What is a Good Amazon ACoS? | 4 Tips for Lowering Your ACoS
It’s projected that advertisers will spend $4.6 billion advertising on Amazon’s platform by the end of 2018. Amazon has an incredible amount of reach and offers many opportunities for businesses to put their products in front of interested leads. When you invest in running sponsored ads to reach leads, you must monitor your Advertising Cost of Sales (ACoS).
On this page, we’ll dive into the details about ACoS and provide you with four tips to help you lower your ACoS. Keep reading to learn more, and give our Amazon ad agency a call today at 888-601-5359 to speak with a strategist about lowering your ACoS.
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What is Amazon ACoS?
ACoS is the term Amazon uses to measure the performance of Amazon sponsored product campaigns. It’s a key metric that helps you understand if your sponsored products are driving valuable results and helping your business earn a profit.
How to calculate ACos
ACoS focuses on the ratio of ad spend compared to target sales. ACoS is the total ad spend divided by the total sales times 100 to get the percentage.
Looking at this formula, it may seem confusing. Let’s use an example to help break down how to calculate ACoS.
You spend $20 to advertise your products. This $20 results in you making a sale of $60. So your ACoS would be 20 divided by 60 times 100.
In this example, your ACoS is 33 percent. This means that you are spending $0.33 for every $1 you make.
If you had a profit margin of 30 percent, you would lose money. To remain profitable, you want your ACoS to be lower than your project profit margin.
Let’s say that, instead of spending $30 on ads, you spend $5. If you plug it into the formula, you would divide 5 by 60 and multiply that number by 100.
In this case, your ACoS is 8.3 percent. If your profit margin is 30 percent, you still leave 21.7 percent of the sale to take home for your business.
Why is ACoS important?
ACoS is crucial to your business because you can track all your costs and figure out how much profit you will make. You want to know how much you can afford to spend on Amazon ads. Your ACoS will help you set your campaign up for success.
When you first calculate your ACoS, it won’t start off looking pretty. Your ACoS may start off high when you’re trying to figure out your advertising strategy. You need to be patient and give yourself time to develop a campaign that will lower your ACoS.
ACoS will help you figure out your break-even point too. It’s important to know your break-even point so you can aim to achieve above that point.
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What is a good Amazon ACoS?
When you’re looking at ACoS, you may wonder what a good Amazon ACoS for your business is. The truth, however, is there is no set ACoS that you should aim to reach. A “good” ACoS is based on your strategy.
Some businesses may look to use Amazon advertising to maximize sales, while others are looking to maximize profits. Your focus will affect what a “good” ACoS is for your business.
The average ACoS is around 30 percent. This will change based on your strategies and goals. As a general rule of thumb, you’ll want to aim for an ACoS around 15-20 percent.
Typically, you want your product cost to be higher than your ad spend to maximize profit. This is the best way to obtain revenue for your business.
It’s important that you find a balance. You don’t want to spend too little to advertise your products and not get enough exposure. On the other hand, you don’t want to spend too much and narrow your profit margin.
4 tips for lowering your ACoS
If you want to improve your ACoS, focus on improving your listing information. More conversions will help improve your ACoS. To get leads on your product listing page, you must create a relevant product page to encourage them to convert.
Check out these four tips to help you optimize your page to lower your ACoS!
1. Focus on the right keywords
If you want to reach relevant leads that will convert, you must choose the right keywords for your listing. Keywords will help you attract more leads to your ad.
When you choose the right keywords, you attract more leads that are interested in your products without spending more money on advertising. One ad can attract dozens of leads simply through choosing the correct keywords.
So, how do you find the right keywords for your ad?
The first step is to conduct keyword research. If you’ve ever conduct keyword research for search engine optimization (SEO), it’s important to note that Amazon keyword research and optimization is slightly different.
To conduct Amazon keyword research, you’ll want to use an Amazon-specific keyword tool. Keyword tools like Sonar will help you find relevant keywords for your product listing.
Once you have your keywords selected, you’ll integrate them into your listing. It’s important to remember that with Amazon, you don’t need to integrate your keywords multiple times like with SEO. One time is enough for your Amazon product to rank for that particular keyword.
By choosing the right keywords, you’ll attract more leads through your sponsored content. This will lead to more conversions for your business and less money you must spend to attract leads.
2. Optimize page content
When you drive leads to your page, you want to provide them with information that is relevant to your keyword selections. If someone searched “fuzzy holiday socks,” your listing should contain information that is relevant to fuzzy holiday socks.
Amazon uses your product information to determine relevancy. If your information isn’t relevant to the product, you won’t earn as many conversions. Amazon’s goal is to connect people with relevant listings that get them to convert.
When you post your sponsored products on Amazon, ensure that your product information is relevant and helpful for your audience. Provide them with information that will encourage them to convert. Whether it’s a product guarantee or a special feature, you want to provide your audience with information that convinces them to choose your business.
With more relevant information in your listings, you drive more traffic and keep them engaged on your page. They will learn more about your product and decide if they want to purchase. If your product is relevant and at a good price point, you’ll obtain conversions.
3. Optimize your titles
Your title is one of the first things your audience sees when they find your sponsored product listing. If you want to attract more relevant leads, you must optimize your title to attract more leads to your page.
The title should focus on your keywords and relevant information surrounding that keyword. Let’s go back to the fuzzy holiday socks example. If someone is searching for those socks, what relevant information would you expect to see in the title?
Information about the material, patterns, and sizes would all be relevant. This type of information may even cause someone to gravitate towards your listing because it appears relevant to their search query.
When you create a relevant title, you drive more people through your ad. It will help you capture more relevant leads for your business.
4. Set the right bid amount
The biggest mistake businesses make is setting the wrong bid amount. They either bid too low or too high. If you want to get the biggest bang for your buck and lower your ACoS, you must choose the right bid amount for your ads.
So, how do you find your perfect bid amount? Here’s a formula that will help guide you in the right direction:
You take the average order value and multiple it by the conversion rate. With this number, you will divide it by 1 divided by the Target ACoS
When you plug this information into the equation, you’ll get your estimated bid amount. This will help you stay on track with your bid amounts and choose an amount that drives the best results for your campaign.
Reduce your ACoS with a plan from WebFX
Amazon is a great marketplace for you to reach leads that are interested in your products. With paid advertising opportunities and Amazon SEO services, you can reach more leads and earn more conversions for your business. At WebFX, we have years of experience optimizing PPC campaigns that drive results.
We’re a full-service digital marketing company that offers services in Amazon and PPC advertising. Our team of over 200+ experts will help you optimize your Amazon advertising campaign to drive better results. We’ll bring our knowledge and expertise to your campaign to help you manage your ACoS.
If you’re looking for a team that knows how to drive results, look no further than WebFX. In the last five years, we’ve driven over $1.5 billion in sales and over 4.6 million leads for our clients. We focus on helping our clients achieve results that grow their businesses.
Don’t believe us? Just ask our clients! We have over 550 client testimonials that attest to the great work we do for them!
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