What Does ACOS Mean? Calculating & Improving Amazon ACOS

Do you want to run profitable Amazon PPC campaigns that grow your Amazon sales?

If so, you need to understand the key metrics for PPC success. Perhaps the most important metric in the entire Amazon advertising world is ACOS… but what does ACOS mean?

In this in-depth guide, we’ll walk you through what Amazon ACOS means, why it’s important, how to calculate & improve it, and much, much more. Let’s get started!

Understanding Amazon ACOS

PPC Mastery is built on a foundation of understanding the core basics, and there aren’t many more important core aspects to understand than ACOS and the role it plays in your Amazon PPC performance.

What is Amazon ACOS and why is it important?

ACOS stands for Advertising Cost Of Sale and is a metric that represents the amount of money spent on Amazon PPC in relation to how much revenue that spend has generated.

It’s an important metric as it’s a quick and clear indicator of how any one particular ad campaign, product, or keyword is performing at any given time.

It helps Amazon sellers prioritise which areas of their PPC efforts need the most improvement, and where they can drive more profitable growth.

How do I calculate ACOS?

ACOS is calculated by dividing ad spend by ad sales and multiplying by 100.

For example, if you have spent $40 on advertising that has generated $200 in sales then your Amazon ACOS would be 20%.

The Amazon ACOS formula: (40/200)*100 = 20%

How do I calculate my break-even ACOS?

By understanding your break-even ACOS you know how much advertising cost you can afford for any particular product without losing money.

The calculation is simple: whatever your target profit margin after all product costs and Amazon fees, that is also your break-even ACOS.

For example, if you are selling a product with 30% profit margins then you know a target ACOS of 30% ensures you are, at the very least, breaking even on each advertising sale.

Why would sellers be ok with just a breakeven ACOS? Because making sales on Amazon will improve your organic ranking and therefore your Advertising Cost of Sale can be seen as an investment in that organic visibility.

If you can break even on advertising sales, you can recoup the profit through your organic sales.

How do I find my ACOS on Amazon?

To save having to calculate your advertising cost of sales manually every time you check your PPC campaigns, the Amazon PPC dashboard conveniently displays ACOS along with a number of other metrics in the Campaign Manager view, allowing you to quickly understand how ad campaigns are performing.

Simply head to the Advertising menu in Seller Central and select Campaign Manager.

You’ll be taken to your PPC dashboard which will summarize the key performance indicators of each of your ad campaigns and one of the columns will be ACOS.

If it doesn’t show up immediately, just click Columns then Customize columns to add ACOS in.

If like me you prefer to try and spend as little time as possible inside Seller Central then you also lean on Amazon PPC tools to get access to detailed reports on performance-related metrics like Amazon ACOS.

What is the difference between ACOS and TACOS?

ACOS (Advertising Cost of Sales) divides ad spend by ad revenue to present the cost of your advertising-driven sales.

TACOS (Total Advertising Cost of Sales) instead divides ad spend by total revenue – both advertising-driven and organic – to measure the efficiency of your advertising across your whole business.

Using our previous Amazon ACOS formula example, a $40 spend to produce $200 in sales is a 20% ACOS.

Let’s say though that due to your product beginning to rank organically on Amazon you’ve also made $200 in organic sales, then your TACOS is actually 10%.

That’s because your total sales (sponsored and organic) amounts to $400 and your $40 ad spend is just 10% of this larger number.

TACOS is a key metric when looking to optimize your Amazon PPC ads and grow your business as it shows you the impact your advertising efforts are making.

If your ACOS isn’t coming down but your TACOS is, that’s a great sign – it means your investment in advertising is paying off and giving your products more visibility on Amazon.

What is the difference between ACOS and ROAS?

Not much! ROAS is essentially the reverse of ACOS. They are both telling you the same thing – how much revenue you’ve generated from your ad spend – but in a different format.

Whereas ACOS divides ad spend by ad revenue to produce a percentage, ROAS is calculated by dividing ad revenue by ad spend and shows you how much money your ads returned for every dollar invested.

Using the same example again, $200 ad revenue divided by $40 ad spend gives us a ROAS of 5 – For every $1 we invested in ads, we collected $5 in sales.

What is a good ACOS on Amazon?

