February 9, 2023

Troubleshooting: What is Driving Changes in ACoS?

For many brands and advertisers on Amazon, ACoS is a major metric of guidance. When ACoS varies from your target, you’ll want to step back and review all the factors that impact ACoS. This closer look at the fundamentals will help uncover what is driving the change. Based on what’s causing the change, it can lead to very different actions.

Hold on tight for this ACoS lesson full of formulas!

We’ll start with the ACoS definition:

Now we can break down each side of the equation.  We’ll focus on ads that are cost per click but the same process can be used for impression-based ads:

CPC = Cost per click

Since the number of clicks is a function of impressions (traffic) and click through rate, we can change it to:

CTR = Click through rate, CPC = Cost per click

For Ad Sales, we can take the same approach:

CVR = Conversion rate, CTR = Click through Rate, AOV = Average order value

Now we can put these two equations into the ACoS formula and cancel out common terms:

CPC = Cost per click, CVR = Conversion rate, AOV = Average order value

When working to understand changes in ACoS, Ad Spend or Ad Sales, you can use these formulas to pinpoint what underlying factor drove the change.  When we understand the root cause for changes in the account, it makes it much easier to troubleshoot.

Now What?

Once you’re able to attribute the change to either CPC, CVR, or AOV, you can dig even further. What factors contribute to these metrics and what can you control?

For instance, with CPCs, you can’t control the level of competition, but you can control your bids, placement settings, and targeting mix.

As for conversion rate, competitor products and price seasonality are uncontrolled factors, but you should review your listing quality and advertising strategy to find any issues or gaps.

Co-founders Joe Shelerud and Matt Wiklund discuss the factors that impact conversion rate.

AOV is then impacted by price changes, discounts, and units per order.

Is breaking down ACoS by the fundamentals a magic bullet formula to fix your ACoS woes? Not exactly. But it’s where to start when looking to diagnose a change in performance and efficiency. Want to learn more? Let’s chat!