But amidst the competition of Amazon, how can you maintain your campaign profitability and achieve a lean ACoS without compromising your ad visibility and position?
This blog gives you the lowdown on how to reduce your ACoS so you can boost your ROI!
Everything you need to know about ACoS
What Is ACoS and How Is It Calculated?
Amazon ACoS means ‘Advertising Cost of Sale’ and shows how much money you spend on advertising versus sales you receive for a product.
Your ACOS is a principal metric in determining the profitability of your ad campaigns.
ACoS = calculated by dividing Ad Spend / Ad Revenue x 100!
So, in order to decrease the ACOS either Ad Spend has to decrease or Ad Revenue has to increase. While it’s tempting to want high sales volume and low ACOS on Amazon, there are variables that influence results and reasons why these shouldn’t be your only goals.
Why ACoS Matters in Amazon Advertising
Amazon’s ACoS is useful for measuring your performance on your Amazon PPC Campaigns and is necessary for understanding the efficiency of your campaigns:
Identifying profit margins
The objective of companies is to reach the break-even point or obtaining profits with their products or advertising. To obtain the profit margin, we subtract the cost of producing the product and any other expenses the brand may incur from the revenue earned.
Breakeven ACOS is directly related to your profit margin. To maintain profits, Amazon’s ACOS must be less than the profit margin. Otherwise, you will spend more on advertising than you earn.
What is a good Amazon ACoS benchmark?
There is no universal figure that defines a good Amazon ACOS, and it depends significantly on individual factors for each advertiser and what category you are in!
In order to define a realistic or good ACoS you have to ask yourself what you can afford to pay (depending on your profit margin) and what you are willing to pay (depending on your advertising goals) – your ads can be profitable when your advertising spend is lower than your profit margin.
Side note: The profit margin is the amount left after deducting FBA fees, production expenses, employee salaries, etc. The key is to know your profit margin so you can make an informed decision about how much you can afford to spend while maintaining a good profit.
To determine your ACOS benchmark, you will first have to calculate your profit margin and then work backwards to get your ideal ACoS.
Your ideal ACoS should not sacrifice your campaign visibility. Let’s say your ACOS is 3%. It means you’ve just spent £3 for £100 worth of sales. While this sounds like a decent ROI, what if you spent £3 for the whole month? Your ads might be profitable but you are missing out on a lot of visibility and sales.
Is there an ideal ACOS percentage? There is no generic benchmark we can work towards as it depends on multiple factors for each brand and product. It changes with your advertising goals, the product you are selling and the category you are selling in.
When is a High Amazon ACOS ok?
Just before we start, we should mention that having a high Amazon ACoS is not always a bad thing – it depends on what your goals are!
When you’re launching a new product it’s more important to get orders and perhaps drive brand awareness, so profitability might not be the key goal here. If you are in the launch phase we recommend concentrating on hitting revenue targets rather than lowering your ASoS.
Increasing brand/product awareness or dominating a niche
You may want to run a brand awareness campaign for your products or company, so running campaigns with a higher ACoS can make sense as the goal is to drive impressions. For these types of brand awareness campaigns, it’s okay to have a 50% or higher ACoS.
Unfortunately there are times when a product is just not selling you and you want to get rid of dead stock. In this case, running high ACoS campaigns can be more profitable than paying for long-term FBA fees or inventory removal fees.
Selling seasonal items
If you sell seasonal products, you won’t stop running campaigns during the slowdown months. The low ACoS experienced for the high season will compensate for the low-season high ACoS and even when you break even – the long-term strategy and outlook are what is important overall.
How to reduce Amazon ACoS
The key to success with Amazon ads is to get them close to or below the break-even point, if possible. Many sellers use ads to help them get more reviews or improve their best sellers’ rank – it’s not just about profitability! Which makes them all the more important. So, how do you reduce your Amazon ACoS? Let’s do it!
Cut spend on underperforming ads
The short-term solution of decreasing ACOS will look more at decreasing underperforming ad spending as it is easier to cut spending than it is to increase revenue, which would be more long-term.
Underperforming ad spending comes from two things: targets that don’t convert (no sales) or targets that do convert but at unprofitable ACoS.
- Non-converting ads
Firstly, we want to focus on decreasing non-converting ad spend. This means targets that are receiving clicks but no orders (which equals ad spend, as we pay per click).We would pause those that have received a significant number of clicks but no orders to reduce the ad spend.With all actions, we take a gradual approach here: first pause targets, then specific ads or ad groups, then whole campaigns.
