Amazon ACoS: Calculation Formula and Optimization Tips

“Half my advertising spend is wasted; the trouble is, I don't know which half,” said US retail magnate John Wanamaker. But with a little bit of smart marketing, this shouldn’t happen to you.

Once you carefully monitor your ACoS, Amazon will be a more profitable place, especially if you make the right tweaks at the right time. And that’s what this blog post is about.

While we’ll show you how to optimize your ACoS to save money, we also have a way to help you start earning more without relying solely on ads.

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What is ACoS and Why Does it Matter?

“What does ACoS stand for?” is a common question, but the answer is surprisingly simple. The ACoS Amazon meaning is “Advertising Cost of Sales.” This metric reveals how much you spend on Amazon ads to generate a sale, and its value is a percentage. Ideally, it should be as low as possible since a low ACoS means spending less to earn more.

Monitoring ACoS helps determine whether your ads are profitable or draining your budget. Pay attention to it to understand if or when you need to make campaign adjustments to boost performance.

RoAS vs. ACoS

As explained, ACoS in Amazon shows the percentage of your ad spend relative to your sales revenue. If your strategy is profit-focused, you want a low ACoS, whereas a higher ACoS might be acceptable if you prioritize growth and market share.

RoAS, or Return on Advertising Spend, measures how much revenue you generate for every dollar spent on ads. To calculate it, just divide sales by ad spend. The higher your RoAS, the better—it means greater returns on your ad investment.

Understanding the balance between these metrics will guide you to optimize your ad strategy. Always aim to drive sales in a way that aligns with your overall business goals.

TACoS vs. ACoS

Unlike ACoS, which shows the efficiency of your ad spend in generating direct sales, TACoS offers a broader perspective. It stands for Total Advertising Cost of Sales, and it considers the impact of your ad spend on your overall revenue, including organic sales.

To calculate your TACoS, divide your ad spend by your total sales (both ad-driven and organic). The lower the value, the better—your advertising contributes effectively to your total revenue growth without relying too heavily on paid sales.

In short, ACoS reflects the immediate profitability of your ad campaigns, while TACoS reflects how your ad costs relate to your total sales. Monitor both if you want to fine-tune your ad strategy and drive sustainable growth.

What is a Good ACoS for Amazon PPC?

Based on various industry averages, sellers have an ACoS between 10% and 40%.

Still, what’s considered a “good” ACoS will depend on your specific circumstances - not just your industry but also your business goals and product margins.

To be safe, shoot for a profit-driven ACoS (lower than the profit margin) instead of a break-even ACoS (equal to your profit margin).

How to Calculate ACoS

ACoS calculation is pretty simple. Here's the step-by-step process:

1. Determine your ad spend: See the total amount of money you've spent on your Amazon PPC campaigns over a specific period.
2. Calculate your ad sales: Check the total revenue from the sales directly attributed to your ads during the same period.
3. Apply the ACoS formula: Divide the ad spend to your ad sales and multiply the result by 100.
4. Interpret the result: The percentage you get tells you how much of your sales revenue is spent on advertising.
   • For example, if you spent $200 on ads and generated $1,000 in sales, your ACoS would be (200/1000)×100=20%. This means you’re spending 20% of your sales revenue on advertising.

Key Factors Impacting Your Amazon ACoS Performance

At first, ACoS might seem like a simple spending-to-sales ratio. But there's much more behind this number, and you can intentionally improve it by focusing on some key influencing factors. Here are four aspects that, once you understand, you’ll know how to lower ACoS on Amazon.

1. Keyword Selection

Your target keywords directly impact who sees your ads. Also, they can be more or less relevant to potential customers, which means that:

• High-performing keywords that closely match buyer intent can attract more qualified traffic and bring you more conversions at a lower cost.
• Poor keyword selection can make you waste your ad spend on irrelevant clicks and cause an increase in your ACoS.

2. Bid Strategy

How much you're willing to pay per click affects your ad's visibility and competitiveness. That’s why you want to avoid setting your bids too high (which will quickly drain your budget) or too low (which will limit your exposure).

If your clicks don’t convert into sales, try an aggressive bid strategy to improve your ACoS. However, remember that a balanced bid strategy that aligns with your campaign goals is more likely to keep your ACoS manageable.

3. Product Listing Quality

A poorly optimized listing and a good ad will drive up your ACoS. That’s because your click-through rates will go through the rough while conversions will tank. So, you need high-quality images, detailed descriptions, competitive pricing, and positive reviews to convince potential buyers.

