The Amazon ACoS (Advertising Cost of Sale) is a key measurement used to evaluate the ROI (Return on Investment) of your Amazon Sponsored Products. ACoS shows the proportion of advertisement spend to get the Sale here’s how it’s determined:
- ACoS = advertisement spend ÷ Sale Amount
If an ad got you $100 sales and the ad cost you $25 over a specific time frame, at that point the ACoS = 25/100 = 25%. That means you’re spending a quarter on advertisements to make one dollar in sales with that ad.
Can you use the Amazon ACoS chart to calculate profits?
Numerous Amazon sellers use ACoS to determine the level of success of their sponsored product campaigns. The problem is, in light of the fact that the ACoS alone doesn’t say anything regarding how successful an ad truly is. To see if a certain ACoS is paying off or not, you’ll have to consider the whole cost structure of your item.
Calculate and get to the “breaking-even” ACoS
As a vendor, you won’t become subject to a loss on sponsored product ads as long as you spend less than your profit margins. The overall profit margins are the sum you make after all costs (that is, the expense of the products plus shipping costs, as well as general costs such as employee salaries, storage fees, and so on.) and charges (Amazon charges and FBA fees) are subtracted from the selling cost.
Private label costs might look like this:
ACoS Calculation Breakdown
In the chart above, the margin is 22%. For whatever length of time that you don’t spend over 22% on advertisements to advertise the item, the product won’t lose money. Concerning ACoS, that implies that you shouldn’t surpass an ACoS of 22% to make a profit. This is the equal the initial investment.
The difference between Breaking even ACoS and Target ACoS
Breaking-even ACoS is truly not a number you should use for direction to sell on Amazon, because your goal is not to earn no profits with a sponsored products campaign (although you can do it to boost organic keyword ranking by getting as much sales as you can, see more below). So, therefore, you should clearly determine the net profit margin you would need to have after spending on ads in order to set the target ACoS.
To make it clearer, see other examples below.
For ad campaigns, How do you determine the target ACoS:
ACoS Calculation Breakdown #2
In this example, you have a margin of 22% before spending on ads, and the breaking-even ACoS is precisely 22%. And in order to make a profit margin of 10% or more after deducting the ad costs, then the campaigns cannot reach more than 12% ACOS. And if you can enhance the campaigns down to a target less than 12% ACoS, now you are earning the profit margin you were trying to reach.
The most important and deceiving point is sellers look at the ACoS and calculate the overall costs and forget the amount of sales showing is not what will be wired to your account this is the amount that Amazon has charged you, customers,