Amazon Advertising: What is ACoS and How to Calculate it?

Let’s suppose you have just started Amazon advertising. Your ads are now up and running. This is great, but there may be a catch.

It is possible that you are getting wrong numbers about your Advertising Cost of Sales (ACoS). Maybe you don’t even understand what it is. We will explain what an ACoS really is, how it can be calculated, and how we can tell if it is good or bad.

Here’s how to calculate your ACoS:

ACoS = Total Ads / Total Sales

Let’s take it apart to make it easier to understand.

Your product is sold for $50

Advertising campaigns cost $100

With a total revenue of $1000, you sell 20 products

Your ACoS appears at 10%

Advertising Spend: 100 USD

Advertising generated $1000 in total sales

100 divided by 1000 = 10%

You can use SellerApp’s Amazon ACoS Calculator to Calculate product profitability, break-even ACoS, and target ACoS before your PPC launch

If you spend $100 on Amazon advertising, and there is a single sale of $50 it would result in an Advertising Cost of Sales of 10%. This means that you spend only 10% to generate one dollar in sales through your ad campaign. You might now be asking yourself if this is a good idea or not. Let’s start by revealing some complicated matters about Amazon Advertising Cost of Sales.

• ACoS alone does not guarantee success for your Amazon ad campaigns.
• You will need to look at the cost structure of your product to determine if a particular ACoS is beneficial or not. Then, calculate your breakeven ACoS. This is the point at which your advertising costs equal your profit margin.
• To calculate your breakeven ACoS, you must determine your profit margin. After all costs have been deducted from the selling prices, the profit margin is what you make. These costs can include shipping, taxes and employee salaries. They also cover storage costs.

Here’s how to calculate your profit margin:

Profit Margin = Gross Revenue – All expenses

Let’s take it one step further.

Your product is sold for $50

Manufacturing costs are $5

An additional $10 is spent on shipping, packaging, taxes, fees, and so forth. The profit margin is now $35

Before Advertising

You should now be able to understand ACoS and Breakeven ACoS.

As you can see, 70% is your breakeven ACoS.

35 divided by 50×100 = 70%

You have $35 pre-advantaged profit per sale

This means that if you spend $35 to get paid traffic to increase sales, you will have 70% ACoS. Profits will be made if you do less than 70%. Profits won’t come from 70% or more. It’s not unusual for your ACoS to look very high, but that doesn’t mean you should panic. This is normal.

But you should not rely solely on your breakeven ACoS. If you aren’t focused on increasing your organic rankings and making as many sales possible, then it’s not about making zero profit from Amazon ads. To determine your ACoS, you must be clear about the net profit margin that you want after ad spend.

So what should be your target ACoS?

When determining your target ACoS, there are many factors you should consider. A lower ACoS is generally more desirable than one with a higher level. This means that you spend less money to generate the same revenue. Your ratio of ad costs to sales revenue is dependent on how high your ACoS is. Your ratio of ad costs to sales revenue will be lower if your ACoS is lower. You want to achieve the highest sales revenue possible with as little as possible ACoS.

Amazon advertising in a nutshell

• Your profits will increase if your ACoS is lower. If your main focus is on your profit, this is true.
• If you are looking to increase your product’s visibility and dominate a niche, you can improve your ACoS.
• To stay on top of your key metrics, spend time optimizing and tweaking ads frequently.

There is no one right or wrong definition of an Amazon advertising service. It all depends on how you market your product and the revenue generated. No matter what strategy you choose, you should always try it out to find the best one.