How to Calculate Your ACoS (And Determine Your Break-Even)

Amazon is the third biggest advertising platform, offering its more than one million sellers an effective way to promote their products and brand to shoppers on and off the site. If your company plans to advertise on Amazon, however, you need to know your Advertising Cost of Sale (ACoS). ACoS measures the ratio of ad cost to sales revenue — or how much your company spent on advertising, compared to how much it earned from advertising. You can calculate your Advertising Cost of Sale with the ACoS formula: Ad spend / Ad revenue * 100.

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ACoS formula

When it comes to ACoS on Amazon, however, you need to know more than how to calculate your ACoS. You also need to learn your break-even point, because that number will help you build a cost-effective advertising campaign and pricing model.

Keep reading to discover how to find your break-even point now!

If you’re looking for professional help with improving your ACoS and Amazon ad campaigns, ask WebFX. With more than 650 digital ad campaigns managed and more than $1.5 billion generated in revenue for our clients in the past five years, we’re a trusted choice for small-to-midsized businesses (SMBs).

What is ACoS?

ACoS, also called Advertising Cost of Sale, measures the performance of Amazon ad campaigns using the following formula: ACoS = Ad spend / Ad revenue * 100. Using ACoS, your company can see how much you spend on Amazon advertising compared to how much you earn from it.

How to calculate ACoS

As mentioned, you can calculate your ACoS with the ACoS formula:

ACoS = Ad spend / Ad revenue * 100

Learn more about how to calculate your ACoS with the following example:

  • Ad spend: $2000
  • Ad revenue: $4000

Insert the above data into the Advertising Cost of Sale formula:

ACoS = Ad spend / Ad revenue * 100

ACoS = 2000 / 4000 * 100

ACoS = 50%

In this example, your ACoS is 50%.

That means for every $0.50 your company spends on advertising, you earn $1.

What is a good ACoS on Amazon?

A “good” ACoS on Amazon depends on several factors related to your company, like your market and whether your business strategy focuses more on maximizing sales or profits. Generally, the lower the ACoS, the better.

The average ACoS, however, is around 30%. Most Amazon sellers aim for an ACoS between 15 and 20%.

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What is the difference between ACoS and ROAS?

ACoS vs. ROAS

Before discussing break-even ACoS, as well as how to calculate yours, it’s essential to talk about Advertising Cost of Sale and return on advertising spend (ROAS). While the two terms seem different, they’re incredibly similar.

Both measure the ratio between your ad spend and revenue. The difference is their platforms.

ACoS is specific to Amazon Advertising, while ROAS is specific to Google Ads. When discussing ads on Google, for example, advertisers talk about ROAS, but when talking about ads on Amazon, sellers use ACoS.

What is break-even ACoS?

Your break-even ACoS is the point where you will either start making or losing money from advertising.

What is a good ACoS

If your ACoS is higher than your profit margin, your company loses money when advertising. However, if your ACoS is lower than your profit margin, your business makes money when advertising. When advertising on Amazon, you want to calculate your break-even ACoS before launching your campaigns.

How to calculate your break-even ACoS

You can calculate your break-even ACoS with the following steps:

  1. Calculate your profit margin
  2. Calculate your ACoS
  3. Compare your ACoS to your profit margin

Get a walkthrough for each of the above steps below:

1. Calculate your profit margin

Find your profit margin with the following formula:

Profit margin = (Value of sale - Item cost) / Value of sale

Your item cost will include everything that goes into producing, importing, and selling your product. That means your item cost should consider your Amazon selling costs, like your referral, storage, and order fulfillment fees.

Profit margin formula

Here is an example of how to calculate your profit margin:

  1. Value of sale: $100
  2. Item cost: $30

You would then input this data into the profit margin formula:

Profit margin = (Value of sale – Item cost) / Value of sale

Profit margin = ($100 - $30) / $100

Profit margin = $70 / $100

Profit margin = 70%

In this example, your profit margin is 70%.

If you want to break-even with advertising on Amazon, your ACoS (in this instance) cannot exceed 70%.

