Regarding ACOS, a metric unique to Amazon advertising that I mentioned in my previous blog: m19｜Common Mistakes (Beginners), I have often felt recently that many Amazon sellers and advertising agencies often fail to correctly interpret, set, and update their target values. I hope that those who are concerned about the target ACOS will continue reading.

1. What is ACOS anyway?

ACOS stands for Advertising Cost of Sales, which is “How much advertising money does it take to make a sale? consumed?” and is one of the most important KPIs for Amazon advertising. The formula is ACOS = (Advertising Cost) / (Sales via Advertising) x 100 (%). For example, if it takes 1 million yen in advertising expenses to generate 10 million yen in sales via advertising, the result is ACOS = (1 million yen) ÷ (10 million yen) × 100 (%) = 10%. Incidentally, ROAS (Return Over Ad Spend), which has the same meaning as ACOS, is the reciprocal of ACOS, so it can be calculated as ACOS = 1/ROAS.

2. How should target ACOS be determined?

We recommend that you first calculate ACOS at the break-even point (break-even point) in the same way as when determining the target CPA and ROAS. In addition to the product sales price, the calculation requires
1) Amazon-related costs (sales commissions, shipping agent fees, inventory storage fees, refund processing fees, etc.)
2) COGS (Cost of Goods Sold)
Incidentally, the m19 shows the data for both of these items. If the product selling price is 10,000 yen and 1) 1,000 yen and 2) 4,000 yen, the profit without advertising would be 5,000 yen per order. And since the break even is achieved after spending 5,000 yen on advertising, the break even ACOS = (Advertising Cost) ÷ (Sales via Advertising) × 100 (%) = (5,000 yen) ÷ (10,000 yen) × 100 (%) = 50% can be calculated. If the actual ACOS is above 50%, it means that you have incurred a loss for that product. Conversely, if the target ACOS is set at 30%, then the target profit margin is 20%.

Using this breakeven ACOS, m19 recommends setting target ACOS for each phase of a product as follows.

Product Maturity	Target ACOS Range	Breakeven ACOS : 50%
Launch	Break Even ACOS x 0.9 to 1.1	45%〜55%
Matured	Break Even ACOS x 0.3 to 0.7	15%〜21%
End of Life	Break Even ACOS x 0.7 to 1.1	35%〜50%

At launch, an example would be a product that has no track record of sales or ad delivery within Amazon. On the other hand, at maturity, it is best to imagine a product where the target product is consistently selling at least several units per day and there is no plan for inventory replenishment at the end of the project.

3. What is “good target ACOS”?

While the above target ACOS can be estimated based on the maturity of the product, there are many Amazon sellers who have become “lowering the ACOS is the right thing to do! However, many Amazon sellers have become preoccupied with lowering ACOS. However, in some cases, they are so preoccupied with lowering ACOS that their advertising expenses are gradually decreasing and sales are also decreasing…. You may want to remember that a good target ACOS is only determined by the maturity level and strategy of each product.

For example, if it is better to set a lower target ACOS,
1) You want to place the highest priority on profit
2) You are not particularly concerned about product recognition
or other objectives, you may want to set it low.

On the other hand, if you prefer to set a higher target ACOS,
1) You want to sell off poorly selling products as soon as possible.
2) You plan to increase brand and product recognition.

4. Taking TACOS into account?

Although we have so far focused on ACOS, TACOS (Total Advertising Cost of Sales) is also an indicator that is positioned as the most important KPI in Amazon’s advertising operations. TACOS (Total Advertising Cost of Sales) is also one of the most important KPIs of Amazon’s advertising operations. consumed?” The formula is TACOS = (Advertising Expenditures) / (Total Store Sales) x 100 (%). When determining the target profit margin, it will be possible to set a comfortable ACOS target by taking into account sales via natural search.

5. How to improve ACOS?

How can ACOS be improved? As with other types of advertising, by breaking down ACOS into factors, it is possible to identify which operational KPIs need to be improved. First, let’s rewrite ACOS as follows.

KPIs in green and purple are click-related KPIs and conversion-related KPIs, respectively. By checking how each of the factorized KPIs are performing week-to-week, month-to-month, and year-on-year, it is possible to understand which KPI is the cause of the deterioration in ACOS. Let’s check the measures for each KPI.

(1) IMP

Point: IMP is the starting point for all KPIs. If IMP remains low, clicks and conversion data will not be accumulated, and ad optimization will not progress.

Countermeasures: Consider the following measures that will lead to an increase in the number of times ads are displayed.

• Increasing the ad budget
• Adding new keywords
• Reviewing match types
• Setting a higher bid (setting a higher target ACOS)

(2) Click rate/number of clicks

Point: If the click rate is low, the denominator CLICK (number of clicks) will also be low, resulting in a decrease in CONV (number of conversions) and SALES (sales).

Countermeasures: The main countermeasures against click-through rates for Amazon ads include the following

• Reviewing ads (product names and images)
• Using discounts and coupons
• Increasing good product reviews
• Reviewing the relevance of keywords and ads (are the ads and products poorly related to the keywords?)
• Reviewing ad placement (low ad placement tends to result in low click-through rates)

 

(3) CPC (cost per click)

Point: Cost-per-click may increase depending on the market and competitors’ bids. As a result, the advertising cost required to generate the same number of clicks may also increase.

Countermeasures: Major countermeasures against CPC for Amazon ads include the following

• Reviewing target ACOS
• Increasing the ad budget
• Running keyword maintenance (exclude or stop keywords that are not leading to conversions or sales in spite of high cost-per-click)

(4) Conversion Rate

Point: Rather than ads, products and product detail pages have a significant impact on high and low conversion rates.

Countermeasures: Major countermeasures against the conversion rate of Amazon ads include the following

• Reviewing ad placement (low ad placement tends to result in low conversion rates)
• Increasing the number of good product reviews
• Confirming end-users’ product needs
• Improving the buy-box win rate
• Improving product title and descriptions on product detail pages

(5) AOV (Average Order Value per Transaction)

Point: This is one of the most important conversion-related KPIs that are often surprisingly overlooked.

Countermeasures: Major countermeasures against AOV in Amazon ads include the following

• Making products that tend to be sold together into sets of products/advertisement PR
• Developing high unit price products/ad PR

Looking at m19’s domestic managed accounts, more than 90% of all accounts have no COGS settings at all. Therefore, Amazon sellers and advertising agencies are not able to calculate break-even ACOS at all, and often set their target ACOS somehow based on past performance, or their objective is to lower the actual ACOS anyway. I would be very happy if this blog could play a role in improving this situation!

Masaki “Mark” Iino
Founder & CEO
SOPHOLA, Inc