As an Amazon seller, you need to track your costs and ensure you're not spending more than what you're making. To help keep your costs under control, it's essential to understand the nuances of each Amazon cost as you go about setting up your business operations. One of the most confusing costs for new sellers Amazon Advertising Cost of Sales (ACoS). So what does that stand for, and how can it help you save money? Read on to find out everything you need to know about ACoS.
Amazon Advertising costs are rising with more brands, products and competition. But what exactly are the prices of advertising on Amazon? And how do you know if your advertising is working? The answer is the Cost of Sales. ACoS measures how much it costs to sell your product on Amazon. But let's look at the concept in a more detailed manner.
What is ACoS?
ACoS stands for Advertising Cost of Sales. ACoS is a metric used to measure the effectiveness of Amazon PPC advertising campaigns. As the name suggests, it's a formula that calculates the cost of sales generated from an ad. ACoS is calculated on the basis of expenses done for the ad and revenue generated from the ad. ACoS is a crucial metric for online sellers as it allows them to see whether or not their Amazon advertising campaigns are generating ROI.
Understanding Amazon Advertising Cost of Sales (ACoS)
If you are running a PPC campaign on Amazon, then your ACoS will be calculated as the amount you spend on advertising divided by the number of sales generated from those ads. The factor becomes important as business is a game for profit, and for determining that profit ACoS plays the lead role.
How to Calculate Amazon Advertising Cost of Sales (ACoS)?
ACoS = (Ad Spend/Ad Revenue) x 100
Why is Amazon Advertising Cost of Sales (ACoS) Important?
ACoS tells you the cost of selling one unit of your product. It is the best way to measure your advertising efficiency. When setting up your Amazon account, you'll need to estimate how much money you'll need to make sales. Your ACoS will let you know whether or not you're on track.
ACOS also lets you know how much profit you're making from each sale. Amazon advertising is an investment, and like any other investment you make, you want to know if you're making a profit. ACoS also helps you determine if you should continue investing in a particular ad campaign. If your ACoS is too high, you can try switching tactics or ad types.
Limitations of Amazon Advertising Cost of Sales (ACoS)
The biggest challenge with ACoS is that it doesn't take customer lifetime value (CLV) into consideration. Some customers might spend more than others. With this metric, you won't be able to tell the difference between a customer who spends $100 on your product and a customer who spends $1,000.
ACoS also doesn't account for the type of customer who is purchasing your product. ACoS also doesn't take into account other marketing costs. If you're running a campaign that includes a mix of advertising and affiliate marketing, it will be challenging to know how much of a sale is attributable to each channel.
Bottom line for Amazon Advertising Cost of Sales (ACoS)
ACoS is a valuable metric to measure marketing efficiency, but it's important to keep in mind that it doesn't tell the whole story. To really understand how profitable your ad campaigns are, you need to also take CLV and other marketing costs into account.
As for ACoS with FBA, there are a few additional expenses you'll need to consider when selling through FBA. Amazon charges a Fulfillment Fee based on the item category, weight and size. You'll also need to consider the Cost of Inventory Held. This is the amount you're paying for storing your inventory in the Amazon warehouses. But ACoS becomes an ace when it comes to knowing the profitability of your ad campaigns.