When it comes to maximizing your sales and profits, you are likely going to be looking at doing advertising on Amazon itself. Amazon has a built-in advertising platform based on pay-per-click (PPC) ads that are shown on search results (sponsored products, sponsored brands), or on product pages (product display ads). One thing you need to know when you are spending money on your ad for your products, is that you need to know how successful they are. How much you are cutting into your profit with your advertising spending is the main method to determine ad campaign success, and you do this through Advertising Cost of Sales (AcoS). With the help of online seller tools such as tool4Seller, you can analyze and optimize your PPC campaigns and easily see your ACoS. But first, to really understand what you are looking at, you need to know how PPC works.
Amazon PPC Basics
Amazon PPC is the built-in advertising platform for Amazon, and it is based on auctions for keywords or Search Terms to place in your ads or product pages for vendors only. With these ads, when you make an advertising campaign, you will only pay when a consumer clicks an ad and goes to your product or brand page; unlike the CPM some other platforms use where advertisers pay for every 1,000 ad views.
Requirements for Running a PPC Ad
There are a few requirements you need to meet before you can run your own PPC advertising campaigns.
- Seller Account: Have an active seller account
- Shipping: Must be able to ship a product anywhere in the United States
- Buy Box: To use sponsored products advertising you need to meet the Buy Box eligibility criteria
- Amazon Brand Registry: If you plan on using sponsored brands advertising, your brand will need to be enrolled in the Amazon Brand Registry to protect intellectual properties and enhance the user experience.
Placement of PPC Ads
There are a couple of factors that affect the placement of PPC ads on Amazon, because it is a highly competitive market. The first is the auction, the cost per click bidding. The highest bigger wins it generally. Second, the quality of the Amazon ad, based on the ad’s click history; the quality may go up and down. A high-quality Amazon ad is more likely to be seen, as they are more likely to result in successful buys. Having a high-quality ad is great because it reduces the amount you have to bid in the auction to get your ad to appear at the top positions.
The Basics of ACoS
Once you have decided to start advertising for your products using Amazon PPC, you need some sort of metrics to determine whether the advertising is actually helping you, or eating up all your profits (or making you go into the red). Ideally, you want your ACoS to be as low as you can get it, because the less you are spending on advertising per sale, the more you are earning in profit.
ACoS is a key metric in measuring the performance of your Amazon PPC marketing campaigns. It is a ratio comparing Amazon PPC ad spend and ad revenue, expressed as a percentage. The basic formula for ACoS is:
ACoS = (Ad Spend / Ad Revenue) * 100
ACoS shows you how much of every dollar you have earned with your advertising campaigns was spent on the ad campaign itself.
As an example:
Your ad campaign generated $364 through sales from advertising.
The ads during your campaign cost $80.
Therefore ACoS = ($80 / $364) * 100 = 22%
One of the important metrics when dealing with ACoS is understanding your profit margin. The profit margin is going to be the amount you make after all other costs are subtracted from the selling price of your product. This includes manufacturing, shipping, employee salaries, storage costs, Amazon fees, and so forth. Profit margin is directly used with your ACoS, as you can determine your final margin by taking your profit margin as a percentage and subtracting your ACoS percentage. Your goal is to ensure your ACoS percentage is lower than your profit margin, otherwise, your Amazon PPC marketing campaign is losing you money.
What is an ACoS You Should Aim For?
Trying to pinpoint the exact ACoS you should always aim for is impossible, because there are too many variables involved. Depending on your category of product, your profit margins, etc. you may end up with an ACoS anywhere from 8% to 45% and still be making a profit. This is where using an online application like Tool4Seller can make life easier for you. By using Tool4Seller, you can directly see the results of your advertising campaigns with an analysis, and they will tell you the ACoS percentages. You can look through your ASINs and campaign keywords and determine where changes need to be made to improve your ACoS and improve your overall profit.
There are situations where having an ACoS higher than your profit margin can be acceptable. Generally, these cases are based on gaining initial momentum that will hopefully remain once you start to dial back your advertising budget, build up brand awareness, or push into a new competitive niche. Or perhaps you wish to clear out inventory to make room for new products, especially as an FBA seller that is paying monthly Amazon warehouse fees for products that aren’t moving fast enough.
ACoS Is A Key Metric in Determining a Successful Amazon PPC Campaign
When all is said and done, ACoS is a key metric in your calculations in whether an Amazon PPC campaign is successful. Having an ACoS at or below your profit margin means you are making money from your Amazon PPC campaign after all, and hopefully building up your brand awareness. Once you know your AcoS, you can start to tweak your product listings and ad campaigns to try to improve it even more. But also learn to be patient when it comes to your ACoS. The start of new marketing campaigns will often have a really high ACoS, so wait until you have a few weeks or a month of data before you start to tweak, and at least several hundred clicks minimum.