ACoS stands for Advertising Cost of Sale. It is a term used by Amazon for their sponsored ads. In plain English, it's the ratio of how much you spent on ads to how much revenue your ads make. ACoS is calculated like this: ACoS=(Ad Spend ÷ Ad Sales)x100.
Example: Your ad spend was $10 and your ad revenue was $40. Take 10, divide it by 40; then multiply by 100 to give a percentage. (10÷40=0.25)x100=25%
So your ACoS is 25%.
Ad Spend ÷ Ad Sales
Break Even ACoS
Now you know your ad campaigns are running at a 25% ACoS, but is this a good ACoS? To know that you need to calculate your "break even ACoS". Break even ACoS is the point where your ad cost is equal to your profit margin. As long as your ACoS is below your break even your ad campaigns are making money. To calculate your break even ACoS you take your net profit(what you make after manufacturing costs, shipping, FBA fees, etc.), divide it by your sale price; and multiply it by 100 to get a percentage.
Example: A product cost you $9 landed(after all costs and fees) and you're selling it for $27. Take 9, divide by 27 and multiply by 100. 9÷27=0.33, 0.33 x 100=33%, making your break even ACoS 33%.
"Break even ACoS is the point where your ad cost is equal to your profit margin"
So if your ACoS is below 33% your ad campaigns are profitable. Each product has different profit margins, so your break even ACoS will be different for each ASIN. It's important to calculate your break even ACoS for each product.
Target ACoS is another term you may have heard. Target ACoS is the ACoS you would like your PPC campaigns to run at. Break even ACoS vary from product to product, and so can target ACoS. The goal is to run your campaigns somewhere below break even. The amount of advertising revenue you can expect varies. It's important to be realistic about your target ACoS. It depends on your niche, listing copy, amount of reviews, etc. Typically, the more aggressive the campaign the higher the ACoS will be. Some aggressive campaigns have a high or above break even ACoS. Like using PPC for a product launch or trying to get to the top of search for a keyword.
Your campaign structure doesn't have to be a "all or nothing" either. If you plan on running aggressive PPC advertising, you can balance out the high ACoS by targeting some "low hanging fruit". That way your average ACoS
across all ad campaigns is more reasonable.
"It is important to be realistic about your target ACoS"
Understanding ACoS is the starting point to developing a winning Amazon advertising strategy. If you would like to see what strategy our PPC experts recommend for you, you can get in touch with our team by scheduling a free consultation.