How to Calculate Amazon ACoS: Your No-BS Guide to Ad Performance

Let’s get to the point. Amazon advertising can be like playing poker with changing rules. But one thing remains constant and is always important: ACoS.

If you’re wasting Amazon ad dollars without reviewing your Advertising Cost of Sales, you’re flying blind. In the Amazon jungle, that’s a formula for disaster in a hurry.

This article informs you of all you need to know regarding how to calculate Amazon ACoS, why you should care about it concerning your profits, and how to utilize it to make money instead of spend money.

What is Amazon ACoS, and why do you need to care?

Amazon ACoS (Advertising Cost of Sales) shows how much you spend on advertising as a percentage of sales driven by the ads. It is the link between your ad spend and sales driven by the ads.

Think of it as the cost per sale for every sale your ads generate. Selling high-margin premium goods? You can have a higher ACoS. Selling thin-margin budget goods? You’ll need to keep that ACoS a lot tighter.

ACoS appears as a percentage, and the basic calculation is as follows:

ACoS = (((Ad Spend / Ad Revenue) × 100))

If you spend $50 on ads and get $100 in sales from the ads, your ACoS is 50%. That means that you are spending 50 cents in ads for every dollar in sales that you generate.

The less your ACoS, the lower your ads cost. But—and this is important—low ACoS isn’t always best. There are situations where you’ll want to pay more to grow more quickly. We’ll get to that.

How to Get Amazon ACoS: A Step-by-Step Tutorial

It is simple to calculate your ACoS, but get it right. You can calculate it this way:

1. Monitor Your Ad Spend

First, you have to know precisely how much you are spending on Amazon ads. That means all your Sponsored Products, Sponsored Brands, and Sponsored Display campaigns.

Log in to your Amazon Ads account and review your campaign reports. Select your date range (weekly or monthly tracking is fine) and review your overall ad spend.

2. Track Your Ad Revenue

This is how much money you’ve made off of people clicking on your ads. You can find this in your Amazon Advertising reports in the “Sales.”

Something to keep in mind: Amazon includes ad sales for 14 days after a user clicks on your ad (unless they click on another ad first). Ensure your dates align when comparing revenue to cost.

3. Do the calculations

Now plug your numbers into the formula:

ACoS = (((Ad Spend ÷ Ad Revenue) × 100)

Suppose you spent $300 on advertising last month and earned $1,500 from the ads:

ACoS = ($300 / $1,500) * 100 = 20%

It means you’re spending 20% of your ad budget on advertising. That’s not bad, but is it good? It is, based on how much profit you’re making.

Beyond Simple ACoS: What’s Your Break-Even Point?

The simple ACoS calculation is only the beginning. What you really care about is your break-even ACoS—the level at which your ad spend is equal to your profit margin.

Determining Your Break-Even ACoS

Your break-even ACoS is not 100%, as most sellers wrongly assume. It’s precisely the same as your profit margin, and you calculate it like this:

Break-Even ACoS = Profit Margin × 100

In order to calculate your profit margin, you need to factor in all costs:

• Product cost
• Amazon charges (referral, FBA, etc.)
• Shipping
• Refunds
• All other expenses except advertising

Let’s take an example to understand it.

Product: Wireless Headphones

• Selling price: $50
• Product price: $15
• Amazon is $10
• Handling/shipping: $3
• Total cost excluding advertisements: $28

Your pre-advertising profit is $22 ($50 – $28). You are left with a 44% profit margin ($22 ÷ $50).

This means your break-even ACoS is 44%. Below 44% ACoS, you’re making a profit. Above 44%, and you’re losing money on every sale.

ACoS vs. ROAS: Flip the Script

If you have experience with other digital marketing tools, you might be familiar with Return on Ad Spend (ROAS). It is the inverse of ACoS:

ROAS = Ad Spend / Ad Revenue

Applying our previous example:

ACoS 20% = ROAS 5 ($1,500 ÷ $300 = 5)

This is the same as stating that for every $1 of ad spend, you get $5 in revenue. Some advertisers prefer to think in terms of ROAS because bigger numbers sound better. It’s the same data, just reported differently.

Target ACoS: What Should You Target?

This is where most guides go wrong. There is no one ACoS figure that will work for everyone. Your target ACoS varies on:

Product margins – Higher margins allow higher ACoS
Product life cycle – New products may have a greater ACoS.
Business objectives – Expanding vs. gaining
Competition – Some of them are more expensive.

Here is a quick reference table for different business scenarios:

Business Goal	Product Stage	Typical Target ACoS Range
Maximum profit	Established product	10-15% below break-even
Sustainable growth	Moderate sales history	5-10% below break-even
Market share grab	New product launch	At or slightly above break-even
Ranking boost	Needs visibility	10-20% above break-even

From ACoS to TACoS: The Larger Picture

A standard ACoS only measures ad-attributed sales. But what about organic sales your ads drive indirectly?

It is where Total Advertising Cost of Sales (TACoS) is useful. This tracks ad spend relative to all of the sales, not only the ones Amazon directly credits to ads:

TACoS is (Ad Spend / Total Sales) * 100.

TACoS informs you how efficient your ads are. If your ads get more people aware of your brand and create organic sales, your TACoS will be lower than your ACoS.

5 Most Common ACoS Calculation Mistakes (And How to Avoid Them)

1. Ignoring Additional Costs

Most sellers calculate break-even ACoS but exclude some costs. They exclude returns, storage charges, or overhead. Don’t be one of them. Include everything that nibbles away at your profit.

2. Employing Too Narrow a Time Frame

ACoS varies from day to day. Judging performance from one day’s data is like judging a movie from just watching one scene. To better understand, look at weekly or monthly trends.