- Converting ads but unprofitable AcoS
For targets that are converting (generating sales) but at unprofitable ACoS we recommend decreasing bids to improve profitability.The goal is to maintain the ad revenue but to decrease the spend by decreasing bids. Be careful that you don’t decrease so much that they get to a point where they are no longer competitive and your ads will be shown less or at lower positions in search results, which will lead to the decrease in ad revenue that we need to avoid.
Assess the quality of targets
Another way to decrease ad spend could be to look at the quality of the targets: there could be some loosely related keywords that perform less efficiently and some closely related keywords that perform more efficiently.
For example, if you sell gin you are likely to see more conversions from targeting the keyword “gin” than you are from targeting the keyword “gift for women”. But it depends on the product and seasonality i.e. if it’s the festive season and you want to use holiday-related keywords.
Generally speaking, if you are tight on ad spend, it’s best to be as targeted as possible to minimise the risk.
Use high-performing keywords
In the long term, we want to increase ad revenue. This can be achieved often by being as targeted as possible.
We analyse keyword performance over a longer time period and try to identify high-performing keywords which we use to start targeting in a separate campaign with high bids.
The goal is to make sure that for a high-performing keyword, your ad always appears above your competitors. So, whenever a shopper is looking for this specific keyword they will see your ad and you have a high chance of generating a conversion.
Reduce Amazon ACoS using negative keywords
Reducing Amazon ACoS through strategic use of negative keywords is a key tactic for optimising PPC campaigns.
1. Begin by analysing your campaign data and identifying keywords that generate clicks but have low conversion rates or irrelevant traffic. These are ideal candidates for negative keywords.
2. Incorporate negative keywords that are not relevant to your product or that don’t align with your advertising goals. For instance, if you’re selling high-end watches, you might use negative keywords like “cheap” or “affordable” to filter out users seeking budget options.
3. Regularly review your search term reports to identify new irrelevant keywords and add them to your negative keyword list.
By effectively leveraging negative keywords, you can narrow down your ad targeting, improve relevancy, and consequently reduce ad spend, ultimately leading to a lower ACoS and a more efficient advertising campaign.
Optimise your budget
Every campaign has a daily budget and you want to allocate more spending to the best-performing campaigns and less spending to underperforming campaigns.
You could reduce the daily budget of a campaign, which is performing at high ACoS, and increase the daily budget of a campaign that is performing at low ACoS.
We recommend using the fern tool to help with bid optimisation. You can use it to decrease ad spend from non-converting and high ACoS targets, increase bids for low ACOS targets, and pause campaigns.
Optimise your ad creatives
This ol’ nugget! We are sure you did check them, but are you uber-sure that your ads are creatively resonating with your audience? What that means is, are your images high-quality and clearly show the product you are selling? Do your videos show the product too and isn’t pixelated?
Is your copy easy to understand, the KSPs clear to the shopper and relevant to the target keywords? These things all help to encourage a click-through to your ad.
How to reduce Amazon ACoS using automation tools?
Another option is to use a service that can perform regular Amazon PPC optimisation such as Fern which we mentioned earlier.
You can input your desired AcoS level and the tool will manage bids, pause ineffective keywords, or add ones you’ve missed for you. This is a good time saver for sellers who already do a lot of admin themselves or a seasoned Amazon seller looking to get help with the more manual side of PPC optimisation!
How to reduce Amazon ACoS for new sellers?
Reducing Amazon ACoS for new sellers involves strategic planning and optimisation of advertising campaigns.
1. Firstly, conduct thorough keyword research to identify relevant, high-converting keywords for your products. Tailor your campaigns with a focus on these keywords to improve targeting and reduce unnecessary ad spend.
2. Utilise negative keywords to filter out irrelevant traffic and prevent wasted clicks.
3. Optimise your product listings with compelling and informative content to enhance organic visibility and click-through rates, ultimately improving ad performance.
4. Regularly monitor and analyse campaign data to identify low-performing keywords and adjust bids or pause them accordingly.
5. Consider experimenting with different ad types, like Sponsored Products or Sponsored Brands, to identify the most effective ad formats for your specific products.
6. Lastly, ensure that your product pricing is competitive and aligns with your advertising strategy to maximise profitability and lower your ACoS over time.
What’s clear is that it’s important to understand what the goal of your PPC campaign is, and whether a low or high ACoS is ok.
For brand awareness, low-season campaigns or new product launches, having a high ACoS is ok as the purpose is to drive impressions or sales, and your overall profit might not be the important factor during these campaign phases.
When it’s necessary to lower your ACoS using tactics like cutting ad spend on non-converting targets, unprofitable targets, bid optimisation and really staying on top of optimising your keywords can help lower your Amazon ACoS.
But, we also need to mention a 7th tactic: