The ACOS is one of the key performance indicators when it comes to evaluating your Amazon advertising campaign. But it is also frequently misunderstood. So what is Amazon ACOS anyway?
So what is the Amazon ACOS definition? What does it stand for? How do you calculate it? What is a good Amazon ACOS?
Here’s everything you need to know about Amazon ACOS
Amazon ACOS Meaning
ACOS stands for Advertising Cost Of Sale.
What Is ACOS For Amazon Ads… What Does ACOS Mean?
ACOS is the Amazon metric which shows the relationship between your advertising spend and total value of sales that yor adverts generated.
One important thing to note is that the total value is not the amount that you receive from the sale… it is the total amount that all of cour customers paid. The actual amount that you will receive will be quite different, regardless of whether you are selling through the Vendor programme (via VendorCentral), FBA (Fulfilled By Amazon, via SellerCentral or you are shipping the product yourself.
How To Calculate ACOS… The ACOS Formula
ACOS = (Total Advertising Spend) / (Total Sales Generated By Your Ads)
eg if you spend £35 on ads and you generate £125 of sales, your ACOS is 35/125 = 28%
What Is A Good ACOS On Amazon?
Whether an ACOS value is good or not depends on a number of different factors… there is no single Amazon ACOS benchmark that can be considered good for everyone.
These factors include:
1) The profitability of the product in question.
Taking the 28% ACOS example above, if you have a product with a final sale price of £40 and you make £20 profit per unit you sell, then your ACOS is definitely a good one because with each sale your advertising is costing 28% x £40 = £11.20… and your profit on that sale is £20. So your net profit is £8.80.
In fact all ACOS values below 50% will automatically be profitable for you.
But it doesn’t necessarily follow that ACOS values which are unprofitable are bad as you will see.
2) The objective of your advertising.
When launching a new product you need to give it sales momentum to help it to climb the Amazon rankings. Amazon advertising is a powerful way to add to the momentum, but for new products the advertising ACOS may be higher due to factors like the lack of reviews and/or Amazon badges… both of which will take time to achieve.
So the initial, higher cost advertising is an investment for the future rather than something to be judged in the short term
Similarly you may be trying to give a product a sales boost before a holiday period when you expect sales (both from advertising and organic) to increase.
You may also be targeting a specific competitor and/or product, which means you view the ACOS (even if it makes your ads unproditavble) as part of the bigger picture.
You may have good reason to value the awareness that your ads give your brand, even the unprofitable ads.
As you can see, deciding what is a good ACOS value depends on a range of different factors. What is vital though is that you know the breakeven ACOS value for each of your products so that you make any decisions with this figure in mind.
TACOS… A Broader Gauge Of Amazon Advertising Effectiveness
TACOS is a metric which is gaining popularity and which factors in some of the other reasons mentioned above for continuing with Amazon Adverts which are unprofitable when evaluated by ACOS alone.
TACOS stands for Total Advertising Cost Of Sale
ACOS vs TACOS
TACOS is calculated using the total sales and not just the sales generated by the adverts.
How To Calculate TACOS… The TACOS Formula
So, using the prior example, if the total sales of the product were £350 (as opposed to the £125 generated directly from the advertising) the TACOS value would be £35 (the Ad Spend) / £350 (the total sales) * 100 = 10%
Whether the TACOS metric works better for you or not depends on what your objectives are for your advertising and your personal preference.
TACOS is not a metric that Amazon publishes so, you you choose to use it, you will need to calculate it yourself.
ROAS
Unlike TACOS, ROAS is a metric which Amazon makes available to you.
What Does ROAS Stand For?
ROAS = Return On Advertising Spend
It is the total value of sales thgat your advert generated compared with your advertiisng spend
How To Calculate ROAS… THE ROAS Formula
ROAS = (Total Advertising Spend) / (Total Sales Generated By Your Ads)
e.g. from our prior example where you spend £35 on ads and you generate £125 of sales, your ROAS is 125/35 = 3.57
ACOS vs ROAS
Notice anything familiar with this equation? It’s the the ACOS calculation turned upside down… so ROAS = 1 / ACOS
(in our example 3.35 = 1 / 28%)
So that’s how to calculate the metrics. Now discover the answer to the critical question… how can you reduce your ACOS (or improve your ROAS if you prefer that metric!) and why profitability is actually the key indicator to measure when advertising on Amazon.