Is your PPC campaign burning through your ad budget and leaving you with little to no profit? Then you’re probably not tracking your ACoS.
ACoS is the key metric that determines whether your campaigns are profitable or not. On average, ACoS on Amazon falls between 25% and 40%. That’s a pretty wide range. The higher it gets, the harder it is to stay profitable. If you’re struggling to keep your ads effective while also staying within budget, this guide is for you.
What is ACoS and Why Does it Matter?
ACoS stands for Advertising Cost of Sales. It tells you how much you’re spending on ads to make a sale. It’s expressed as a percentage and calculated with the help of the following formula:
ACoS = (Ad Spend ÷ Sales) × 100
For instance, if you spend $20 on ads and make $100 in sales, your ACoS is 20%. This means you’re spending $0.20 on advertising for every dollar in sales.
A lower ACoS means your ads are profitable and efficient. A higher ACoS means you’re spending too much to make a sale. This is when your ad spend will start to eat into your profits, and you’ll start to lose money.
What Should Your ACoS Be?
The right ACoS depends on your product, your goals, and your profit margin, but here’s a simple way to look at it:
Break-even ACoS: This is the max ACoS you can afford before you start losing money. It’s the same as your profit margin. So if your profit margin is 30%, your break-even ACoS is 30%. Anything higher, and you’re not making a profit.
Target ACoS for profit: To actually make money, aim for an ACoS lower than your profit margin. If you want a 10% profit after ads, keep your ACoS around 20% (if your margin is 30%). Here’s a simple formula you can use: Target ACOS = Break-Even ACOS – Desired Profit Margin
High ACoS is okay sometimes: For new products or ranking campaigns, you can use a higher ACoS on purpose just to get visibility and reviews. This should be a short-term strategy
What Is TACoS?
TACoS stands for Total Advertising Cost of Sales. It shows how much you’re spending on ads compared to your total sales (ad sales and organic sales).
Here’s the formula:
TACoS = (Ad Spend ÷ Total Sales) × 100
So if you spend $100 on ads and your total sales (including organic) are $1,000, your TACoS is 10%.
The difference is ACoS only looks at ad sales. TACoS tells you how ads are helping your whole business grow.
A low and stable TACoS means your organic sales are growing, and your ads are supporting that growth. If your TACoS is rising, it might mean you’re relying too much on ads and not getting enough organic traction.
How to Reduce ACoS While Increasing Sales
Here’s how you can lower your ACoS without hurting your sales. In fact, if done right, you can even boost your sales while cutting ad costs:
Optimize Your Product Listings
Before you spend another dollar on ads, make sure your product listing is as good as it gets. Amazon uses an algorithm, kind of like Google, to decide which products will rank high. So, even if you have the best PPC campaign, it won’t work if your product page is not optimized. Here’s what to do:
- Include your primary keywords in the title. Try not to repeat any words and avoid keyword stuffing. Stay within the character limit (150-200 characters).
- Use high-resolution images with multiple angles. Lifestyle and infographic-style images that explain features are preferred.
- Keep your bullet points and descriptions to the point and make them benefit-focused. Again, include any relevant keywords not covered.
- Include any relevant keywords in the backend. Here’s where you can go all out. Include keywords in another language, misspellings, long-tail words, etc. Leave out linking words like ‘the’, ‘and’, ‘for’ and so on.
Focus on Strategic Keyword Targeting
Throwing money at random keywords is a quick way to waste your budget. The key is to target the right keywords and review them regularly.
Start by checking the Search Term Report inside your Amazon Ads dashboard. This report shows you all the search terms that triggered your ads, along with how each one performed. It’s a great way to see what’s actually working. You can also use Helium10 and JungleScout to find relevant keywords.
Next, set up an automatic Sponsored Products campaign and let it run for a bit. This type of campaign will automatically test different keywords and placements based on your listing. This should be a short-term solution. Long-term use could drive up your ad budget significantly. While using automatic campaigns, keep a close eye on them. If left unchecked, Amazon may spend more than you’re comfortable with, especially on low-performing search terms.
Once it collects enough data, you’ll be able to spot:
- The highest converting keywords
- Long-tail keywords
- Irrelevant terms you may want to exclude later (negative keywords)
Once you’ve identified your top-performing keywords, move to a manual campaign. This gives you way more control over which keywords you’re targeting and how much you’re willing to pay for each.
In your manual campaign:
- Use your best-performing keywords from the auto campaign and search term report
- Add long-tail keywords
- Adjust bids based on what’s working and what’s not
- Add in any negative keywords. Negative keywords help block out traffic that wastes your budget. Only add negative keywords when you’re completely sure they’re not helpful. The wrong one could block sales you didn’t expect.
Optimize Bids and Budget Based on Performance
If you want to lower ACoS and still grow your sales, you need to manage your bids and budget smartly. This means checking what’s working, what’s not, and making adjustments based on actual data.
Go to Campaign Manager. Focus on these metrics: click-through rate (CTR), conversion rate, cost-per-click (CPC), and sales. If a keyword is getting a lot of clicks but no sales, it’s wasting your ad spend. In this case, lower the bid or pause the keyword completely. If a keyword is converting well and keeping ACoS low, increase the bid slightly to bring in more sales.
When it comes to budgeting, don’t just throw more money at underperforming campaigns, hoping they’ll magically improve. Instead, you’ll need to shift your budget toward the campaigns or ad groups that are actually bringing in profitable sales. For instance, if Campaign A has an ACoS of 18% and Campaign B is running at 45%, it makes more sense to give more daily budget to Campaign A. Review your campaigns at least once a week.
Final Thoughts
Lowering your ACoS and increasing sales is a long process that needs constant checks and adjustments. Keep testing to see what works and don’t be afraid to cut what’s not working.
Need help with Amazon PPC? Enso Brands can help. We’re a full-service Amazon agency that specializes in Amazon PPC optimization. Get in touch with us today.
