Once your Amazon ads account is set up and working well, you may ask whether you're paying too much for advertising products. If this bothers you, don't be alarmed. Using this blog, We'll show you techniques to reduce your Amazon Advertising Cost of Sale (ACoS); therefore saving money on the advertising expense while increasing your Amazon products profitability.
What is Amazon Advertising ACoS?
Advertising Cost of Sale is the ratio of advertising expenses to revenue. It's also known as the ad spend-to-sales-target conversion ratio.
ACoS is an important metric for evaluating a campaign's effectiveness. It's one of the critical indicators for assessing the success of your Amazon Sponsored Products campaigns. If you're familiar with pay-per-click (PPC) advertising, you'll see that Amazon borrowed this notion from Google Ads, which makes use of ROAS.
Great Amazon sellers employ various target ACoS for different sorts of products to optimize their selling potential using the age-old adage. When it comes to profitability, a low ACoS is ideal, but a high ACoS will increase sales, dominate a niche, and lead to more profits in the long term.
Is advertising included in the cost of sale?To generate income, companies need raw resources. The cost of raw materials directly related with each sale of a product is referred to as the Cost of Sales. Even though they aren't directly related, indirect costs like accounting and legal fees are necessary to keep things running smoothly.
Advertising costs, in contrast to other less-noticed expenditures, have been loosely linked to results and are often the first to be reduced during a recession. You may turn an advertising expense into the raw material for revenue development by linking advertising directly to the demand you expect.
For the majority of marketers, advertising as a cost of sales is just part of life. The most successful ones know exactly how much revenue money will be made for each dollar spent on advertising. Using an exchange model ensures consistency in your display. Advertisers have always had the option to customize their ads in this manner. However, the frictional costs have been lowered to the point that any advertiser can participate due to centralized liquidity and auction-based pricing.
Why is ACoS important?With ACoS, you can keep track of all your expenses and calculate how much money you'll earn. The amount of money you can spend on Amazon adverts is something you'd want to know. Your ACoS will assist you in laying the groundwork for a successful campaign.
Initially, your ACoS will not be visually appealing. When you're figuring out your advertising approach, your ACoS may be high at first. Developing campaigns to decrease your ACoS will take time, so be patient.
ACoS will assist you in determining your break-even point. Your profit margin represents the tipping point at which a campaign either makes or loses money. If your ACoS is higher than your profit margin, your campaign loses money; if your ACoS is lower than your profit margin, you make a profit from ad sales.
What is a good ACoS percentage?The complete pricing structure and marketing strategy of your product must be taken into consideration when determining if an ACoS is good or poor. If you spent $20 on advertising and made $100 in sales, your ACoS percentage would be 20 percent.
· Cost structure
Once you've calculated your product's profit margin as a percentage, you'll need to subtract the ACoS % from that number to arrive at your final margin. You won't experience a loss on your campaigns if you keep your advertising costs below your profit margin.
In the event my Amazon ACoS is much higher, what do I do? – Your ad cost-to-revenue ratio will improve as your ACoS rises. In general, the lower your ACoS, the better off you'll be financially. The ideal scenario is to have a large sales income with a low ACoS.
· Marketing strategy
However, whether or not an ACoS is excellent or terrible is also determined by the marketing technique used. If your primary objective is to increase sales velocity, an ACoS of 40%-50% percent may be appropriate. This method is often used by Amazon sellers for new items with little or no history on the site, but it may be counterproductive if your goal is to maximize earnings.
The second tactic is to maximize profits via Sponsored ads. When a product has already achieved strong organic rankings, this method is often utilized in the final stages of the product's development. As a result, you must first choose a campaign plan. To determine whether an ACoS is good or bad, you must compute either the "break-even ACoS" or the "target ACoS," depending on your plan.
Tips for improving your ACoSFocus on upgrading your listing information if you want to raise your ACoS. Your ACoS will improve as you do more conversions. Creating a meaningful product page to entice leads to your product listing page is the first step in getting those leads to convert (Conversion Rate Optimization).
