Advertising on Amazon is a fantastic way to drive traffic to your products and ultimately boost sales. But if you’re struggling to get your ACoS down or suspect that you may not be making a return on your sponsored ads, you’ve probably calculated your ACoS wrong. So let’s break down the importance of ACoS and how you can stop overspending on ads.
What Is An ACoS?
Just so we’re all on the same page, an ACoS (or Advertising Cost of Sale) is the metric used to measure the performance of your Amazon Sponsored Products campaign. In other words, is the amount that you’re spending on ads promoting profitability? Or are you spending too much and breaking the bank for nothing? Luckily, there’s a pretty simple method for finding out.
You’ve probably heard this term before, but did you know that it’s essential when calculating an accurate ACoS? Many sellers believe that their ROI percentage or their net profit is their ACoS. In reality, with Amazon Sponsored products, that number is calculated by taking the cost that you spend on advertising and dividing it by the total sales.
So your breakeven point is the amount that you should be spending on ads. For example, if you’re selling a product for $100 and your profit is $20, your breakeven point is twenty percent. When using a software system, make sure you’re entering your breakeven point as your target ACoS, not your net profit or ROI.
To keep it simple, let’s highlight a foolproof formula for calculating an accurate ACoS (or breakeven point) every time:
Profit / Selling Price = ACoS
Calculating an optimal ad spend is essential. If you’re spending too much, those sponsored ads are losing you money rather than helping to boost business. Hopefully this helped you to untangle the ACoS mystery so that you can start seeing a return on your ad investment today.
Happy advertising everybody.