3. Ignoring Seasonality

Your October average ACoS might not be so strong in December when everyone is fighting for holiday traffic. Tailor your goals based on seasonal patterns.

4. Fixating on Low ACoS

A very low ACoS might indicate you are not spending enough. If you would be able to earn more total profit at a higher ACoS, you are leaving money on the table. Think in terms of profit dollars, not percentages.

5. Failure to Segment by Campaign Type

Various types of campaigns vary in the purpose. Your automated campaigns may be more expensive than manual ones. Your brand defense campaigns may be less expensive than conquest campaigns. Compare each based on its purpose.

Advanced ACoS Methods: AI and Machine Learning-Based

Amazon’s ad platform is getting smarter, and so can yours. Sellers are now leveraging AI and machine learning to optimize ACoS in ways that were previously impossible.

Dynamic Bidding and Real-Time Adjustments

AI tools are now able to observe how auctions operate and monitor conversion rates in real-time. They can adjust bids automatically to maintain your desired ACoS. Your campaigns can then respond to market fluctuations without requiring constant manual adjustments. A few brands have seen 30-40% improved ACoS through letting AI control bid optimization. Thus, human creativity can be applied for product titles and strategy.

Predictive Analytics

Predictive analytics examines what happened yesterday so that you can forecast what will happen tomorrow rather than reacting to what happened yesterday. This enables you to make adjustments prior to issues affecting your ACoS.

New technology can discover what keywords are performing and which may not perform as well in the near future. This lets you shift your budget before standard measures indicate a problem.

Voice and Visual Search: An Expanded Scope for ACoS

The way that people are searching on Amazon is evolving, and that affects your ACoS calculations and strategies.

Making Voice Search Better

Voice searches are typically longer and conversational. They are more likely to contain question words like how, what, and when, and conversational phrases. If you’re not going after these longer phrases, you’re likely missing out on lower-cost clicks.

Experiment with including question-based keywords in your campaigns and observe the ACoS of those individually. You might discover that voice searches perform better or worse than standard keywords.

Visual Search Problems

As Amazon’s visual search capability continues to grow stronger, your product images count even more towards discovery. Multiple views and lifestyle photos of products being used can make you more visible in visual searches.

It may also assist you in relying less on expensive text-based keywords, thus optimizing your ACoS.

Easy Steps to Enhance Your Amazon ACoS

With that information on how to calculate and read ACoS, here are quick steps that can help you enhance your figures:

1. Check Your Keywords

Monitor your search term reports regularly to discover:

• High-expenditure, low-conversion terms to hold back
• High-converting keywords to bid up
• New negative keywords to add

Use your budget to purchase keywords which have an ACoS below your break-even.

2. Enhance Your Product Listings

Your ads get people there, but your listings bring people in. Enhance your:

• Product names with the main words
• Issue lists that customers face.
• Product descriptions that address problems
• Product pictures that highlight benefits

Improved conversion rates translate to lower ACoS even at the same bids.

3. Employ Bid Adjustments Judiciously

Amazon enables you to optimize bids on the top of search, product pages, and the rest of search. Look through your placement performance reports and bid accordingly:

• If the best of the search is performing well but has extremely high ACoS, try lowering the bid adjustment to get the right balance.
• If product pages are reporting low ACoS, consider increasing bid adjustments there

4. Experiment with Different Campaign Structures

Experiment by putting high-performing keywords in individual campaigns with exact budgets. This avoids wastage of money from poor performers and gives you better control over your top keywords.

Think about offering promotions on your best-sellers to tightly monitor and simplify ACoS precisely.

Free Resources to Learn Amazon ACoS

You don’t need to pay for expensive courses to become an ACoS expert. Here are some free resources to help you learn more:

Amazon’s Official Resources

Amazon offers transparent reporting functionality within the advertising console. These enable you to monitor your ACoS for various campaigns, keywords, and time periods. The seller forums include forums where seasoned sellers post their advice.

Seller Groups and Community Forums

Online forums of selling on Amazon typically publish stories and tips from seasoned sellers. The quality is not always great, but such free resources offer valuable information derived from real-life situations.

YouTube Channels and Webinars

Most of the Amazon advertising gurus have free webinars and YouTube channels dedicated to PPC strategy. They usually have step-by-step tutorials in their videos on how to calculate and interpret the ACoS.

The Future of Amazon ACoS: What’s Next

Amazon advertising is evolving rapidly. Here are some things to watch out for:

More Sophisticated Measure

Amazon keeps refining its attribution models. Anticipate more detailed reporting that more accurately reflects the total effect of your ads, perhaps altering how ACoS is calculated and understood.

Integrated Cross-Channel Tracking

As Amazon’s DSP goes live for smaller merchants in the near future, we can expect improved synchronization of off-Amazon and on-Amazon ad performance metrics.

Increased AI Capabilities

Amazon’s machine learning ability will get even better. They will offer more powerful automated optimization features that can make manual ACoS management obsolete for the day-to-day campaign activities.

Conclusion:

ACoS as a Tool, Not a Goal Having your Amazon ACoS right is important, but remember that ACoS is an efficiency indicator, not a goal in and of itself. Sometimes the highest ACoS is optimal for growth. Sometimes you have to use a lower ACoS in order to be profitable. The key is to know your numbers, know your break-even point, and make smart decisions based on your business objectives at the time. Amazon best sellers are not necessarily those with the lowest ACoS.

They are the ones who understand what their ACoS is doing to their business and adjust their strategy accordingly. How has your experience been with Amazon ACoS management? Have you managed to balance profitability and growth well? Let me know in the comments below!