Like most things in business, if you’re going to succeed you need to know what “success” looks like. But what are the ACOS benchmarks of successful Amazon sellers?

How do you define good?

What is a “good” ACOS is a somewhat subjective question as it really does depend on a few things. Firstly, the marketplace you’re selling on and the category you’re selling in.

The more competitive the landscape the higher the potential advertising costs. Therefore what is a bad ACOS for one seller may be a good ACOS for another.

This is why we would highly recommend getting a free report on how your metrics stack up against your direct competitors.

The Sellics Benchmarker is a free tool that has been developed by analyzing over £3billion in ad spend on the Amazon platform and can really help understand how you are performing in the context of your marketplace and category competition.

Head here to connect your Amazon account and let the magic happen.

Secondly, your goal will also determine your Amazon ACOS strategy.

When just starting out and launching a product you will have a different goal than when you look to optimize over the long term.

There are three main goals most sellers will have with their PPC at different stages of the journey.

Goal 1: Maximize Impressions

When first launching a new product you need as many eyeballs on it as possible.

To be able to get visibility and as a result get data on how different campaigns, keywords and products are performing you need to be aggressive with bids.

At this early stage of your launch, a good Amazon ACOS may look like 80-100% as you invest in marketing to gain market share.

Goal 2: Maximize Sales

As you begin to gather data, sales become the key. The more sales you can make the more organic visibility you will achieve.

The data you’ve been collecting allows you to optimize your campaigns to focus on the targets that are converting in to sales.

A good number at this point may still be a little above a break-even ACOS but you’re continuing to gain ground on Amazon.

Goal 3: Maximize Profit

As your product begins to mature on the Amazon platform the goal will of course be to drive more profit. Again, this isn’t as straightforward as aiming for a number.

Whereas a lower ACOS might initially suggest more profit, it can also mean you’re leaving money on the table.

If your Amazon ACOS is very low (say 15% or under) it usually suggests you’re not making the most of the opportunities on Amazon and spending more on ads would drive more organic reach and potentially more profit overall.

This is the reason it’s essential for Amazon sellers to assess their ACOS in light of their TACOS.

TACOS will be a much clearer indicator of your growing business profits so sure to analyze both numbers in tandem.

An example of this would be a seller who has achieved 40% ACOS 3 months running – and may be feeling a little disheartened.

But when assessing their TACOS over the same three month period have hit 30%, 20%, and then 10%. The aggressive ACOS is driving more organic growth and creating more profit in the business.

What metrics impact ACOS?

The reality of Amazon ACOS is that you can’t just… lower it.

There isn’t one ACOS lever that you pull to change it, in fact, there are a whole range of different metrics that combine to produce your final ACOS figure.

First we’ll cover all the metrics, then how you can improve the biggest impact drivers.

Impressions

Impressions are the number of times your ad has appeared in search results and is mostly determined by how high you’re willing to bid for clicks in comparison to your competition.

Clicks

Simple – the number of clicks onto your listing once your ad has gained an impression. This is of course key because shoppers can’t buy your product without first clicking on to your listing.

Click-Through Rate (CTR)

The percentage of shoppers who, having been shown your ad (an impression) go on to click through to your listing.

To calculate CTR, divide clicks by impressions and multiply by 100. Eg. 10 clicks from 1000 impressions is a 1% CTR ((10/1000)*100).

Bid

The amount you set as a maximum you are willing to pay for any particular keyword or target. The higher you bid, the higher your Amazon ACOS will potentially be.

Cost Per Click (CPC)

The average amount each click has actually cost you. Differs from bid amount due to the Amazon ads auction system – you won’t always pay your max bid.

Orders

The number of sales you have made that are attributed to your PPC campaigns.

Conversion Rate (CVR)

The number of orders you receive in comparison to how many clicks your listing gets.

To calculate, divide orders by clicks and multiply by 100. For example, if you’ve made 15 orders from 100 clicks, your CVR is 15%.

Ad Spend

The total amount of money spent on ads.

Average Order Value

The dollar value of each order placed.

Selling lower-priced products (eg. under $15) will always be more of a challenge when it comes to reducing ACOS due to the small number of dollars you have to play with.

Ad Sales

The total dollar amount of sales made through your Amazon advertising campaigns.

