Effective Ways to Reduce ACoS and Improve Amazon Ads Profitability

What is Total ACOS, and why does it matter for your Amazon campaign? ACOS stands for Advertising Cost of Sales. Understanding this is very important for a good campaign plan.

ACOS is a term that will inevitably surface in any conversation about an Amazon campaign. The bottom line is that ACOS is a crucial indicator in Amazon advertising & knowing it could be the key to developing a more successful Amazon advertising campaign strategy. Some refer to it as Total ACOS, while others name it TACOS.

In this article, experts from Quadrazon discuss how you can optimize your ACoS goals in Amazon advertising to improve profitability and campaign performance.

What Is ACoS in Amazon Advertising?

Amazon advertising cost of sales (ACOS) is a metric for evaluating Amazon pay-per-click (PPC) advertising campaigns. It compares the amount spent on PPC campaigns to the amount earned, allowing you to decide whether your brand created cost-effective campaigns. Amazon ACOS is used to track the performance of Sponsored Products adverts on Amazon.

It might be easy to want a lot of sales and a low Amazon ACOS, but some things can change that and there are reasons why that shouldn't always be your only goal. This guide will explain what Amazon ACOS is, why it's important, and how it can be a great way for Amazon sellers to advertise.

In general, a low ACoS is considered favorable. However, what you determine as “low” may vary by product and your goals.

A lower ACoS means lower advertising costs per sale. This indicates that your campaigns and keyword targeting are operating effectively. An elevated ACoS may indicate that your advertising campaigns are not performing optimally, potentially due to unrelated keywords or poorly organized campaigns.

The average ACoS ranges from 25% to 40%.

An ACoS above 40% is considered high. This situation can occur when a particular keyword attracts significant traffic but has a low conversion rate. This is a great chance to reevaluate the terms you are currently investing in.

Keep in mind that a high ACoS does not necessarily indicate that your product or business is unprofitable. Sellers should also be aware of their TACoS (total advertising cost of sale) to assess the effectiveness of their ad campaigns and organic sales.

Why Your Amazon Ads Have a High ACoS

You have set up an ad campaign on Amazon and clicks are coming in. However, sales are still slow, and your ACoS keeps going up. This is a problem that a lot of sellers have. Usually, it's not the budget or the bids that are the problem, but the basis of the campaign. High ACoS is usually caused by a few problems that are hard to see but waste a lot of money on ads without giving any benefits. These problems bring in the wrong kind of visitors, lower conversion rates and waste money on shoppers who aren't going to buy.

The Three Silent Killers of High ACoS

Poor Keyword Targeting: When you bid on broad or generic keywords, you often get traffic that isn't useful.
Example: Going after the word "blender" instead of a keyword with a lot of purpose like "portable blender for travel."

Weak Conversion Rate: Even if your ads get people to your site, conversions will be low if your product page doesn't make people want to buy.
Bad pictures, weak bullet points, bad descriptions or bad reviews can all make conversion rates drop by a large amount.

No Negative Keyword Filtering: Without negative keywords, advertisements will show up for searches that aren't what buyers are looking for.
For example, searches for "cheap blender" or "blender repair parts" often don't lead to sales.

According to Helium 10, businesses that do not aggressively use negative keywords may spend up to 27% of their advertising revenue on irrelevant search phrases.

Why This Matters

Even with well-optimized bids and enough money spent on ads, campaigns have trouble when they reach the wrong people. It's better to have high-quality traffic than a lot of it. ACoS will keep going up if your adverts aren't getting to those who are ready to buy.

Fix the Foundation Before Optimizing Bids

Before making bid revisions, consider your campaign's fundamentals:

• Is your listing for a product successfully converting? (Aim for at least 10% success rate.)
  
• Are you focusing on terms that get people who want to buy?
  
• Are there bad keywords in place to stop traffic that isn't relevant?

When these basic parts are improved, Amazon advertisements work much better. If you do them right, your ACoS will often go down, even if you don't spend more on ads.

How Negative Keywords Help Reduce ACoS on Amazon Ads

Negative keywords emerge as a highly effective tool in Amazon advertising. Negative keywords inform Amazon about the searches that should not activate your ads, allowing you to reduce unnecessary expenses and safeguard your profitability.

A 2024 Pay-Per-Click study shows that using just 10 well-chosen negative keywords can decrease ACoS by up to 35% within the first two weeks. That's immediate outcomes without increasing marketing costs.

Why Negative Keywords Matter

• Reduce Wasted Spending: Stop paying for clicks that do not convert.
  
• Lower ACoS: Dropping useless traffic will lower your advertising cost of sale.
  
• Improved Targeting: Concentrate your spending on clients with high intent.
  
• Improved ROI: Increase your return on ad expenditure by displaying advertising exclusively to qualified buyers.

