The number of sellers and products has leapfrogged dramatically since the last few years on Amazon. So, it has become extremely difficult, if not impossible to drive sustained sales and profit growth.
An ever-increasing number of sellers and vendors leverage Amazon PPC as part of their marketing strategy, as it’s a problem running profitable ads without a defined PPC strategy in place.
What is an Amazon PPC campaign?
The Amazon Pay Per Click (PPC) platform provides a unique opportunity to sellers to maximize sales online. Its optimization also enables sellers to increase organic rankings.
What is ACoS actually?
The Advertising Cost of Sale (ACoS) is a key metric for measuring the success of Amazon Sponsored Product Campaigns. It’s an analysis of the ratio of ad spends to targeted sales and is calculated like this:
ACoS = Ad spends divided by Sales
Supposing that your campaign has generated Rs. 10,000/- in sales. Your Total Expenses has been 1,000/- during a specific period, then the ACoS is 1,000 divided by 10,000 = 10%.
Which means, you are spending 10% on ads and making 9000/- worth of sales with that ad campaign.
ACoS as a tool for measuring profitability:
ACoS can be used to determine the success of your ad campaigns. But the main problem is defining the target value for an ACoS. To find whether an ACoS is good or not, we have to take the entire cost structure of your product into account.
How to find out the target ACoS:
First of all, it’s necessary to define the kind of net profit margin you are looking at, post your ad spends, in order to determine the target ACoS for a particular ad campaign.
Suppose you have a margin of 22% before your ad spends, which makes your break even AcoS exactly 22%. If you are planning on making a profit margin of 10% after subtracting advertisement costs, then your ad campaign should reach a maximum of 12% for a target ACoS. In case you are able to optimize your campaign down to a target ACoS of 12% or less, then it will be good news for you, because then you would have achieved the profit margin you targeted!