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Understanding Amazon ACoS as an Important KPI of an Amazon Seller

When evaluating the effectiveness of your Amazon PPC campaigns, advertising cost of sales (ACoS) is a crucial metric that will help you know how much you spent on advertisements per revenue generated.

Usually expressed as a percentage, ACoS acts as Amazon sellers’ guide and informs the advertising campaign strategies and decisions. 

It is also an indicator of how successful you are in achieving your business goals.

If you’re looking for information on how ACoS can affect your business, you’re in the right place.

In this post, you’ll learn: 

  • What ACoS is.
  • Why it’s so important. 
  • The importance of knowing your competitors’ ACoS. 
  • Ways to increase your average customer order size.
  • What you can do to reduce your ACoS.

Let’s dive in.

What is ACoS?

Advertising Cost of sales (ACoS) is simply the amount of money you spend on Amazon advertising your products, per income generated from sales through the platform.

Amazon ACoS gives you a clear picture of the hidden costs that’ll eat into your profit and shows you whether you are profitable or not.

It is calculated as:

Phrased another way, ACoS is the percentage or ratio of each dollar earned through advertisements to what was spent on the ad campaigns. Let’s take a look at a concrete example that helps explain this concept.

You put up an ad that generates a total revenue of $400. A total of $50 was spent as the ad cost.

That means you spent 12.5 cents for every dollar you made.

A higher ACoS of above 30% means that you spend a lot on your ad campaigns and lose out on profits, while a lower ACoS means you are making profits.

While there is no perfect ACoS on Amazon, every seller strives for maximum revenue with the lowest ACoS possible.

Maximizing profits while maintaining a lower ACoS may be the primary goal, but this does not cut across all businesses.

 If your business is interested in brand visibility, creating awareness of your products, or selling out excess inventory, you’ll undoubtedly have a higher ACoS. 

Inversely, a company on a tight budget looking to maximize its revenue or sell out its cheap products will have to reduce its ACoS at all costs.

Why ACoS is Important for Your Online Business

The primary goal for every seller on Amazon is to make a profit while minimizing expenses.

ACoS, therefore, is a critical metric in measuring profitability.

As mentioned earlier, ACoS will keep sellers on track. It’ll help you know the hidden cost of your campaigns and figure out how much you make from your ad campaigns.

It is also an indicator of how well your campaigns have performed.

While starting, most businesses are likely to get higher ACoS ratings because they are still learning its ins and outs. 

The more ad campaigns they push, the better they can refine their marketing techniques for improved performance.

Why it’s Essential to Understand Your Competitor’s ACoS

With Amazon increasingly becoming competitive for sellers every day, it’s crucial to carry out analysis for your Amazon competitors.

Knowledge of your competitors’ ACoS will give you an insight into how well their ad campaigns and performance are faring.

It will also help you:

  • Set prices competitively and respond to rival marketing campaigns.
  • Design your products and marketing campaigns to stand out for more visibility.
  • Run your ads while leveraging your competitors’ weaknesses.

That said, here are several things to look out for.

Product Listing of Competitors

While analyzing your competitors’ product listing on Amazon, check their product images, product title, product features, and product descriptions. 

These can point to why their ACoS is high or low.

With that information, you can make your products stand out from the competition while lowering your ACoS.

Targeted Keywords

Analyzing your competitor’s target keywords is crucial in understanding how visible they are to customers.

From their listings, you’ll get an idea of their target keywords and how effective they are in their PPC campaigns.

With this information, it’s easier to improve your own keywords and campaigns. The end result is improved visibility with reduced ACoS.

Competitors Reviews

By now, you understand how critical reviews are to Amazon customers.

Checking competitors’ reviews will give you a deeper insight into how well customers accept their products.

Here are several factors you need when analyzing reviews from both your competitions and own business:

  • The quality of the product
  • The product ratings
  • Quantity
  • Problems
  • And Responses (How well do they respond to customers’ complaints or comments on their products?)

How to Calculate the ACoS of Amazon Sellers?

The primary goal for any merchant on Amazon is to increase sales while ensuring that their ACoS is at an all-time low.

While this is an excellent determinant of how successful or profitable your ad campaigns are, it is also vital to note that there is no perfect ACoS.

Different business needs, goals, and products will constantly shift your ACoS.

You can understand your best Amazon ACoS figures by observing several factors.

Your Profit Margin

Your profit margin is what you remain with after you have catered for all expenses like shipping, salaries, and fees.

With this in mind, you’ll know how much you can allocate for advertisements and still make a profit. It will also help you understand how to break even.

It is therefore vital to ensure that how much you spend for your ads is less than your profit margin.

