Key Takeaways:

  • Focus less on ACoS and more on driving traffic and sales to your listings in the launch phase.
  • Calculate the gross margins for more established products and then test different ACoS levels to see which works best for you.
  • Bids are the primary method to controlling your ACoS.
  • Increase bids to drive more traffic for top-performing keywords or product targets that are converting well regarding ACoS/ROAS.
  • For poor performers, decrease bids.
  • Fixed bidding can be great for new product launches to establish continual traffic to your listings without Amazon’s interference.
  • Transition to a dynamic down bidding strategy for more established products where you’ll have control on the bidding while having some protection on low relevancy keywords.

Overview

What is a good ACoS? What is the best bidding strategy to use? How does it all tie together to reach goals and objectives? In this episode, we will give you some things to consider to help set realistic ACoS targets. We’ll also break down different bidding strategies and talk through how you can implement these strategies to achieve your goals.

What is a Good ACoS on Amazon?

What one considers to be a “good ACoS” on Amazon is going to be very different from one seller to the next. It’s largely dependent on your margin, repeat purchases, the category you’re in, and the objectives for your product. While ACoS is an important metric, it could be pretty misleading if other factors aren’t considered when analyzing your ad performance.

Factors to consider when setting ACoS targets: 

  1. Gross Margin: This is a great benchmark to start with. A good ACoS can either be below or above your gross margin depending on your overall product objective. E.g., An ACoS above your gross margin can be a good thing if it leads to more exposure, thus increasing your sales volume and revenue. 
  2. Product Objective: Your product objective is based on the phase you’re at with your products. If you’re just launching a product, take a different approach with your ads than if you’ve got very established products selling on Amazon. In the launch phase, the goal will be to increase traffic to your listings. This will result in a higher spend, thus increasing ACoS. At this point, we recommend not being too focused on ACoS since the high initial sales volume can provide profitable long-term returns. While for more established products, calculate your gross margin and then target and test different ACoS levels to see which works best regarding sales volume vs. margins.
  3. Category Competitiveness: The competitiveness of your product category is an essential factor to consider. This is driven by two major factors: the margins that you can achieve from your products and your customers’ lifetime value. E.g., If your product has great margins and lifetime value, then having a higher ACoS goal may be worth the trade off. 

Types of Bidding Strategies and Which Should You Use?

There are three types of bidding strategies: dynamic down, dynamic up and down, and fixed bidding.

Dynamic Down: In the early days this was the default bid type. This type of bid will bid down to the value specified. Scenario: If you set a $1 for your bid, it will bid up to $1. However, Amazon can decrease the bid that goes to the auction if they don’t think your product will convert well into a sale. When to use it: Use dynamic down bidding for more established products. It allows you to be aggressive while minimizing wasted spend dynamically.

Dynamic Up and Down: This type of bidding allows Amazon to either increase or decrease your bid for clicks that can convert. Scenario: If you set a $1 bid, Amazon can increase your bid above the threshold if they determine the product will convert. Simultaneously, the bid can also decrease if Amazon determines that the product is not likely to convert. When to use it: This bidding type gives Amazon a lot more control and can help maximize sales opportunities for high converting keywords, product targets or ad groups.

Fixed Bidding: With this type of bidding, Amazon will not alter your bids. Instead, bids will be set. Scenario: If you set a $1 bid, then no matter the likelihood of a sale the bid that goes to auction will be $1. When to use it: Use this strategy for new product launches. This strategy gives sellers the most control to max bids without Amazon decreasing bids due to little or no sales history. 

Episode Highlights:

  • What is a good ACoS for your campaigns [01:31]
  • Setting ACoS targets for new product launches [03:31]
  • Setting ACoS targets for more established products [08:48]
  • Setting Budgets and Budget Types [10:33]
  • Difference between profitability on ad sales vs. profits on an account level [15:18]
  • Types of bidding strategies [17:27]
  • When and how to implement different bidding strategies [19:56]