When woven together, these are the metrics that make up the end result of your average ACOS. Next, we need to understand how we can move the needle on these metrics to lower our ACOS.

How do I lower my Amazon ACOS?

So how do we take the key metrics from above and make the necessary changes to improve our advertising performance?

The secret behind lowering to breakeven ACOS and beyond is not in one change or one strategy, it is in knowing how these numbers work together and how to improve each of them over time.

The three most important KPIs (key performance indicators) that every serious Amazon seller should be working on are CTR, CPC, and CVR.

Lets look at how to improve each one.

How do I optimize my Click-Through Rate?

CTR is the crossover of impressions and clicks and is a vital number that communicates how attractive your listing is to buyers.

The factors that impact click-through rate are those that can be seen in search results and which should be assessed in relation to competitors.

Here are the main drivers of click-through rate:

1/ Relevancy

To improve the relevancy of your product against your advertising targets (keywords or ASINs) be sure to conduct Amazon keyword research.

Don’t assume you know the right keywords, and don’t use off-Amazon sources.

Use a good Amazon keyword research tool to find the most searched, highly relevant keywords to ensure your ads are displaying for searches relevant to your product.

2/ Main Image

Use a boring image that blends in with the crowd and expect to see a low CTR.

Instead you should work hard to make sure your main image unique so that your product stands out and attracts the click.

Factor this into your product research process – how can you include something in or on your product that will make the main image pop?

Think colors, accessories, packaging and more. Zesty Paws are a great case study on how to do this well.

The best way to test if your main image would attract much attention is to take a screenshot of current search results and insert your main image.

Show it to some friends or colleagues and ask them to pick the ones that stand out to see if yours makes the cut.

3/ Title

Whilst the primary purpose of a product title is to include high search volume, related keywords, you also want to make sure the first 80 characters contain the key describing words of your product and any particular unique features.

At 80 characters the title may get cut off on mobile and some desktop layouts so this will help ensure the customer has that extra information they need to click on your listing instead of your competitors.

4/ Pricing

Amazon customers are on the hunt for value.

That doesn’t always mean the cheapest prices, but it does mean that if you’re aiming to charge more than your competition, you need to justify it.

The pricing of your products in relation to your competition is a big driver of CTR and testing this must be a priority.

5/ Promotions

Coupons (US) or vouchers (UK) are a fantastic tool to leverage for increased CTR.

Showing up on your listing as a colorful sticker they attract eyeballs to your listing and give customers another reason to click on your listing.

Test percentage and dollar amounts to see which converts best.

6/ Reviews

It goes without saying, the more reviews and better overall star rating you have the more likely you are to attract the click.

Reviews aren’t the be-all and end-all of selling on Amazon, but a product with zero reviews – or worse yet, a number of 1* reviews – is highly unlikely to attract the click up against competitors with thousands of reviews.

Work on your review generation strategy but when carrying out your keyword research be sure to also find and target lower competition long-tail keywords for an improved CTR.

7/ Prime

It should go without saying, but if your products are not Prime eligible you will miss out on a lot of sales. Get that stock into an Amazon warehouse or enrol in Seller Fulfilled Prime ASAP.

Finally, if running sponsored brand ads you can improve your click-through rate by testing different custom images and videos.

Ensure lifestyle images show your product in use by happy customers, and videos quickly show the product and its benefits to attract clicks through your listing – don’t waste the first 3 seconds of your video (and most customers’ attention span) on your brand logo!

How do I optimize my Cost Per Click?

1/ Determine the goal

Adjusting bids isn’t quite as simple as just increasing or decreasing costs.

Whilst a quick way to impact ACOS is of course to reduce bid levels, this can also have secondary affects.

For instance, reducing bids can mean losing the top of search placement which generally produces a better click-through and conversion rate.

Therefore when all is said and done, reducing bids may not reduce your final ACOS. So it is important to approach your bid strategy with this full picture in mind.

2/ Regularly optimize bids

In order to monitor the impact of any bid changes, develop a regular schedule of systemized optimization.

We recommend a weekly or bi-weekly audit of your PPC campaigns looking for keywords and ASINs that are producing an ACOS above your target level and slowly reducing bids down (eg 10%) each week to find an optimal bid level.

Cut it too much too soon and you may harm the overall momentum of your business.

How do I optimize my Conversion Rate?

