One of the most common questions Amazon sellers ask when running PPC campaigns is: What should my target ACoS be? ACoS, or Advertising Cost of Sales, is a key metric that shows the percentage of your sales revenue spent on advertising.
Your target ACoS depends on several factors, including your profit margins, business goals, and the type of products you’re selling. Let’s break down how to determine your ideal ACoS and how Amazon Ads Australia or Amazon account management services can help you hit that target.
What is ACoS, and why does it matter?
ACoS is calculated as:
ACoS = (Ad Spend ÷ Ad Revenue) × 100
For example:
- If you spend $20 on ads and generate $100 in sales, your ACoS is 20%.
- This means you’re spending 20% of your revenue on advertising.
ACoS is important because it directly impacts your profitability. The lower your ACoS, the more profitable your campaigns are. However, an extremely low ACoS isn’t always the goal—sometimes, higher ACoS campaigns can still be valuable for driving growth or brand awareness.
How to determine your target ACoS
Your target ACoS will vary based on your business goals, profit margins, and the role PPC plays in your overall strategy. Here’s how to calculate and set the right target:
- Know your profit margin
Your profit margin is the first and most important factor in setting your ACoS. Without knowing this, you can’t determine how much you can afford to spend on ads.
Profit margin is calculated as:
Profit Margin = (Selling Price – Cost of Goods – Amazon Fees) ÷ Selling Price × 100
For example:
- Selling price: $50
- Cost of goods: $20
- Amazon fees (FBA + referral): $10
- Profit margin: ($50 – $20 – $10) ÷ $50 × 100 = 40%
If your profit margin is 40%, your break-even ACoS (the maximum ACoS you can afford without losing money) is also 40%.
- Set goals for each campaign
Different campaigns will have different goals, and your target ACoS should align with those goals.
- Profit-focused campaigns: If your goal is to maximize profit, your target ACoS should be lower than your break-even ACoS. For example, if your break-even ACoS is 40%, aim for a target ACoS of 20–30%.
- Growth-focused campaigns: If you’re launching a new product or trying to dominate a competitive niche, you might aim for a higher ACoS (even above your break-even point) to build visibility and drive initial sales. In this case, your target ACoS might be 50% or higher, depending on how much you’re willing to invest in growth.
- Brand awareness campaigns: Sponsored Brand Ads or Display Ads are often used to build brand awareness. These campaigns tend to have higher ACoS, but the long-term benefits can outweigh the short-term costs.
- Consider your product lifecycle
Your target ACoS can change depending on where your product is in its lifecycle:
- Product launches: Expect a higher ACoS when launching a new product. During this phase, your focus should be on increasing visibility and generating sales to improve your organic rankings.
- Established products: For products with steady sales and strong organic rankings, aim for a lower ACoS to maximize profitability.
- Seasonal products: During peak seasons, you might accept a slightly higher ACoS to capitalize on demand and increase sales volume.
- Analyze your competition
Your target ACoS can also depend on the level of competition in your niche. In highly competitive categories, CPCs (cost-per-click) are higher, which can make it harder to achieve a low ACoS.
By analyzing competitors’ pricing, keywords, and advertising strategies, you can adjust your target ACoS accordingly. Amazon Ads Australia experts can help you perform this type of analysis to refine your campaigns.
What is a “good” ACoS?
While there’s no universal answer, here are some general benchmarks:
- Break-even ACoS: Matches your profit margin (e.g., 40%). You’re not making or losing money.
- Profit-driven ACoS: Typically ranges from 15–30%, depending on your product margins and advertising efficiency.
Aggressive growth ACoS: Can go above 40%, especially for product launches or competitive niches.
