It’s the the holy grail for all Amazon sellers – how to reduce ACOS and increase profitability for their product listings when advertising on Amazon.
If you don’t know how to calculate the ACOS of your ad campaign, you can find out on our What is Amazon ACOS? page.
Given that there are 2 factors which feature in the calculation of your ACOS (ACOS = Ad Spend / Total Sales Value) it follows that changing either of these, while keeping the other the same, will change the ACOS for your Amazon PPC campaign..
Reduce ACOS – Strategy 1 – Increase Total Sales Value
Put up your prices! Assuming that this doesn’t significantly reduce the number of units you sell, then by increasing your sale prices you increase your Total Sales Value.
And automatically, with the same ad spend, the ACOS for your advertising campaigns will reduce.
But putting your prices up and up isn’t necessarily a long term recipe for success so this particular tactic is likely to have limited use as a tool for reducing your Advertising Cost Of Sales… but that doesn’t mean that you should ignore it.
Reduce ACOS – Strategy 2 – Reduce Ad Spend
Assuming you don’t increase your prices… or even if you do… the other option available to you, if you want to reduce your ACOS, is to reduce your Advertising Spend while maintaining your sales levels.
The most obvious way to do this is to identify and block any search terms which are costing you (Ad Spend) but not generating sales (Total Sales Value).
More often that not these will be search terms which you didn’t actively specify that you wanted to target i.e. they arise from:
- AUTOMATIC targeting campaigns
- keywords with “BROAD match “
- keywords with “PHRASE match”
- product targeting by CATEGORY
Of course there may be some search terms and/or products where you have targeted them directly with “EXACT match” but either they haven’t performed as you had anticipated or their performance has changed over time.
Either way, if you pause any search terms or products which are costing but not earning then, by definition, your ACOS will reduce.
That seems like a no-brainer… but you must exercise judgement here. Be careful you are not being too hasty.
- Have you given a search term sufficient time to have a chance to prove itself? If you started a campaign yesterday, or last week, then it may be too soon to condemn a term as a failure.
- Are you analysing over a sufficiently long time period to make a valid decision? A search term may have generated zero sales in the last month but what if it was consistently profitable for the previous 11 months… do you really want to stop it?
- What are the consequences of pausing that search term… or adding it to your negative search terms? Can you be sure that you won’t have a nasty surprise awaiting you if you act hastily?
Reduce ACOS – Strategy 3 – Improve Your Advert
You may be thinking that there’s nothing that you can do to improve your adverts given that you aren’t able to physically design an advert for your product on Amazon. But that’s not actually true.
There are 5 key elements which can improve the both the click through rate and the conversion rate for your advert… and your can directly influence 4 of those elements, and indirectly influence the 4th.
They are:
- The first few words of your product title. Depending on the size of the screen that the customer is using, and the length of the words, they may only see the first 5 or 6 words of your product title. So you need to make those critical stand out and attract the click.
- Your product thumbnail. Again space is very limited so you have to make the most of it that you can. Compare with your competitors and make sure that your product thumbnail is either as good as, or ideally more attractive than theirs.
- The price – it’s the age old dilemma with Amazon advertising campaigns… a lower price is more likely to get the click but means that there’s a lower threshold for ACOS profitability.
- Running promotions, vouchers etc. This will help make your advert more noticeable but again comes at a cost of profitability.
- Amazon badging – this is the one that you can’t control directly but you can certainly heavily influence whether your product gains a coveted, attention-grabbing Amazon badge by increasing oyur sales as much as possible.
What is A Good Amazon ACOS?
It’s a question that we are often asked but in truth there’s no definitive answer. A high ACOS advertising cost for one product might be an acceptable ACOS for another. It depends on:
- the profit margin for the product
- the objective of the advert e.g. to launch a product, to discover new search terms and relevant keywords, to increase sales prior to a key period
As a general rule though, your long-term target ACOS will be one that maximises your sales while, at the same time, being profitable. If every sale is profitable then you will want to make your ad budget as large as you can.
It’s critical to be constantly monitoring search term reports and optimising your adverts and keywords constantly, so knowing how to reduce ACOS is a vital element of your Amazon PPC strategies for profitably dominating your niche.