ACOS stands for Advertising Cost of Sales, it's metrics used to measure Amazon Sponsored Products campaign. It is important to measure profitability.
Advertising Cost of Sale (ACOS) is a popular metric that measures the performance of an Amazon Sponsored Products campaign. You can find this metric by going to Advertising > Campaign Manager for an overview of your ad campaigns.
The ACOS Amazon formula metric shows you the ratio of ad spending to targeted sales. The formula is as follows:
Essentially, this equation works out the percentage of your sales that have paid for your advertising. In other words, it’s how much of each dollar earned is going toward the ad campaign.
Let’s say that an ad campaign generates $300 in sales, and the ad campaign costs $30 to run. Use the ACOS equation as follows:
The Advertising Cost of Sales is 10%.
The ACOS measurement will help you determine the profitability and success of your ad campaign. How can you determine the most profitable ACOS for your product then?
First, evaluate the profit margin of your product, the amount you take home from your sales after the costs associated with making and selling the product.
The cost structure of a product will include shipping, Amazon fees, production fees, and others. After considering these costs, you will be left with your profit margin.
For example, let’s say shipping accounts for 15% of your profit, Amazon fees take up 30%, and product cost accounts for 35%. The resulting profit margin is 20%.
Determining your ACOS on Amazon requires a thorough understanding of your products. Use your ACOS to determine how much to spend on ad campaigns. As long as your ACOS is lower than your profit margin, you will not lose money on advertising.
If your ACOS and profit margin are equal percentages, you have what is called a “break-even ACOS.” Here, you’re spending the entire profit margin on advertising, resulting in zero profit and zero loss.
A good ACOS on Amazon will range between 15-20%. In contrast, the average ACOS on Amazon is around 30%.
It’s in your best interest to get familiar with ACOS Amazon advertising if you want to create efficient PPC campaigns that can drive significant profits.