Advertising Cost of Sales (ACoS) is a term used by Amazon for their sponsored ads. ACoS is not common PPC jargon, so don’t be surprised if you haven’t heard of it.
The easiest way to think about ACoS is this. Once you’ve calculated your items profit (product price minus total cost of goods and amazon fees), you can convert this into a percentage. This percentage is your profit margin. You want to make sure your ACoS is no higher, and ideally much lower than your profit margin. For example, if your profit margin is 20%, and your ACoS is 10%, that means on each sale you make from running ads, you’ll be left with 10% profit.
The higher your ACoS, the higher your ratio of ad cost to sales revenue. The lower your ACoS, the lower your ratio of ad cost to sales revenue. Ideally you want as high a sales revenue figure as possible, with as low an ACoS as possible.
ACoS = 100* (Total Ads Spend ÷ Total sales)
If you spent $10 on advertising and it resulted in a single sale of $40, your Advertising Cost of Sales would be 100*10/40 = 25%.
Example screenshot below showing the Advertising Cost of Sales (ACoS) in the far right column.
ACoS = 100 * (Total Ads Spend ÷ Total Sales)
Total Sales = the total product sales generated within one week of clicks on your ads. This total includes both sales of the advertised SKU and sales of your Other SKUs resulting from clicks on your ads. Additional SKUs are also from your inventory. For example, if a click on your ad for a blue shirt generates a sale for one of your red shirts, this is included in Total Sales.
My Personal Take on ACOS
When you’re selling on Amazon its super important to have a spreadsheet where you calculate all your costs (manufacturing, inspection, shipping, import tax, Amazon fees) and therefore know how much profit is left on each sale. At which point, you want to know how much you can “afford” to spend on Amazon ads, and still be left with profit.
If you find you’re only breaking even on the ads, they can still be worth pursuing (which is a weird thing in the world of ads!). The rationale would be that the extra sales would improve your Best Seller Rank (BSR) and therefore result in more organic sales.
The only scenario where that may not be of use, is where you’re already top of the search results for the keywords that you want.