How to reduce ACoS on Amazon in 2021
ACoS (Advertising Cost of Sales) is one of the most important metrics for evaluating and potentially improving your campaigns on Amazon. It’s the key performance indicator (KPI) for Amazon Pay Per Click (PPC) advertising, and can tell you how your campaigns are doing over a given time, optimize your ad spend and help reduce your cost of sale.
Generally, Sellers believe a low ACoS is what they should aim for. While this does align with keeping your costs low for maximum results (and is an outcome we will help you achieve here), it does depend on what your strategy is for selling that given product. Although a higher ACoS does have negative connotations, it can mean higher long-term profits, if it fits with your strategy.
We are going to come back to what makes a good ACoS strategy on Amazon. But you are first, and foremost interested in reducing ACoS. So, what is a low ACoS strategy good for? Primarily, two main things:
- Selling a low-converting product
- Making as much profit per sale as possible
If you need a benchmark, 15-25% ACoS is a reasonable target for a low ACoS.
Generally, the lower your ACoS, the better your ad is performing. If unintentional, a high ACoS can indicate an underperforming ad. You may be spending too much to reach your target audience and potentially losing money on a sale.
So, if your ACoS is too high, or you simply want to minimize your ad spend, what should you do? There are five main strategies you should try — let’s get started.
1. Use a PPC Tool
In order to reduce ACoS on your Amazon PPC ads, there are many variables that need attention and ongoing optimization. While you can do this manually, using Amazon Seller Central reports and downloading data for spreadsheets, at any scale, this is going to become unmanageable. At volume and with the need for speed, you really have to be using your own analysis software to allow artificial intelligence (AI) and machine learning to carry the heavy lifting and make sense of your Amazon customer data.
These are some of the areas to focus on:
Reviewing your keywords
With more relevant keywords, your ads attract more targeted traffic and, therefore, higher conversion rates. The result, a lower ACoS. So, review your keyword selection. For example, by making sure you include relevant keywords in every ad group that matches the buying intent of your target customers for those specific products.
Use different keyword matching strategies
If you are aiming for lower ACoS, then you can go with phrase or exact match keywords. However, if you are not getting enough traffic or sales, try experimenting with broad match keywords to expand your reach, as long as you have wide enough margins on your products to do so.
Exploiting negative keywords
The key tactic to exclude irrelevant searches and keywords that don’t result in conversions is to use negative keywords. The basic approach is to nurture keywords that are making you money and negate those that aren’t, resulting in lower ACoS. This is an iterative process known as Search Term Optimization, which you should read about and try.
2. Optimize your bids — often
Cost per Click (CPC) bids directly impact ACoS, but it’s not as simple as bidding low to reduce ACoS. If you bid low, your products may get lower rankings and attract fewer clicks, or may not even get into the auction.
If you bid high, your product ads may get higher rankings, attract clicks and sales, but your CPC may also go higher and drive your ACoS high. There is a delicate balance to be struck and the best way is to test often with different bids until you are happy your ads are getting enough sales at the lowest acceptable ACoS.
Set target ACoS limits
You can start a campaign with the goal of reaching break-even, then optimize toward a target ACoS. If the resulting ACoS is really high, consider shutting off the keyword. If the ACoS is around 50% or close to your target ACoS, then decrease the bid gradually and monitor the results. This is a continuing process which can take weeks — or even months of optimization.
It’s also important to look at your total sales and the interaction between ad generated and organic sales to see the full impact of ACoS changes.
3. Make your product listings relevant
Amazon’s goal is to connect people with relevant listings that get them to convert. If your product information isn’t relevant to the search terms, you won’t earn as many conversions.
When your advertising leads customers to your product pages, you must provide details that are relevant to your keyword selections. If someone searched “left-handed sprockets,” your listing should contain information that is most relevant to left-handed sprockets.
You can, therefore, reduce your ACoS by simply optimizing your product titles. Ensure they state the brand; answer any questions the customer may have; and focus on key features and benefits. Then, carry on by optimizing bullet points, product descriptions and imagery.
4. Ensure you are following best practice
You should consider working with third-party consultants. Amazon is moving fast and rapidly updating what data it provides to Sellers. Generating insights from this sea of data is becoming a specialist job. You have to take guesswork out of the equation and trust the data. All of your PPC campaigns, and their associated ACoS, will vary depending on the product category and the product itself — the more granular you can get with those selections and the faster you can change them — the more successful you will be.
Another key lesson from the most successful Amazon Sellers is to exercise patience. The time taken for a change to have an impact, and the time taken for Amazon to reflect this in the data have to be respected.
During the first week of most Sponsored Products campaigns, the ACoS will almost always look dreadful. Any judgment of your Sponsored Product campaign’s performance should be delayed until at least two weeks (preferably a month) of data have been collected. This applies even more so for ACoS.
Data doesn’t start to get reliable until about 100–200 clicks have been gathered, but even then, you should let your campaign run without touching it for several weeks.
(Waiting this long is also important because Amazon attributes a sale to a click if that sale happened a week or less after the initial click.)
5. Consider not prioritizing a low ACoS
As we mentioned at the beginning, a low ACoS shouldn’t always be your goal. Chasing a lower ACoS without considering other vital metrics can end up harming your sales and profits on Amazon. ACoS should not be the sole metric to guide decision-making, and managing your ad budget to a specific ACoS will not necessarily produce the most profit. It needs to be acknowledged that, depending on category, time of year, and your products, an increasing ACoS is not necessarily a bad thing.
The main downside of ‘low ACoS tunnel vision’ is too much focus on branded terms. Customers looking for your brand will obviously convert at a higher rate. This is great for ACoS, but not necessarily good for maximizing sales. You will end up with less traffic and fewer sales, particularly if you are not a well-known brand.
Fundamentally, a focus on ACoS and, by extension, last-touch attribution can create a bias against upper-funnel ads. When you only track the last click or view, you don’t know how the customer found your products or how many times they interacted with your brand before converting. This can move budget away from keywords and ad types that do help drive customers to discover and engage with your brand. Again, this comes back to branded terms. On the whole, customers engaged in branded search are likely already existing customers, meaning this strategy won’t effectively allow you to expand your customer base.
If you have the budget, you can exploit a high ACoS to outbid your competitors and dominate a market niche. By grabbing an increased market share, you can win customer loyalty and drive long-term profits. Fundamentally, customer lifetime value (CLV) can outshine low ACoS in the long run. However, gaining this kind of perspective can be hard, even with the increased data flows Amazon makes available to Sellers. To get an accurate picture of CLV, you realistically need to deploy third-party analytics tools to better understand the ‘buying trajectories’ of your customers. If you want to learn more about this, check out our eBook on understanding Amazon customer data.