Amazon’s advertising can make a real difference to your product sales.
Take an example of this campaign for a single product in a day. It has generated over £2,000 of sales with an advertising spend of £137.00 at 7.3% Advertising Cost of Sale (ACoS).
So, the effect of ads can be felt almost immediately – and they will have a positive impact on your overall sales of the product! This is because a product with more sales gets pushed up the rankings in Amazon’s product search results, which will further generate additional organic sales.
That being said, when you invest in your ads you must be careful to monitor the Advertising Cost of Sale (ACoS) just so you maintain the profitability of the product.
In this post, we will go in detail about how to drive your Advertising Cost of Sale (ACoS) down. If you have any questions after reading this give our Amazon Ad Agency a call to discuss how to lower your ACoS.
What is Amazon Advertising Cost of Sale?
Advertising Cost of Sale (ACoS) is the metric used by Amazon to measure the performance of advertising campaigns. It is one of the key metrics that help you understand if your investment is returning sales with an optimum profit.
How to calculate ACoS
ACoS is simply a ratio of spend vs sales generated.
For example, say you spend £100 for ads and this results in £1000 sales.
ACoS, in this case, will be calculated as £100/£1000 x 100% which equals 10%.
So this also means that you are spending £0.10 for every £1 you generate or you are generating £10 for every £1 spent.
If you only had a profit margin of 7% before advertising, you would lose money with 10% ACoS so to remain profitable your ACoS must be lower than your margin of 7%.
Let’s look at how this ad campaign can be profitable.
If you generate £1000 with £70 spend = £70/1000*100%= 7%
This is a break-even ACoS.
If you generate £1000 with £50 spend = £50/1000*100%= 5%
This is a profitable ACoS and you get to keep 2%.
What is a good Advertising Cost of Sale?
A good ACoS is different based on strategy, product lifecycle and competitiveness.
Strategy: Are you looking to maximise sales, or maximise profit? One business may use advertising to maximise sales and the ACoS may be non-profitable, but the aim of maximising sales is achieved whereas others may want to maximise the profit so ACoS is tightly managed.
As a general rule of thumb aim up to 20% ACoS.
Product Lifecycle: If you are launching a new product expect a higher ACoS – not many clicks will convert but any conversion is a good conversion because this will lead to further sales.
Competitiveness: If you are in a very competitive industry, like dog joint supplements, for example, your ACoS may be very high (up to 50% in some cases) but with ads spend accelerates paid sales, which in turn helps your organic and total sales increase.
Once you have started advertising, monitor it regularly (at least every other day at first) to see the spend vs sales. Use this time to adjust bids and adjust spend along with reviewing keywords that are performing well or product targets that are performing well.
Tips for improving your ACoS
There are quite a few ways to improve your ACoS. If you generate more orders then your cost naturally will go down. So, it is not only about adjusting your ads but also look into the content of your product for improvement.
1. Relevant Keywords
If your keywords are relevant and specific to your product, that will get you conversions with lower cost. To understand which keywords are performing well for you, you can use a search term report from your automatic advert and:
- Filter by conversion to see highly converting keywords
- Filter by ACoS to see highly profitable ACoS
Create campaigns with this converting keyword and you will lower your ACoS because you know you are only targeting keywords which lead to sales.
Another way to get relevant keywords (KWs) is using Amazon-specific KW research tool Sonar. You can also generate KW ranking your competitor product by searching for their ASIN (Amazon Standard Identification Number).
2. On page information
Your Amazon product pages will convert well if there are good quality images for the product, good quality information lots of positive reviews.
If your product information is not relevant it is likely that you will convert less and this will push your ACoS up. Ensure that you have enough product information. Take a look at the product below. It’s the title and key features include all relevant keywords.
With relevant information in our listings, we drive more traffic, engage with potential customers and finally, a sale happens if the price and delivery time is right for them.
3. Optimise Your Titles
Product titles are one of the first things that your customers see in your sponsored listings. They need to be concise and relevant.
Amazon’s style guides tell us what information to include in your product title depending on your product category. As seen on the above screenshot, in case of pet supplies, you should include the brand name, product type, style along with quantity. Although this seems common sense, it’s worth looking through the comprehensive style guide here (Seller Central account logon required).
4. Set the appropriate bid amount
It is very easy to bid either too low or too high. Bids depend on where you are in the product lifecycle. If you are launching a new product without reviews, your bids may need to be higher compared to the products with reviews. At the same time, if your product is very competitive or you are bidding to win a position during a seasonal sale, your bids may be higher too. So, there are multiple factors that will affect how you should adjust your bids.
To find out the perfect bid amount here’s the formula you can use from Adference (Amazon advertising tool)
**conversion rate – is the conversion rate of a keyword/ad group in the campaign and if you are starting a new campaign use your conversion rate from the business reports.
When you create this equation it will give you max CPC for your bid that drives the best result for your campaign.
About the Author
Prabhat is an Amazon consultant helping online sellers expand their presence on Amazon. Prabhat has 10+ years of experience, and has worked with both UK and international businesses.
The Vdepot team has worked with Prabhat for several years, collaborating on networking events and training courses for online sellers. As well as delivering thorough and interactive training, as a consultant Prabhat has a current and hands-on understanding of how to succeed on Amazon.
Reduce your Amazon Advertising Cost of Sale
with Online Seller UK Amazon Advertising Plan
Amazon is becoming the main driver of sales for many small and large businesses. With the right strategies in place, you generate revenue faster and grow faster. Amazon advertising helps you accelerate your sales and with Amazon SEO you will reach more customers.
We have years of experience and we will help you launch and optimise your Amazon advertising campaigns and drive the best possible results. Check out some of our case studies and give us a call 0161 327 2923 or email us to speak with our Amazon consultant.