Amazon PPC, or pay-per-click, is a suite of advertising products on Amazon. The structure of a PPC campaign is such that the advertiser is only charged when a potential buyer takes a desired action on advertising collateral. It is a way for sellers to increase their sales using the large and credible retail giant: Amazon. However, for sales to increase and to accumulate more revenue, one must consider their Advertising Cost of Sales (ACoS). This is is a critical decision-making KPI. It allows advertisers to track the average costs for moving a unit of product.
In Amazon PPC, ACoS is crucial, which is why Amazon sellers must understand what it is and how to improve it. At Premiere creative, we employ a comprehensive approach to Amazon Advertising that is uniquely effective. You can read more about that approach on this blog post, and you can read more about ACoS below.
Amazon ACoS: Essential Points To Know
First thing’s first: what does ACoS even mean? ACoS, short for Advertising Cost of Sales, is the percentage of how much you spend on advertising per dollar of revenue you make. In other terms, what portion of your total revenue does advertising take up? You calculate ACoS by dividing Total Ad Spend by Total Sales.
How Do You Know If You Have a Good Or Bad ACoS?
ACoS is extremely important. It measures the success of your Amazon PPC campaigns. Everyone strives to have a good one, but how do you know if your ACoS is good or bad? To figure out if it’s good or bad, you need to gauge your break-even and target ACoS. This will help you determine whether your funds are being allocated efficiently.
Calculating Break-Even ACoS
Break-even ACoS occurs when your advertising cost matches your profit margin. In layman’s terms, there is neither loss nor gain. You establish your break-even ACoS by taking your Pre-Ad Profit per sale and dividing it by the price you are selling your product on the market. Ok, so now what? Well, you can use this break-even ACoS percentage to evaluate your profitability. If your normal ACoS is over that break-even ACoS, then your company is unprofitable. If the ACoS is less than the break-even ACoS, then your company is profitable. Although it sounds complicated, we promise you it is simple once you start plugging in your sales numbers. After all, it is very important to calculate your break-even ACoS along with your Target ACoS.
Making Sure You Hit Your Target ACoS
If you want your business to generate a sizable profit, you must calculate your Target ACoS (TACoS). Your Target ACoS is the number you are striving to meet since the rest of the money you aren’t spending on advertising is your profit. You can discover your TACoS by assessing your break-even ACoS. Once you understand your break-even ACoS, you can decide what you want to earn and create your TACoS. You can then decide on the perfect amount to bid. By multiplying your average order value times your conversion rate and then dividing that number by one divided over your Target ACoS, you will then be able to determine what you should be paying every single click.
(Average Order Value)(Conversion Rate)/(1/TACoS) = Perfect Cost Per Click (CPC)
How to Access Your Amazon ACoS
After determining your break-even ACoS as well as your Target ACoS, it is time to use this data to help you establish how high you should set your CPC. There are often many different directions you can take, which is why we created this breakdown:
1. Average ACoS: Your Ideal Benchmark
You could research the average Amazon PPC’S ACoS per user per day. This will become a point of reference for your company and is right in the middle of a high and low ACoS.
2. Witness High Visibility With High ACoS
Many Amazon sellers swear by a higher ACoS since it increases their visibility on the platform. Although it may require more money upfront, more visibility will allow your company to dominate its niche, which will ultimately ensure bountiful profits in the long run. The best sellers even tend to use different TACoS for different products to increase their visibility.
3. Earn High Profitability With Low ACoS
For most Amazon sellers, having a low ACoS is what they strive for since it ensures you make the most profit possible. A low ACoS is good for a company whose product does not require high visibility since it is already dominating its niche.
Let Premiere Creative Optimize Your Amazon ACoS
There are many different ways to interpret one’s ACoS, and choose whether to stick to a low or high ACoS is all based on your company’s specific product and goals. Using all the information we provided, we hope you learned more about Amazon ACoS, and have a better understanding of what advertising direction your company should head towards. To learn even more and maximize your Amazon ACoS, connect with one of Premiere Creative’s Amazon experts by dialing (973) 346-8100. We also recommend checking out this post on using defensive advertising to protect your brand on Amazon.