Improving conversion rate is all about on-page optimizations.

You’ve won the click and got the shopper on your listing, now you need to make sure the listing converts as well as possible.

Many of the factors we’ll discuss in this section are often ignored areas in the world of PPC – advertisers instead choose to focus on more obviously related aspects like bids and budgets.

However, if you’re going to invest money into sending paid traffic to your Amazon listing, here are the on-listing aspects you should be optimizing for an increased conversion rate:

1/ Images

Gone are the days of images from all six sides of a product on a white background being sufficient.

With increasing competition on Amazon, you have to clearly demonstrate the features and benefits of your product with graphics, lifestyle images, and call out-text.

Here are some examples of what successful brands are doing:

Note: whilst you are limited on what graphics and text you can use for a main image, your sub-images have more flexibility and allow such features.

2/ Copy

Customers don’t want to know only about what the product does, they want to know what the product does for them.

In your copy, don’t just explain the features, show the customer the benefits they will receive when they buy the product.

Your title, bullets and description can all help tell the story of your product.

Remember – features tell, benefits sell.

3/ Reviews & Questions

Social proof is a significant factor in a customer’s buying decision, so it goes without saying that the more and better reviews you can generate for your products the more likely a customer is to convert.

Top reviews shown on the main listing page will have the most influence, and the ranking of these reviews is mostly impacted by helpful votes from customers.

Using a service like Vine to get your first 30 reviews can be helpful in this aspect because many reviewers on this program will write thorough reviews.

Don’t forget to thoroughly answer all the questions customers ask on your listing too – this is another great source of confidence for your customers when making their buying decision.

4/ A+ Content

Reducing your Amazon ACOS is made so much easier with a good conversion rate, and A+ content can help significantly increase the rate at which browsers become buyers on your listing.

It gives you room to show more features, create more lifestyle imagery, and tell the story of your brand.

Don’t sleep on A+ Content! Anker is a great brand to study for high-converting A+ Content.

5/ Videos

It’s no surprise that over 50% of consumers prefer to see video content from brands they follow over any other medium.

Videos give extra space and a new way to tell the story of your product and clearly display the benefits for the customer.

A simple sixty-second promotional for your video can drastically improve your conversion rate and therefore help achieve your target ACOS.

6/ Pricing

The worst way for an Amazon seller to compete is on price. It’s always a race to the bottom and nobody wins.

Instead, focus on how you can justify a higher price for your product by following the above steps.

Of course, it is a numbers game, and you will need to test different pricing levels, but test it both ways.

Sometimes a higher price won’t have a major impact on conversion rate but gives you a higher average order value.

However sometimes – often during the launch phase of a product – you’ll need to test lower pricing to improve CVR until your listing matures with reviews and organic visibility.

7/ Promotions

Finally, the on-page promotions you are running will play a big role in CVR.

Test coupons, vouchers, and buy X get X free offers to see which performs best to drive more conversions and help achieve target ACOS.

By methodically working on the aspects covered here to improve your click-through rate, cost per click, and conversion rate you put your ACOS back in your control.

Does anything else impact your ACOS?

For some final considerations, there are a couple more factors that can potentially impact your Amazon ACOS that you should be aware of.

Seasonality

Depending on the products you sell and the category they are in, certain seasons of the year can cause fluctuations in your ACOS.

Traditionally the period between Black Friday and Christmas produces the best conversion rates on Amazon which can drive sales at a much improved ACOS.

However, sellers often raise bids through this type of period so CPC increases can cancel out any CVR improvements.

Attribution window

Amazon attributes sales over a 7-day window for Sponsored Products (14 days for Sponsored Brands).

This means a customer can click on your ad on Monday, doesn’t buy, but then comes back to purchase on Saturday it will be included as a PPC sale.

This means you should avoid paying too much attention to your Amazon ACOS from the most recent 2-3 days.

In Conclusion

Improving your Amazon ACOS percentage is not an overnight exercise. Apply the principles shared in this guide and aim for gradual improvements in key performance indicators each week.

To compare your ACOS to your direct competitors, get your free Benchmarker report here. Once connected your report will generate and give you fresh insights on improving your ACOS each and every month.

If you’re interested in taking courses and getting coaching to help you grow your brand’s online sales, we’d love to help you.