How to grow Amazon business with efficient advertising at a low ACoS?

Introduction

With over a million brands vying for attention on Amazon’s massive marketplace, advertising becomes fundamental to get your products seen. However, figuring out advertising costs can be tricky, especially when you have other performance metrics (like ROAS) to monitor. Let’s break down how advertising is priced and explore one of the key metrics – ACoS as a measure of its effectiveness. 

ACoS, or advertising cost of sales, is a performance metric that represents the average percentage of advertising spending for every dollar earned in ad revenue. 

Source 

A high ACoS indicates that your ads are not generating sufficient revenue or vice versa, you’re spending quite a lot. However, you can implement certain Amazon advertising strategies, such as PPC optimization and keyword targeting for a low ACoS.

This blog will explore all about advertising cost of sales (ACoS) on Amazon, how to maintain a healthy ACoS, and the common pitfalls of ACoS management. 

ACoS benchmarks across various industries

Generally, ACoS should be lower than your profit margin and range between 30% and 40% across various industries. The value often depends on several factors, including the account, keywords, the product’s age, and whether you’re starting or already have an established brand. For instance, sellers who already have a market share often spend less time and resources on Amazon advertising strategies. In such a case, their ACoS becomes an unachievable target. 

How to monitor ACoS on Amazon Seller Central?

To monitor ACoS on Amazon Seller Central, follow the steps below.

1. Log in to your Amazon Seller Central account > Campaign Manager to view your performance metrics (mainly total ad spend, total revenue, and total sales).
2. To calculate ACoS, divide your total ad spend by your total ad revenue and multiply the result by 100. You can calculate ACoS for your entire account or specific campaigns, ad groups, or keywords.
3. Also, keep track of TACoS or Total Advertising Cost of Sales. TACoS measures the relationship between ad spending and total sales.

How to maintain a low ACoS on Amazon?

While not explicitly, a low ACoS on Amazon is often considered a good sign for your advertising efforts. Here are some practices that can help you maintain a low Amazon ACoS. 

Prioritize which ASINs (Amazon Standard Identification Numbers) and SKUs (Stock Keeping Units) to advertise

Identify the ASINs with the highest sales volume and conversion rate. These products were more likely to generate revenue, so focusing advertising efforts on them will improve overall campaign performance and lower ACoS. The same can be extended at an SKU level. 

Implement dayparting

Dayparting is the process of adjusting bids multiple times a day and throughout the week. By strategically increasing bids during high-performance periods and decreasing them during less effective hours, you can ensure that your budget is spent on opportunities with a higher chance of conversion. This reduces wasted spending on clicks, improving your Amazon ACoS strategy as you get more sales in the same advertising budget.

Note: The practice may not be effective for every account as its success depends on the specific trends and patterns within your industry or product category. For instance, in categories like tea/coffee, where there are clear trends in consumer behavior throughout the day, dayparting can be highly beneficial. On the other hand, in categories like apparel, the patterns may not be as distinct.

Leverage a targeted keyword strategy

You can implement strategic keyword targeting for low ACoS in the following ways:

• Use longtail keywords: These keywords are more specific phrases that users are likely to search for when they are closer to making a purchase decision. Since there’s less competition for long-tail keywords, sellers typically pay less per click. This translates to a higher conversion rate at a lower CPC, ultimately lowering your ACoS.
• Combine them with generic keywords to optimize Amazon ads: While generic keywords might generate more clicks initially, the higher CPC can eat into your profits, potentially leading to a higher ACoS. So, target terms with more definition and a modest search volume to address increasing ACoS. Further, use a combination of generic and long-tail words and gradually shift your focus towards long-tail keywords with strong conversion rates, lowering CPC and ultimately, ACoS.
• Avoid certain keywords: Refrain from using certain keywords that violate Amazon’s list of prohibited/restricted items

Optimize A+ content

Optimizing Amazon A+ content significantly contributes to reducing ACoS by enhancing product visibility and relevance to potential customers. This heightened visibility ultimately leads to improved conversion rates over time. 

Here are some effective Amazon advertising strategies to optimize A+ content:

• Use high-quality product images: Edit images to showcase your products in the best light, allowing them to attract more customers.
• Use an appropriate tool for Amazon PPC optimization: The right PPC tool can streamline advertising tasks and reduce manual work. Moreover, these tools can facilitate constant bid adjustments throughout the day. Additionally, they help create numerous ad campaigns with newer keywords without extensive research.
• Incorporate product reviews: Feedback can help you understand how customers perceive your brand and what they value about it. Specifically, it can highlight the features customers like and dislike about your products. Use these to gain valuable insights into potential areas for improvement and then create more relevant content.

Monitor, test, and iterate

You must monitor and test different ad versions and formats to increase Amazon sales with low ACoS. For this, data from Amazon’s campaign manager, including metrics like impressions, clicks, conversions, and TACoS, will be used. Based on these metrics, create multiple versions of your Amazon ads and shortlist those that generate more clicks and conversions at a healthy ACoS.

Within just a few months of rigorously implementing the above Amazon ACoS strategy, you can witness a spike in all of your Amazon listings, increased order volumes, better conversion rates, and reduced requirement of discounts – all at a healthy ACoS.

Things to consider when targeting a low Amazon ACoS

Rigorous ACoS management can have the opposite impact if not done correctly. When aiming for a lower ACoS, consider the following: 

Relying only on ACoS

ACoS is an important performance metric, but it shouldn’t be the only factor considered. It’s important to balance ACoS with other metrics like total sales, profit margin, and return on advertising spend (ROAS). For instance, a low ACoS might look good, but if it results in minimal sales or low profits, it’s not necessarily beneficial. 

Considering only short-term progress

Planning to optimize Amazon ads for short-term ACoS gains may be counterproductive to brand building or customer acquisition. Let’s see how.

• A higher ACoS in the initial stages could be justified if it’s acquiring new customers or creating awareness, potentially leading to higher sales and lower ACoS in the long run.
• A lower initial ACoS could be a seasonal gain, depending on the time of the year and consumer behavior.
• Limited data availability in the short term may contribute to a lower initial ACoS, but it can lead to fluctuations as more data accumulates over time.

Therefore, solely focusing on short-term ACoS gains is not advisable. 

Indulging in bidding wars

Sellers are often willing to bid more aggressively for top ad placements and high-performing slots, driving up competition. This bidding war intensifies as sellers strive to maintain profitability at a higher cost, resulting in bidding wars. This is why, you must have the knowledge of bidding timeframes and best practices to ensure its cost-effectiveness. Another way is to seek professional assistance from Amazon PPC optimization service providers. 

Conclusion

Understanding and managing ACoS is paramount if you want to grow Amazon business with efficient advertising and without straining unnecessary resources. By focusing on strategic PPC optimization, improving A+ content, and implementing keyword targeting for low ACoS, you can aim for a healthy expense in the long term. But be careful while implementing rigorous techniques as short-term aggressive ACoS targeting can result in bidding wars and drain your resources. To ensure healthy ACoS management over a while, you can consider opting for professional Amazon marketing services. These service providers can analyze your existing ad campaigns, identify areas for improvement, and improve them for better performance.    

So connect with our experts to unlock the full potential of your Amazon ads, boost sales, and maintain a healthy ACoS.