Understanding The Amazon ACoS Formula
The Amazon ACoS (advertising cost of sales) formula is important for Amazon Sellers to understand because according to Amazon it “helps you measure the effectiveness of your campaigns relative to your advertising spend. A lower ACoS means your spending a lower percentage of sales on advertising.” Having a lower Amazon ACoS is usually the goal for most Amazon Sellers, but there are instances when sellers may be willing to take on a higher Amazon ACoS if they are trying to increase your brand awareness, increase product visibility, or get rid of inventory quickly.
But what is the Amazon ACoS formula?
Calculating your Amazon ACoS is fairly simple. Let’s consider an example. If you’ve spent $40 on your Amazon advertising and received $100 in sales from those ads, then your ACoS would be 40%.
Here is how those numbers would look in the Amazon ACoS formula:
An obvious question then is “What is considered a ‘good’ Amazon ACoS?” This is not an easy question to answer because it is subjective. As mentioned earlier, some sellers may be willing to accept a higher ACoS than others if they have more aggressive goals, while other sellers have the goal of getting the lowest ACoS possible. You have to assess your advertising goals, your cost structure, analyze your PPC metrics, etc in order to come to a conclusion about what a ‘good’ Amazon ACoS is for your particular needs. However, there are some average ACoS percentages you can also consider based on the category or categories you are selling in.
Average Amazon ACoS Based on Category
Pet – 42%
Food % Beverages – 34%
Household Goods – 33%
Supplements – 30%
Books, Videos, Records – 25%
Toys & Games – 22%
Health & Beauty – 19%
Clothing & Accessories – 13%
Jewelry & Watches – 12%
Electronics & Computers – 11%
Sporting Equipment – 8%
The key component to include in your determination about a target ACoS is what you want your profitability to look like. You’ll need to evaluate the profit margins for all of your products and use it to determine your Amazon ACoS goals. Here is what a cost breakdown might look like:
In order to calculate your profit margin as a percentage, you can divide your profit per unit by the product price. So if your profit per product is $20 and the product price is $80 then your profit margin is 25%. So once you know what your profit margin is, you can answer the question of ‘how much money can I spend on ads and still be profitable?’ The answer then is less than 25% for this example. Hence why Amazon ACoS, in terms of profit margin, can also be called the break-even ACoS.
It’s important to note that Amazon does not provide product-specific ACoS, but rather only shows it per campaign or ad group. If you are only advertising one product per campaign or ad group, this will accurately give you your Amazon ACoS for that product. You can also group products with similar margins.
Hopefully this has given you a better idea of how the Amazon ACoS formula is beneficial when used correctly. Check out our videos on YouTube about Amazon ACoS here!
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