You may reduce your ACoS by following these simple steps;
· Concentrate on the right keywords
If you want your listing to be found by the right people, you need to use the proper keywords. Using keywords in your ad will aid in increasing the number of people who respond to it.
With the right keywords, you will attract more customers who are looking for what you have to offer without having to spend extra money on advertising. Using the right keywords in an ad may result in hundreds of new customers being attracted to it.
What are the steps to finding the best keywords?
Keyword research is the first step. You should know that keyword research for Amazon is significantly different from keyword research for search engine optimization (SEO).
Once you have selected the right keywords you will need to integrate them. When it comes to Amazon, you don't have to repeat it as you would with SEO. You just need to rank your Amazon product once for a certain keyword.
Your sponsored content will generate more leads if you choose the right keywords. As a result, your company will see an increase in conversions while spending less money on lead generation.
Increase Your Amazon Conversion Rate
Your listing conversion rate is critical to your success on Amazon advertising. High conversion rates allow you to outbid your competition in advertising, gives you higher relevancy which helps your ads get shown more, and also boosts your organic rankings. This leads to a key point:
If you have poor conversion rates for your products, even the best-run ad campaigns will lead to poor results.
To improve the conversion rates for your ads, there are two areas that you should focus on:
- Implement a comprehensive PPC strategy to drive traffic to your best-performing keywords while cutting out the poor performers. Relevant keywords will convert better and we want to drive traffic through these ads to our products. See our guide for Amazon Ad optimization for more details on this.
- Optimize your listings to convert those who visit your listings into buyers. Tweaking and improving your title, pictures, bullets, descriptions, and getting good reviews will all lead to higher conversion rates. You can also decrease your sales price to increase conversion rate but increases in conversion rate can be offset by the decrease in the average sales per order.
Average We Can Pay Per Click = 0.2 (20% conversion) * $20 * 0.2 (20% ACoS) = $0.80 per click
Since we can now bid the recommended bid of $0.80 per click, we can expect impressions to increase significantly for our ads while still keeping within our 20% ACoS target
· Set the right price
The most common mistake made by businesses is not setting the right price. They make a mistake by either bidding too little or bidding too much. You must pick the proper ad bid amount if you want to get the most value for your money and reduce your ACoS.
Now the question is; how do you determine the optimal bid amount? As a rule of thumb, use this formula to help you get started:
The conversion rate is multiplied by the average order value. When you have the number you will divide it by 1 then divide it by the Target ACoS.
You will get the estimate bid amount by plugging this information into the equation. Keep track of your bid amounts with this and set a value that produces the greatest campaign outcomes.
· Make use of automated Amazon PPC tools
While an experienced PPC Manager can certainly do this task, an automated solution can save sellers a significant amount of time, particularly if they handle a significant amount of administrative work themselves.
In most cases, automating campaigns is the greatest way for PPC Managers to discover new keywords. Advertising cars or a certain category, might result in respectable sales for products without a brand and in a highly competitive low-price market.
Automated advertising, on the other hand, may quickly cross the line between highly relevant and mainly irrelevant results.
Increase Your Average Sales PriceThe next strategy you can implement to increase the price you can spend per click is to increase your average sales price per order. To implement this strategy, you can either increase the price of your product or incentivize people to purchase multiple units per order. We’ll review each option:
- Increase the price of your products – This strategy will have a direct impact on increasing the average sales per order but can also cause your conversion rate to decrease which could offset any gains. If you take this strategy, make sure to monitor your conversion rate to see how much it is impacted after increasing price.
- Incentivize your customers to purchase multiple units per order – If you can get people to buy multiple items per order, you will increase your average sales per order. To do this, you can add in quantity discounts or offer promotions if multiple products are purchased at a time.
Let’s say you were able to increase your average sales per order from $20 to $22 without impacting your conversion rate. This would increase the average you could pay per click to:
Average We Can Pay Per Click = 0.2 (20% conversion) * $22 * 0.2 (20% ACoS) = $0.88 per click