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Your ACOS (Advertising Cost of Sales) is a crucial metric for anyone running Amazon PPC campaigns. It helps in setting realistic advertising budget goals and measuring the success of your Amazon ads. Whether you're an Amazon ads manager, a brand owner, or handling a client's account, understanding how to calculate and set a target ACOS is essential for steering your business or client’s accounts towards profitability.
Calculate Breakeven ACOS:
Your "Breakeven ACOS" is the point at which you neither make nor lose money from your ads.
For Seller Central:
Breakeven ACOS = (Selling Price - Amazon Fees - Cost of Goods Sold) / Selling Price
For Vendor Central:
Breakeven ACOS = (Shipped COGS - Your COGS - Vendor Fees) / Ordered Revenue
Use Ordered Revenue for your calculations to account for ad revenue at retail price.
Consider Ad Cost of Total Sales (ACOTS)
Unlike ACOS, which considers only ad sales, ACOTS (sometimes called "TACOS") compares ad spend against total sales (ad sales + organic sales).
Example: If ad spend is $10 for a $20 sale (ACOS of 50%), but organic sales bring in an additional $40, your ACOTS would be $10 / $60 (Total Sales), resulting in a 15% ACOTS.
Determine Your Target ACOS:
It's considered "best practice" to target breakeven ACOS with your ads in order to stay competitive in the ad auction without losing money.
The increased sales velocity helps improve organic ranking and sales, which is where the profitability comes from.
For particularly competitive and high-volume keywords, you may need to target above your breakeven ACOS in order to maintain visibility and organic ranking
You will have to experiment with different ACOS levels to find the "sweet spot" of visibility on competitive keywords that also doesn't break the bank
To balance the non-profitable spend on ranking keywords, consider setting a slightly lower Target ACOS (below breakeven) on other campaigns so that your overall account performs at break even in total
You can set unique Target ACOS values for groups of campaigns with Optimization Groups. Learn more here:
How to Create Optimization Groups
Maximize campaign performance with our campaign grouping capabilities
Tips for Success:
Adjust Based on Data:
Consider both your advertised ACOS and ACOTS to ensure you're not overlooking the impact of PPC on organic sales.
Not all targets set by clients or upper management are data-driven. Be prepared to suggest adjustments based on realistic data and market conditions.
Use your breakeven ACOS and TACOS/ACOTS to guide how aggressively you can pursue ad spend while maintaining profitability.
Be Flexible: Every Amazon account and product category is different. Customize your approach based on specific data and performance metrics.
Stay Data-Driven: Always use a formulaic approach to decision-making. Regularly review your ACOS, ACOTS, and other key performance indicators (KPIs) to adjust your strategies as needed.
Client Communication: If you're managing accounts for clients, ensure they understand the significance of ACOS and how it impacts their overall business goals. Clear communication helps in setting realistic expectations.