or reduce costs to improve your break-even point.

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What is a “good” ACOS?

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.

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Unfortunately, there is no absolute ACOS number to answer this question. It strongly depends on too many factors, here are some :

• The product’s category : “Smartphone Cases” are for example more crowded than “Bakeware Sets”
• The competition intensity : Amazon advertising is based on a second price auction system, the more products participate in the auction the higher the paid CPC will be at the end
• The product’s maturity : New products are much more expensive to be promoted than established and well ranked products.

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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 :

• Amazon commission
• Expedition fees
• Storage fees
• Refund costs
• Cost of goods
• Other taxes

If some costs are hard to compute at product level, it also makes sense to compute them at a product’s group level.

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How to Select Your ACoS Target?

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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When determining your target ACoS, start by calculating your break-even ACoS as a baseline. From there, consider your specific business objectives:

• For aggressive growth, you might set a target ACoS close to or even above your break-even point temporarily to gain market share.
• For established products, aim for a target ACoS below your break-even point to ensure profitability.
• For seasonal products, adjust your target ACoS based on peak and off-peak periods.

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ACOS vs. Other Metrics

Understanding the differences between ACoS and other key metrics is crucial for Amazon sellers to effectively measure and optimize their advertising performance. Let's compare ACoS with two other important metrics: TACoS and ROAS.

ACoS: Campaign-Level Efficiency

ACoS evaluates the cost-effectiveness of specific campaigns by comparing ad spend to the revenue generated directly from those ads. This metric is particularly useful for optimizing individual campaigns and developing targeted product advertising strategies.

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TACoS: Holistic Business Perspective

TACoS provides a broader view by considering the relationship between ad spend and total sales, encompassing both paid and organic sales. It helps sellers assess how advertising influences overall business growth and highlights the balance between paid and organic performance.

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ROAS: Revenue Efficiency

ROAS, essentially the inverse of ACoS, reveals how much revenue is earned for every dollar spent on advertising. Expressed as a ratio, it is especially useful for comparing ad performance across different channels or platforms. A higher ROAS indicates greater efficiency in ad spend.

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Each metric offers unique insights:

• ACoS is ideal for fine-tuning campaign performance and managing profitability at the product level.
• TACoS helps in assessing the overall health of your Amazon business and the long-term impact of advertising on total sales.
• ROAS is useful for comparing performance across different advertising channels or platforms.

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Is a low ACoS good?

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.

In some cases, a higher ACoS may be strategically beneficial, Let’s consider the two following accounts scenarios:

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Account B has a higher ACOS than account A, the same costs structure and margins but makes +44% profit than account A.

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How does m19 as an Amazon PPC tool help you reach target ACOS?

m19, an AI-powered Amazon PPC tool, helps sellers reach their target ACoS through automated campaign management and optimization. We leverage machine learning algorithms to create and manage advertising strategies tailored to specific product groups and ACoS targets. Here's how m19 assists in achieving desired ACoS:

• Dynamic bid optimization: The tool adjusts bids daily using machine learning to maintain the target ACoS while maximizing ad performance.
• Customizable strategies: Sellers can design tailored strategies for different product groups, each with its own target ACoS and advertising mode. For newly launched product groups, we offer an additional ad mode specifically designed to facilitate algorithm learning.
• Budget control: M19 allows setting daily budgets and minimum daily spend to balance ACoS goals with overall advertising objectives.

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FAQ

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What is ACOS and how to calculate it in Amazon ads?

ACOS (Advertising Cost of Sale) is the percentage that represents the ratio of your ad spend to the revenue generated from those ads. It’s calculated as:
ACOS = (Ad Spend ÷ Ad Revenue) × 100%

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Why is ACOS important for Amazon sellers?

ACOS is critical because it indicates the efficiency of your advertising campaigns. A low ACOS shows that your ad spend is yielding higher returns, while a high ACOS may signal inefficiencies in advertising.

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What is a good ACOS?

A "good" ACOS varies depending on factors like your product category, competition, and business goals. For profitability, aim for an ACOS below your break-even ACOS. For growth or brand awareness, a higher ACOS may be acceptable temporarily.

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What is the difference between ACOS, TACoS, and ROAS?

• ACOS: Measures ad spend efficiency for attributed sales.
• TACoS: Examines ad spend in relation to total sales (including organic).
• ROAS: Reveals revenue earned per dollar spent, the inverse of ACOS.

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Can a high ACOS ever be good?

Yes! A higher ACOS might be beneficial during new product launches, for gaining market share, or boosting brand awareness. The goal should align with your overall strategy.

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What tools can help optimize my ACOS?

AI-powered tools like m19 use machine learning to dynamically optimize bids, manage budgets, and tailor strategies to specific ACOS goals, ensuring efficient ad spend.

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