Categories
Conversions

How to lower your ACoS by optimizing CPC

This is a guest post from Rick Wong. Rick is the founder of SellerMetrics, an Amazon PPC Software. Having worked in some of the world’s largest financial institutions in Canada, he ventured into Amazon selling in 2017 and sold his Amazon business four years later.

The term “ACoS” has become a catchphrase among Amazon sellers, and it stands for the Advertising Cost of Sale. This metric is an Amazon performance indicator specifically for ad campaigns in the Amazon Advertising interface.

More than 75% of Amazon sellers utilized Pay-per-Click (PPC) advertising in 2021, which means your competition is likely using it.

In this article, we will go over the essential performance measures, how to calculate ROI, and how to lower your costs by focusing on cost per click (CPC).

What is Amazon PPC ACoS?

What does Advertising Cost of Sale (ACoS) stand for? Simply put, ACoS is the proportion of total ad spend to total sales income. In other words, it informs you how much money you made for every dollar you spent on advertisements.

How to calculate ACoS

The formula for calculating Amazon ACoS is as easy as a ratio of spend to sales.

ACoS = (Total ad spend / Total sales revenue) x 100

Example: If you paid $1.20 on a keyword and got $6 in sales, your ACoS is (1.20/6) x 100 = 20%.

This calculation implies that a smaller proportion of ACoS is optimal. When your ACoS is low, it signifies your numerator – your total ad expenditure – is lower than the number of sales you’re getting.

However, keep in mind that Amazon PPC also allows you to increase exposure organically, even without clicks. That means the straight objective of lowering ACoS just by lowering budget may not provide the best ROI.

How to calculate your best Amazon bid

Optimizing your Amazon PPC bid is one of the main ways to minimize overbidding and underbidding. You can optimize your bids by using the following formula:

Optimal Bid = (Target ACoS%/Current ACoS%) x CPC

Example:

  • Target ACoS% → 30%
  • Current ACoS% → 45%
  • CPC → $1.25

There using the above data, your most optimal Amazon PPC bid would be $0.83 (30%/45%)*$1.25

The most important Amazon PPC metric to track: CPC

There are a lot of data on your Amazon advertising dashboard, but if there is one that you should keep an eye on and monitor, it’s your cost per click.

This is a critical metric because of the following reasons:

  • CPC is a direct proxy for market competitiveness; as CPC rises, so does marketplace competitiveness. If this is the case, you must be extremely cautious.
  • Manipulating your CPC will directly change your ACoS%. This allows you to either optimize for ROI or increase ACoS% to boost sales. (Higher ACoS% = Higher Visibility)
  • You may utilize your CPC to calculate your CPA (cost per acquisition) and, as a result, your realistic goal ACoS percentage.
    • CPA = CPC/Conversion Rate ➡️ realistic target ACoS % = CPA/AOV

As an example:

  • Average order value (AOV) = [Sales/Orders] = 840.44/55 = $15.28
  • CPA = 1.56/0.1698 = $9.10
  • Realistic Target ACoS % = $9.10/$15.28 = 59.55%

If your CPC is $1.56 and your AOV is $15.28, your ACoS % will be in the example above. If you find this ACoS acceptable, it will be determined by your break-even ACoS, which we will discuss later.

Calculate your realistic objective ACoS % in the meanwhile and have it in your back pocket.

Lowering your ACoS% means lower CPC

If you have experience with Amazon PPC I think you can see where I am going with this. The next actionable step is to make changes to your bids according to your attributed cost per click (CPC).

If you want to keep your impressions at its current levels than your current bid should match your current CPC, but if you want to increase impressions from your current levels than you increase your bid from your CPC.

Lastly, since CPC is a key component to the bid optimization formula, if you change your bid lower than your current CPC, you would in effect lower your ACoS%.

How to optimize your Amazon PPC campaigns

With this knowledge, we can now go to your Amazon Advertising console and start making bid adjustments based on your CPC (Cost Per Click).

Step 1 ➡️ Down Bid High ACoS (>100%)

Criteria:

  • Last 60 days – 3 (Amazon PPC sales attributions)
  • Clicks ≥ 8
  • Orders > 0
  • ACoS > 100%

Action:

  • Decrease Bid to ➡️ CPC * 50%

Step 2 ➡️ Down bid Above Target ACoS (40%)

Let just say my target ACoS% is 40%, you can replace this number to whatever your target ACoS% is.

Criteria:

  • Last 60 days – 3 (Amazon PPC sales attributions)
  • Clicks ≥ 8
  • Orders > 0
  • ACoS ≥ 40% and ≤ 100%

Action:

  • Decrease Bid to ➡️ CPC * 75%

Step 3 ➡️ Up bid Over Optimized Keywords

The idea for this is to make sure the keywords that are really driving sales at a low cost gets a bid that closer to the market. This will ensure that you are winning the keyword bid auction.

Criteria:

  • Last 60 days – 3 (Amazon PPC sales attributions)
  • Clicks ≥ 8
  • Orders > 0
  • ACoS ≤ 20% (half of target ACoS of 40%)

Action:

  • Decrease Bid to ➡️ CPC * 125%

Conclusion

Lowering your ACoS% without affecting your sales is a difficult but crucial indicator for Amazon PPC effectiveness. But this can be done incrementally using your CPC as your keystone metric.

Every seller should establish a unique CPC/ACoS% levels for their most comfortable sales levels. We hope you find our information to be useful in planning your future advertising initiatives!

Read more blog posts

BFCM checklist: How to get ready for Black Friday and Cyber Monday in 2022

While most people are embracing the sunshine and preparing for summer holidays, eCommerce professionals should..

Importance of eCommerce personalization in the buyer journey

Personalized shopping experiences are the cornerstone of many brands’ business models. This display of excellent..

5 Ways to scale your eCommerce business

Estimates report global eCommerce revenue will total $55.5 trillion USD in 2022. With an increase..