Are you an Amazon FBA seller and do you want to know how to reduce ACoS on Amazon? Well, I can understand this problem because I also faced it at the beginning.
With a long-day experience, I have been working with reducing ACoS along with better ROI as well.
To improve your campaigns on Amazon, the ACoS campaign is one of the best metrics in my opinion. Now, reducing your ACoS on Amazon is kind of a strategy that you need to follow.
I have given some effective suggestions that can help you to reduce ACoS costs down below. Read and find your solutions right away.
What Is ACoS On Amazon?
ACoS is a relationship between how much you are spending on advertisement and how much you are generating revenue or sale from that. Now, ACoS actually stands for “Ad Cost of Sales.”
This is the official definition given by Amazon. I normally like to call it ad cost over sales because that is literally how you calculate it taking the ad cost and putting that over your sales.
Figure 1 – What Is Amazon ACoS
ACoS really answers the question of how your campaigns, an ad group, or keyword is doing in real-life implementation.
Quick Note: AdWords is represented inversely. They use ROAS as “Revenue Over Ad Spend”. Where Amazon decided to go with ACoS as “Ad Cost Over Sales.”
How To Calculate ACoS on Amazon
Before you start running a successful PPC campaign, it is important to set a clear one at first. It will determine if you have a focus.
Here is the formula that you can use to calculate your target ACoS.
ACoS = (Ad Spend / Sales) x 100
Figure 2 – How To Calculate ACoS On Amazon
Many people have asked me this question, “How can I determine whether my ACoS is high or not?” Well, here you go. You can use this method and can calculate whether your ACoS cost is high or low.
For example, think of a situation where you have to spend $10 of ad spend to get $10 of sales, the ACoS will be 100%.
So, ACoS = ($10 Ad Spend / $10 Sales) x 100
So, the result will be a 100% ACoS. So, in most situations, if your ACoS is 100% or more, you are not making any money, just saying.
Now, another question is, how can I figure out the break-even cost? Break-even cost is the possible place where we want our ACoS normally to be. Break-even ACoS is going to be different for every single item just because of the profit margins for every item.
If you are unaware of the break-even ACoS, then check out this link below-
The Importance Of Lower ACoS On Amazon
You want to understand if you have spent $1 to generate $10 worth of sales, or did you spend $10 to generate $10 worth of sales?
If you are doing the second one, then you are probably losing money. But if your ACoS is really low, then you are actually generating money.
Now, if you calculate it normally as I have given the calculating system above, then for the first case, your ACoS ratio will be 10%.
Let me give you another example. Think your net is $5. But because of the 10% ACoS, you are spending $1 for your advertisement. So, you are generating $4 of profit.
Net Profit = Net Revenue – Ad Spend
Hence, this is why lower ACoS is very important. If the ACoS was higher, like the one with 100% or higher, then you are generating no profit. Think of it, your net is $5 and your ACoS is 100%. That means you are spending $5 on advertisements.
Are you generating any profits over here?
How To Reduce ACoS On Amazon: Different Types Of Effective Strategies
Now that you have learned everything possible to know about the definitive part, now I am going to tell you all the strategies about how to reduce ACoS on Amazon.
Figure 3 – How To Reduce ACoS On Amazon
There are some quick ways by which you can drop your ACoS right away. If you are an Amazon FBA seller right now and you are suffering from that very frustrating high ACoS, then stay tuned.
Lowering Your Keyword Bidding
The first thing you can do to reduce ACoS on Amazon lowers your keyword bid. I want to be very clear, and that is if you lower your keyword bid too much, you are also going to decrease the number of impressions that you get.
Do you know what will happen if you decrease your impressions too much? Yes, no one will check which ad you are posting. Therefore, nobody can see your product, add it to the cart, check out, and not even pay. So, you do not want that.
Now here is the thing that you will do. You will see Amazon is asking you to bid an amount right beside where you will write your bidding money. Do not decrease it drastically or it will affect your impressions.
Figure 4 – Bidding Strategy On Amazon For Lower ACoS
So, just bid a bit lower than what Amazon has suggested to you and you will see your ACoS has dropped down.
For example, if Amazon has suggested you bid on a keyword for around $0.50, you will bid $0.35-$0.40. Just so you know, there is no specific rule as to how much you should lower your keyword bid.
All I know is that you should lower your bid lower than the lowest suggested bid if you want to reduce your ACoS on Amazon right away. Hence, you can reduce your ACoS without affecting the impressions easily.
Focusing On Automatic Campaigns Only
If you want to launch your product, I am sorry to say, you have to build a manual PPC campaign. Because they are more targeted.
But if you want to drop your ACoS right away, then I would only focus on running an automatic PPC campaign. After that, I would optimize all the data to the fullest.
When I say optimizing the automatic PPC campaign data to the fullest, what I mean is pulling out keywords that have converted with a lower ACoS.