Once you optimize your listing, it will convert more clicks into sales, reducing wasted ad spend and lowering your ACoS.

4. Campaign Structure and Targeting

A poorly structured campaign can lead to inefficient spending and high ACoS. On the contrary, a well-organized campaign with precise targeting helps ensure that your ad spend is directed towards the most profitable opportunities, keeping your ACoS in check.

Strategies to Optimize and Reduce Your ACoS on Amazon

To successfully reduce your ACoS, you need a holistic approach that improves every aspect of your sales funnel. Implementing the strategies below will help you create a snowball effect where your efforts lower ad costs and boost overall sales performance.

1. Drive External Traffic to Your Listings

Increasing traffic to Amazon listings through external sources like social media, email marketing, or your website can lead to more sales and, consequently, more positive reviews.

This approach creates a positive cycle where:

• Your listing becomes more popular and well-reviewed.
• Shoppers are more likely to convert when they encounter your ads.
• Your ACoS goes down.

The best part? There’s more than one way to implement this strategy:

• Use platforms like Instagram, Facebook, or Google Ads to direct potential buyers to your Amazon listings.
• Leverage your existing customer base by sending promotional emails that drive traffic to your product pages.
• Connect with influencers through our Archer Affiliates network and let them send you external traffic through various channels.

2. Use Amazon’s A+ Content

With A+ Content, you can create visually rich product descriptions that stand out among standard listings and engage customers more effectively.

Register your brand with the Amazon Brand Registry service and use A+ Content to provide detailed information, storytelling, and high-quality images that will increase conversions.

3. Leverage Amazon Promotions and Deals

When you run Lightning Deals promotions or create Amazon coupon codes for customers to redeem, you can temporarily boost your product’s visibility, appeal, and sales. With this surge in sales, you’ll improve your listing’s ranking and reviews, making your ads more effective at converting future traffic.

Schedule regular promotions or deals, especially during peak shopping seasons or when launching a new product.

4. Set Your Negative Keywords

Negative keywords prevent your ads from showing up in irrelevant searches. In short, they:

• Save you from paying for clicks that are unlikely to convert.
• Help you focus your ad spend on the most relevant and high-intent traffic.

To make the most of your negative keywords, you should:

• Regularly review your search term reports.
• Identify and add negative keywords that don’t align with your product.
• Set the right negative keywords for each campaign.

Following these steps consistently will improve your click-through and conversion rates and lower your ACoS.

5. Optimize Your Product Pricing

If your price is too high compared to similar products, potential customers may click on your ad but choose a competitor, wasting your ad spend. However, optimizing your pricing can make your product more appealing and increase sales, reducing ACoS.

Make sure to monitor competitor pricing and adjust your prices accordingly regularly. Use tools like Amazon’s Automate Pricing to save time and avoid manual management.

Choose Archer Affiliates to Drive More Traffic to Your Amazon Store

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Working with us is a low-effort, high-impact strategy to grow your Amazon business. Join our network today and drive more traffic, sales, and reviews that will also improve your ACoS!

Frequently Asked Questions (FAQs)

Here are the answers to the most common questions on Amazon ACoS:

How Does ACoS Affect Profit Margins?

A higher ACoS reduces profit margins because you spend more on advertising. Lowering your ACoS will help you keep more revenue as a profit.

What Are the Common Mistakes That Increase ACoS?

Irrelevant keywords, overly high bids, poor ad copy, under-optimized product listings, and not using negative keywords are some of the most common mistakes that increase your ACoS.

Can ACoS Be Used for Comparing Different Campaigns?

Yes, ACoS can compare the efficiency of different campaigns by showing which is more cost-effective in generating sales relative to ad spend.

What Tools Are Available for Managing ACoS?

Amazon Advertising Console is Amazon’s tool for managing ACoS. However, many third-party tools like Helium 10, Perpetua, Jungle Scout, or Ad Badger can monitor and manage your ad campaigns and their ACoS.

How Often Should I Review My ACoS?

Review ACoS weekly to ensure your ad spend aligns with your goals. If necessary, adjust your strategies to maintain profitability.

Conclusion

In this blog post, you’ve seen how optimizing your ACoS is essential for making the most of your ad spend. Hopefully, you also understood that true growth comes from diversifying your strategies.

So, why not boost your advertising efforts with help from our influencers, who are eager to promote your products to their audiences?

Connect with vetted Amazon influencers today and start building a stronger, more profitable presence on Amazon.