2. Calculate your ACoS

Now, find if you break even by calculating your ACoS with the following formula:

ACoS = Ad spend / Ad revenue * 100

Let’s work through an example with the following data:

  1. Ad spend: $1000
  2. Ad revenue: $4000

Next, you’ll input this data into the ACoS formula:

ACoS = Ad spend / Ad revenue * 100

ACoS = $1000 / $4000 *100

ACoS = 25%

In this example, your ACoS is 25%.

3. Compare your ACoS to your profit margin

Once you calculate your profit margin and ACoS, you can determine your break-even ACoS.

Remember the following rules when finding your break-even point:

  1. An ACoS higher than your profit margin means you’re losing money from advertising
  2. An ACoS lower than your profit margin means you’re making money from advertising

In the above examples, the profit margin was 70% and the ACoS was 25%.

Since the ACoS is lower than the profit margin, you’re making money from advertising. If the numbers got reversed, however, and the ACoS was 70% and the profit margin was 25%, your company would lose money from advertising.

While you can’t predict your ACoS before launching an Amazon ad campaign, you can use tools, like an ACoS calculator, to determine your ideal ACoS. Tweaking your ad spend and predicted revenue, for instance, could help you establish a starting point for your ad strategy.

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3 tips for lowering your ACoS on Amazon

If you’re looking to lower your Amazon ACoS, these three tips can help:

1. Add negative keywords

Negative keywords can help your business immediately reduce your ACoS by preventing Amazon from bidding on useless keywords. For example, if your company sells red flats for women, you don’t want Amazon bidding on keywords that include colors other than red.

Browse your campaign data and look for unnecessary keywords.

You can also check different keyword metrics, like click-through rate (CTR), to find keywords that may not work well for your product, even though they seem relevant. Generally, if a keyword receives 15 clicks, but zero orders, it’s probably worth using as a negative keyword.

Once you have a list of keywords, add them as negative keywords with these steps:

  1. Log in to your Amazon Seller Central account
  2. Go to your advertising view
  3. Select your ad campaign and ad group (if you want to add the keywords at the ad group level)
  4. Click “Negative keywords”
  5. Enter your keywords
  6. Click “Add keywords” and “Save”

You can always update your list of negative keywords, so don’t worry about adding a keyword to the list. If you notice a drop in clicks or conversions after updating your negative keywords, you can remove keywords and return them to your campaign.

2. Use exact match keywords

The exact match keyword targeting option can also help your business reduce your Amazon ACoS.

With this keyword targeting option, you tell Amazon to only bid on this keyword versus variations of that keyword. For example, if you targeted, “red womens flats,” Amazon would not bid on similar keywords like, “red womens flats size 8,” which is useful if you don’t have that size currently in-stock.

You can find keywords worth targeting as exact match by browsing your ad reports. Look at the performance of different keywords. How many impressions, clicks, and sales do they have compared to other keywords?

Once you determine which keywords deliver the best return on investment (ROI), create dedicated campaigns for them. Moving these keywords into a separate campaign (and removing them from your existing one) allows you to refine your ad strategy and deliver more targeted ads.

3. Take a proactive approach to bid management

Routinely checking and managing your bids can help your business optimize your ad spend and reduce your Advertising Cost of Sale. That’s because you can respond to fluctuations, like low sales for out-of-season products or high sales during peak shopping seasons.

For example, if sales decrease for seasonal products, your business can decrease your bids. People aren’t buying the product (as expected), so why overspend to earn a sale? Save your ad spend for the peak season instead.

In comparison, if you have a high number of sales from advertising, it makes sense for your business to take a more aggressive bidding approach. With this approach, your company’s ads can earn more impressions and more chances to convert shoppers.

Either way, a proactive bidding strategy can help maximize your ROI and lower your ACoS.

Want to speak with an expert? Call us at 888-601-5359

Improve your Amazon ACoS with WebFX

Achieving a good Amazon ACoS isn’t easy.

Your business needs to launch and maintain an aggressive ad campaign to keep your profits and sales high. As a midsized company, it’s even more challenging because you have a smaller team and fewer resources.

WebFX, however, provides your business with a complete advertising and marketing team.

Using our Amazon advertising services, your company can launch and maintain a competitive, revenue-driving ad campaign. With our decades of experience, as well as our impressive client recommendation score (it’s 488% higher than the industry average), we will help your business succeed and grow online.

Contact us online or call us at 888-601-5359 to learn more about our Amazon advertising plans!

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