Infographic – Differences Between Automatic And Manual Campaigns
Check out all the differences between automatic campaigns and manual campaigns. By using this information, I have changed my ACoS percentage to a minimum without not losing any impressions.
Now for example, if I have done an automatic campaign and I see all the keywords that I am using are giving me a very low percentage of ACoS, then I will focus on gathering more sales.
In that way, the keywords have proven more to you that these keywords convert into sales before moving it into a manual campaign. Manual campaigns, on the other hand, will have a higher ACoS because of choosing your own keywords.
Now, if I were to spend more time on my automatic campaign and really wait until I can gather more converting keywords and optimize bad keywords, what will happen?
This will generate a very low ACoS. So, PPC optimization is huge I dare say. You should properly optimize to get a lower ACoS. If not, then you have to bid your farewell to low ACoS.
As I have said in the above section, optimizing content is very important. Why will anyone click on your product if your content can not say properly what your product does?
Also, the picture quality is a very important matter to understand. Many people check the picture at the very beginning. If the picture quality is bad, then you may lose a lot of target customers from your hand too.
Always make sure that your listing is 100% optimized and that the customer is going to like the pictures and buy the product.
Now, you can see all of the information on your advertising reports when you download them. If you have a really high ACoS on keywords, all you have to do is lower the bid.
And then if it is really high and you have not gotten sales in a long time, just delete that keyword and move on.
Prioritizing The Stock Keeping Units (SKUs)
Before learning how to prioritize the stock-keeping units, let’s learn what they are. Normally, the SKUs are the product identifier for a specific merchant. Amazon uses SKUs to associate product details with other pages.
You may have a lot of product variations in your store. Now, because of this, you may not focus on the products that are getting sold a lot. What I want you to do is to only focus on the highest selling products.
Once you have given all your focus on that, try to advertise those products only in your PPU campaign on Amazon. Now, this will help you to gain some extra sales and can compensate for the ones that are not getting sold because of less popularity.
Utilize Amazon PPC Tools
There are a lot of tools available that can help to reduce the ACoS on Amazon. These tools take the ACoS level and work on their own.
While you are doing all the bids, and pausing the PPC campaign manually, these tools are doing it totally by themselves. Also, the expected output is also great too.
Again, you can also catch new keywords by using automated campaigns, which is one of the best tools of Amazon. But in some places, automated campaigns are not as much-hyped too.
But check out the data after you have used these tools. Because, at last, this is the only thing that we need to improve. There is nothing perfect, you can always have the scope to make things better.
So, keep on focusing on that part and use these amazing tools of Amazon to lower your ACoS cost.
Frequently Asked Questions
1. What Is A Good ACoS On Amazon?
A good ACoS percentage on Amazon can be around 10% up to 20%. If it is below 50%, that means you are making a good profit while doing PPC advertisements.
But if the percentage goes higher than that, at that time you have to understand that you need to modify it in a good manner to reduce ACoS on Amazon.
Because you are not making a good profit on Amazon with that high ACoS. Your advertisement is cutting off your profit.
2. When Does A High ACoS Not Matter On Amazon?
When you are a new seller on Amazon and you are creating a new PPC campaign with a new product, I think for a certain period, your ACoS at a high percentage is not a bad idea.
Yes, in this period, you may not generate profit that much or almost to zero, but you can reach a lot of people at the beginning. Hence, creating an existing profile on Amazon with advertisements.
If you do this high ACoS PPC campaign for a month or so, then I think you will reach a good position with your product. But later on, do not forget to lower down your ACoS as soon as you have gained some reach on Amazon FBA.
Again, there are some products that are checked by people on occasions. At that time, if your ACoS campaign is higher than usual, then that is actually profitable for you too. Because at that time, you will get connected with more people by doing so.
Try out these techniques if you are totally new. But if you have an existing business, then check out below for the tricks to lower your Amazon ACoS without doing any losses in revenue.
4. When Should I Remove Negative Phrase Keywords To Lower My ACoS On Amazon?
I get these questions all the time, especially from newer sellers, where people are confused about whether or not they should move their keyword into the negative phrase.
While you are optimizing your campaigns, you have to really make sure that you are removing keywords that are irrelevant, do not make sense, and are indescribable to your product.
That is how you can start getting a lot of the good keywords that will convert for your product.
3. Why Is ACoS The Same As ROAS?
No, ACoS and ROAS are not the same. ACoS defines how much you are getting revenues from the ongoing ad campaign. On the other hand, ROAS is the reverse of ACoS.
ROAS shows how your ad spends to put a great impact on your total revenue. Also, TACoS provides the full picture of your Amazon efforts.
Have you gotten a good idea of how to reduce ACoS on Amazon? I hope you do so. Try out the strategies I have mentioned above, they will surely take you to the height where you can dominate Amazon with your campaign.
Still, if you are facing any problems regarding the matter or you have any questions regarding this matter, you can comment down below. Let us know your thoughts.