Break-even ACoS

This is the amount you spend on your Amazon advertisement campaigns where you are neither making profits nor losses.

While you don’t gain or lose at this point, your business keeps running. This also means though that you don’t grow.

While your break-even ACoS does not necessarily show you how successful or profitable your ad campaigns are, it helps you know whether you are making profits or losses.

When calculating your break-even point, check your e-commerce product and sales prices.

To expound on the break-even ACoS, think of a scenario where your cost of production is $4 while the Amazon fees are $2. This gives you $6 upfront charges before ad costs.

The revenue income is $10. So the income generated is $6 after all expenses. Assume that you used the $6 to get sales.

That means that you’ll have used all your profits on the ad campaigns to get the sales.

At this point, you are neither profitable nor losing. 

Reducing Your ACoS on Amazon

Use the Right Keywords

You’ll have to invest in the right keywords in order to increase your product’s visibility.

Therefore, it is crucial to do keyword research and integrate the right keywords into your product listings.

If you do this correctly, customers will begin to notice you, and you won’t have to spend a lot on advertisements.

Check How Your Keywords are Performing

After finding the right keywords, concentrate on checking how the exact keywords perform.

This will help you know the effective and ineffective keywords. At this point, you can now get rid of the inefficient ones while focusing on those that are bringing in leads.

Also, check on your competitors’ keywords. How well are they performing? With this in mind, you’ll better position yourself to outdo them.

Use the Correct Product Information

Do you want to attract relevant conversions with minimal effort?

Using the correct product information is the right step towards this. Product information tells the customers what they need to know about your product. Get it right and it can create meaningful conversions.

Product information in Amazon is a constantly evolving thing. Remember to go back to the information you’ve placed and see how has been performing. Make constant necessary adjustments to continuously improve performance and results.

Create Catchy and Attention-grabbing Titles

Your product title has to be catchy to the customers’ eyes.

With all the competition on Amazon, you want your products to attract all the attention they can get. How about getting a catchy and attention-grabbing title with the right keywords to make you more attractive to your potential customers?

This strategy will ensure that you get the visibility you so desire while spending less on your campaigns.

Leverage Your Best Sellers

Concentrate on your best sellers. They will compensate for your own sales while reducing the cost of ad campaigns.

Place the Correct Bids

When placing bid amounts, focus on your expenditures.

How much are you likely to spend without running into losses?

With all the expenses in mind, you’ll be able to place bid prices that are profitable so that your ACoS will not be higher than your profits.

Tips to Increase Average Customer Order Size

Increasing your average customer order value is a sure way of bringing in more income for your online store.

To improve this value, focus on the following:

Offer free shipping for minimum orders – This is a sure strategy that’ll help you get customers adding more products to their carts.

One example is that you decide to provide free shipping for orders above $50. Many customers will be attracted to this and shop more.

Be sure to display this offer everywhere on your website with product listings and images so that clients can easily see it.

Customer loyalty programs – Starting a customer loyalty program not only attracts customers to buy more but also helps in customer retention.

They are also a powerful way to build your brand and increase your customer order size.

Come up with ways of rewarding your repeat customers. This incentive will make them want to buy more.

Give your customers a personalized experience – Customers are likely to buy more from you when they can relate to your marketing campaigns. 

From your clients’ database, you can check their preferences and design your messages in a way that resonates with their pain points.

This way, you’ll be offering them benefits and not just products, and this will make them want to order more from you.

Leverage your social proof – If you are running an online store, it’s important to note that your reviews and social proof can make or break you.

Research done by Search Engine Watch found that 72% of customers will only buy products after reading positive reviews.

What are your past clients saying about your products? If there were complaints, did you work on them? How did you address the customers’ grievances? These reviews are what a big thing that potential clients look for before making purchase decisions.

Be sure to display all your positive reviews for clients to see. This way, you can be sure that they’ll make more purchases.

Also, having a flexible return policy for your customers won’t hurt. According to a 2019 survey by UPS, 73% of online shoppers are likely to make repeat purchase decisions depending on their return experiences.

By being flexible with your return policies, you reduce your potential customers’ anxiety and hesitance.

Clients are likely to buy more when they are comfortable with a store’s return policy. Offer a reasonable clients’ return policy to your clients and watch them increase their order sizes.

Stay on Top of Your ACOS

While mastering your ACoS strategy is a sure way to increase ROI for Amazon sellers, it can be a precarious balancing act if you don’t know what you’re doing.

Signalytics PPC management service can help you stay on top of your ACoS and generate a positive ROI.

Partnering with Signalytics can help put your brand in front of your customers, enabling you to sell more and reach that success you deserve.

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