Steps for Including Negative Keywords into Amazon Campaigns

Step 1: Go to Campaign Manager

• Open Amazon Seller Central.
  
• Go to Advertising → Campaign Manager.
  
• Choose the campaign that you wish to change.
  
• Select the tab for Negative Keywords.

Step 2: Include Negative Terms

• Select the option to include negative keywords
  
• Please input your negative keywords, either one per line or separated by commas.
  
• Select the type of match: exact, phrase or broad.
  
• Press Add to save

Step 3: Review and Optimize

• Review search term reports weekly.
  
• Incorporate additional negative keywords derived from poor-performing search terms.
  
• Eliminate negative keywords that hinder valuable traffic.

Improve Listing Conversion Rate to Lower ACOS

The quality of your product listings has a direct effect on how well PPC works. According to research from Sellics, postings that are well-optimized can increase conversion rates by as much as 30%. Lower advertising expenditures per sale are important for lowering your ACoS & higher conversion rates suggest that.

Optimizing Product Titles & Bullet Points

Amazon's A9 system can figure out how relevant your ads are by analyzing how you place keywords in your listings. For example, Jungle Scout's case study showed that integrating keywords well led to a 15% drop in ACoS.
Here are some tips for organizing the parts of your ad well:

• Title: Put your main terms in the first 80 characters to get up to 40% more clicks.
  
• Bullet Points: To boost conversions by up to 25%, use additional keywords and emphasize benefits.
  
• Backend Terms: To increase impressions, reach by 22%, add misspelt words and different terms.

High Quality Images & A+ Content

A+ Content (formerly known as Enhanced Brand Content) can increase sales by 3-10% on average. Study from Pattern shows that A+ content that is well optimized can raise conversion rates by as much as 10%, which lowers your ACoS. When you test A+ content, keep in mind to:

1. Connecting with your audience on an emotional level.
2. Comparison charts are used to show how one business is better than others.
3. Including visuals of product demonstrations to show out benefits.
4. Including things like customer reviews and certificates as proof from other people.

Product Images & Graphics

Visuals are very important. eMarketer says that for 83% of internet shoppers, product pictures are the most important factor influencing their choice of what to buy. According to Quadrazon data, professional-quality pictures can cut ACoS by 18% compared to basic images.

Improve the pictures of your products by:

• A white background with high-resolution pictures.
  
• Lifestyle images that show how the product is used in real life.
  
• Features and specs are shown in infographics.
  
• The size comparison pictures help buyers get a good idea of the size.

Track how these changes are improving things using tools like Amazon Brand Analytics and the Advertising Console. A well-crafted product listing makes it easier for PPC tactics to work better.

Campaign Structure Best Practices for Lower ACoS

A well-organized PPC campaign is crucial for enhancing ad performance and ensuring efficient management. This is a comprehensive guide designed to help you create a successful campaign framework.

Setting Campaigns by Objective

Having clear goals for each campaign is the first thing that needs to be done to set up an effective Amazon PPC campaign. You might have different campaigns for launching a new product, raising awareness of your business, and making sales, for instance. Focusing on the right measures and allocating resources well to meet your goals is easier when you organize campaigns by clear goals.

Proper Ad Group Structure

Organize ad groups in each campaign according to product variations, types of keywords, or match types. This segmentation enhances performance tracking and simplifies the management of bids and keywords.
For example, you could create distinct ad groups for various product colors or sizes, each focusing on specific keywords that correspond with the variation.

Naming Conventions & Campaign Labels

This makes it easier to manage and analyze campaigns by using clear naming standards and consistent labeling. Use names that are clear and show the goal of the campaign, the type of product, and the type of match. This helps you keep track of and compare how different efforts are doing, especially as your business grows.

As an example, you could call a campaign "Brand-Awareness-Sponsored-Products" and give it that name. Labels help you organize campaigns by status, goals, or results, making it easy to see where you need to make the most changes.

Advanced Amazon PPC Strategies to Boost Profitability

Determine the target ACoS for your campaigns first, taking into account your company's objective. Verify whether the existing ACoS exceeds or falls short of the target ACoS for both the campaign and keyword levels.

When the ACoS exceeds the target ACoS, consider lowering the bids on the keywords or pausing the ads entirely to decrease the ACoS.

For instance, if your goal ACoS is 30% and the current ACoS is 80%, you might want to lower your bids on the keywords that aren't doing well. They lower the amount of money you spend on ads and make your campaigns more profitable altogether.

If the ACoS is lower than the target, on the other hand, it shows that your keywords are over-optimized. In this case, you can raise the bids on the keywords to achieve the most conversions and raise the RoAS. For example, if your present ACoS is 15% and your target ACoS is 30%, raise your bids on these keywords that bring in more traffic and sales.

