If you are selling appliances on Amazon then a good ACoS (Advertising Cost of Sale) is 17%, while if you are selling products in the baby category a good Amazon ACoS would be around 33%. What one considers to be a good Amazon ACoS will differ from one seller to the next. A good ACoS is largely dependent on unique attributes like margins, repeat purchases, and objectives.
Amazon ACoS is just one of the metrics used to measure a seller’s advertising performance. It measures performance by calculating total ad spend divided by ad sales. The lower the ACoS, the greater the return on your ad spend, but not all sellers can achieve a low ACoS. This is why factoring in unique attributes can help you determine the ideal ACoS for your category.
Finding The Right Amazon ACoS By Category
Recently, Amazon released ACoS benchmarks for Sponsored Brands by category. We pulled benchmark data for multiple categories, then combined and normalized the data to help you determine what is a good Amazon ACoS by category.
Still Looking to Lower Your ACoS?
If you’re looking to decrease your Amazon ACoS it is important to evaluate changes in one of the three underlying factors:
- Lower Your Cost Per Click: If you pay less per click for your ads (keeping the other two factors constant), your ACoS will go down. Making sure you have great controls for bids and placement adjustments can help ensure you aren’t paying too much for underperforming targets. While lowering bids can reduce CPC (and improve ACoS), it will also shift your ads to worse placements and reduce impressions, which can result in a tradeoff with sales.
- Improve Your Conversion Rate: If you can increase the orders you get per click (conversion rate), you’ll decrease your ACoS. From the advertising side, targeting the right keywords and product targets along with optimizing where those ads are shown (placements) can help improve conversion rate. Other organic factors like listing title, pictures, reviews and price all have major impacts on your conversion rate. Finally, external factors like seasonality, competitor products, and competitor price can have major effects on conversion rate and ACoS.
- Increase Average Order Value: If you can increase the revenue you get per order, you’ll naturally decrease your ACoS. Upselling customers to higher-priced variations or cross-selling to other products can increase your average order value which will help improve your ACoS.
Why having the Lowest ACoS May Not be the best
ACoS is an important KPI in Amazon advertising, but focusing only on ACoS can lead to poor outcomes.
For example, if your only goal was to minimize ACoS, you could choose to only target branded terms and set $0.02 bids for all other targets. Branded terms will likely produce a very low ACoS, and $0.02 bids will produce low costs per click and lead to a fantastic ACoS. However, ad sales would also tank with this approach. Exposure for any non-branded keywords (which may otherwise have been profitable) would be next to nil.
This example demonstrates that ad sales and ACoS targets are positively correlated. That is, a higher ACoS allows for higher bids and more competitive targets, which drives more impressions, clicks and sales. Even when focused on ad profitability, a higher ACoS (that’s still beneath gross margins) can result in more profit.
Which Amazon Advertising Metric Should You Focus On?
Instead of just focusing only on ACoS, focus on the combination of ad sales and ACoS.
Testing multiple ACoS levels and seeing how ad sales respond will allow you to find the sweet spot for your products. When setting ACoS targets, understand the sales tradeoff of a lower ACoS and take product objectives and margins into consideration.
If you are stuck with a pretty high ACoS (above gross margins) or looking for a second opinion on lowering your ACoS, we’d be more than happy to assist. Request a free strategy session with one of our experts!