Placement Bid Adjustments

When a keyword in your PPC campaign hits "flywheel" and your product comes in the top five, switch your bids to a different keyword that has a high conversion rate. It's important to get it to the top 5 in organic search results.

Say you have a fitness tracker for sale and already do well for the term "round-dial fitness tracker." Then look over your search term data and find another keyword that has a high conversion rate. Put in a lot of bids on that term to get it to the top of organic search results.

Repeat this process for a variety of high-converting keywords, one at a time, in order to substantially increase organic sales and reduce ad expenditure.

Scaling profitable keywords safely

You can get better advertising results by combining Top of Search Placement and Branded Keywords, but it depends on your advertising goals and Amazon advertising funds.

For instance, you can attain the top of search placement by bidding heavily on high-volume, non-branded phrases. This will help people learn more about your business.

You should also bid on branded keywords if you want to get more sales. These keywords usually have a cheap cost per click (CPC) and a high conversion rate, which helps your campaign's overall return on ad spend (RoAS).

 Leveraging Sponsored Brands and Sponsored Display

When making a successful Amazon PPC campaign, it's very important to choose the proper product for Sponsored Brand ads.

Brand ads can do more than just promote your brand; they can also bring traffic to products that aren't getting much attention or that are new to the market. To get the most out of your brand campaign, though, you need to set it up in a certain way. Here are some guidelines to help you choose the best product for your PPC campaigns:

1. Pick your best-selling item for the first spot: In your Sponsored Brand ad, the first product you show off should be the one that sells the best. It should be the product or ASIN that gets the best reviews and makes the most money. This allows you to quickly attract the attention of potential customers and develop credibility for your brand.
   
2. Feature a product with few impressions yet a high conversion rate: Include a product that has a high conversion rate but not a lot of exposure in the second spot. It lets clients view all the things you have and lets you push a product you wish to sell more of.
   
3. Finally, highlight a recently released product in the third position. It helps you get more people to see the new product listing and get more sales and reviews for it.

In this example, the product with the highest rating comes first, followed by a product with a moderate rating, and finally, a new product that doesn't have many reviews.

Metrics to Track Beyond ACoS

Amazon's primary ad metrics are crucial tools used by sellers to measure and optimize the performance of their advertising campaigns on the Amazon platform. These metrics provide insight into the effectiveness of your ads in generating sales, increasing traffic and fostering overall growth.

A comprehensive knowledge of Amazon's key performance indicators is essential for effective operation in the advertising sector. These metrics offer sellers essential insights into the efficacy of their campaigns, enabling them to optimize their strategies and maximize their return on ad spend.

In Amazon's competitive marketplace, it is imperative to master these metrics, from tracking fundamental engagement such as clicks and impressions to analyzing profitability through ACoS and ROAS.

TACoS (Total Advertising Cost of Sales) 

TACoS (Total Advertising Cost of Sales) provide a comprehensive perspective on your advertising expenditure by considering both organic and paid sales. This statistic is intended to provide you with a more comprehensive view of your company's general health.

TACoS are especially valuable for evaluating how much your ad expenditure affects total sales, including the effect of ads on organic growth.

For example, if advertisements increase sales and improve organic rankings, your TACoS may better reflect the long-term worth of advertising beyond the immediate outcomes.

The formula to calculate TACoS is:

TACoS (%) = (Ad Spend ÷ Total Sales) × 100

Where:

• Ad Spend refers to the money spent on ads
• Total Sales includes both organic and paid sales

Example:

Ad Spend: $80
Total Sales (Organic + Paid): $1,600

TACoS = (80 ÷ 1,600) × 100 = 5%

In this instance, the ad spends accounts for 5% of your total sales. When you look at TACoS, you can see how much your ads (paid and spontaneous) are adding to your overall sales. You can use this to see if your ads are having an effect on other websites by making them more visible and resulting in more sales generally.

Click-Through Rate (CTR)

This metric provides insight into the relevance and appeal of your ad content for a particular search query. For example, when you promote blue shoes through an advertisement, the clicks the ad receives from that ad indicate the click-through rate, or CTR.

It is essential to recognize that while enhancing your CTR can significantly improve the likelihood of drawing in new clients and increasing sales, it doesn't guarantee conversions.

The click-through rate (CTR) tells you how many people click on your adverts after seeing them. A high click-through rate (CTR) shows that your advertisements are interesting and captivating enough to draw in clicks. On the other hand, a low CTR may suggest that your ads are not engaging with your target demographic.

Conversion Rate (CVR)

The conversion rate indicates the proportion of individuals who click on your advertisements and subsequently complete a purchase. It is a good indicator of how effective your adverts are in converting potential customers into paying clients. You can make sure that your advertising is generating real sales by tracking and improving your conversion rate.

Return On Investment (ROI)

ROI is computed by deducting your total advertising campaign revenue from your total ad expenditure, then dividing the result by your total ad spend. This provides you with a precise percentage that shows the return on each dollar you spend on advertising.

Calculating ROI allows you to identify which campaigns are generating the most revenue and tailor your advertising approach accordingly. It enables you to focus your budget on the most profitable campaigns and improve your total advertising performance.

Common Amazon PPC Mistakes That Increase ACoS

As Amazon's marketplace grows and gets more complicated, advertising becomes even more vital. Everyone is doing their best to make sure they are making the appropriate changes for the better.

Amazon PPC campaigns necessitate ongoing optimization and monitoring. There is a lot of competition in the marketplace, and it changes all the time. Changes in product trends, market demands, or rival strategy can affect your campaign performance. If you don't pay attention to these changes and your campaigns, you could end up spending a lot of money on ads.

Spend some time carefully examining the data from your campaign. Then, based on key performance indicators (KPIs) like click-through rate (CTR), conversion rate (CVR), average cost of sale (ACoS), and others, make changes on a regular basis.

Poor Keyword Selection

Keywords are the most important thing for Amazon sellers who have experience. The fact that they are going to be a part of the most significant errors is something that should go without saying.

Your PPC campaign should be built on a dynamic and ever-evolving keyword strategy, which serves as the campaign's backbone. Review your Amazon Search Term Reports on a regular basis to determine which keywords are generating sales and which are not. You are squandering your advertising budget if you are placing bids on keywords that are irrelevant, do not convert, or are excessively expensive.

Make sure to do a lot of keyword research before you start your campaign to avoid this. Discover high-volume, low-competition keywords that are pertinent to your products by utilizing the auto-suggest feature, competitor analysis, and keyword research tools that are available on Amazon.

Ignoring Your Negative Keywords

Choosing the right keywords is essential, but recognizing and establishing negative keywords holds equal significance. Ad relevancy is increased, wasted ad expenditure is decreased, and unnecessary search phrases are filtered out with the use of negative keywords.

If you don't fully utilize negative keywords, your ads might pop up for searches that aren't really relevant. This can result in lower click-through rates, disappointing conversion rates, and a higher ACoS. That sets off a flywheel effect where not making sales makes Amazon lose “confidence” in your product. This can result in a lower ranking, reduced visibility, and ultimately, fewer sales.

Poorly Structured Campaigns & Ad Groups

A successful PPC campaign really is an essential component of your Amazon advertising strategy. But a lot of sellers end up making the mistake of launching campaigns and ad groups that aren't well-structured.

Just keep in mind that every campaign needs a clear goal, and each ad group should focus on different products or keywords. This structure will help you manage your bids more effectively, make your ads more relevant and improve how you track performance.

Ignoring the entire group of Amazon ad types

The majority of sellers are cognizant of the fact that Amazon provides a variety of ad categories, such as Sponsored Products, Sponsored Brands and Sponsored Display. They have each been strategically designed to have their own distinct features, benefits, and use cases. Another prevalent error is the failure to utilize all three varieties of PPC ads.

Sponsored Products are cost-per-click (CPC) advertisements that advertise individual listings, thereby enhancing their visibility in search results and product pages. Sponsored Brands also operate on a cost-per-click (CPC) basis; however, they permit the promotion of up to three products in conjunction with your brand logo and a custom headline. Finally, Sponsored Display ads employ audience targeting and automatic placements to engage consumers on and off Amazon.

Sponsored Products advertisements may be the optimal approach for optimizing product visibility. Amazon Sponsored Brand Ads are more suitable if the objective is to increase brand recognition.

Final Thoughts:

It's not about making immediate changes to reduce ACoS and make Amazon ads more profitable. It's about building an excellent foundation and using data-driven insights to keep making your efforts better. If you want to do well on Amazon, you need to take a big-picture approach where every aspect is important to your bottom line.

Before making changes to your bids and budgets, make sure that your product pages are optimized for conversions with high-quality images, informative bullet points, and A+ Content that speaks to your target audience. Spend time on in-depth keyword research and make sure that your negative keyword lists are updated on a regular basis to prevent wasting budget on irrelevant traffic. While ACoS is a key metric, it’s easy to forget about TACoS, CTR, CVR, and ROI. These metrics give you a complete snapshot of your advertising health and organic growth.

The Amazon marketplace is constantly evolving, and what works today may not work tomorrow. Continuous monitoring, testing, and optimization are a must for long-term success. You shouldn’t restrict your advertising efforts to Sponsored Products alone. Leverage Sponsored Brands and Sponsored Display ads to reach your maximum audience potential and increase brand awareness.

With the strategies that have been outlined in this guide by the experts at Quadrazon, you now have the tools that you need to turn your Amazon marketing campaign from a cost center to a profit center. You can begin to implement these strategies today and see your profitability increase while your ACoS is reduced to optimal levels.