Most Importantly, What does it Mean to Me and My Sales?
For most of us, it makes sense when we are told that ACoS is Advertising Cost of Sales, or in other words: How much we are spending on advertising for each dollar of our sales generated through PPC. Not too hard to understand, right?
Then it starts to get complicated! When is an ACoS is a good ACoS and when is it a bad ACoS if sometimes 50% is a good ACoS and sometimes it isn’t??? This is the point where most of us start to get confused, go into panic mode and make all sorts of maneuvers which are detrimental to our profits.
The purpose of this article is to remove all confusion and help you to understand and achieve the ACoS which is correct for your specific product at all stages of your selling.
We’ll go stage by stage and at the end of this article you will have all the information you need to understand why PPC Winner works, and how not to panic and make bad decisions if your ACoS appears too high! If you’re still hyperventilating at that point don’t worry because Steve, your Virtual Campaign Manager is on hand to take all the worry away from you!
The ACoS Formula:
Let’s break it down:
* Your product sells for $10
* You create an advertising campaign which costs you $35
* You sell 10 products with total revenue of $100
* Your ACoS appears as 35%
Total Dollars Spent on Ads ($35)
Total Sales Made Through Ads ($100)
35 divided by 100 = 35%
So… you could be forgiven if you were to believe that a low ACoS is always a good ACoS.
Sorry, but that’s wrong and we’ll explain why further on.
So now that you know what ACoS is, you need to understand how to use it to your best advantage, but firstly you need to calculate your Breakeven ACoS or the percentage of your ACoS at which you are spending the same amount of dollars on advertising as the dollar amount of your profit margin – You won’t gain but you won’t lose.
In order to calculate your breakeven ACoS you need to find your profit margin. Your profit margin is the actual amount left after subtracting all your expenses from your income. This includes all taxes, fees and costs of production, transportation and so on. There may be other considerations for specific products such as waste in food items and breakage of fragile products.
The profit margin formula:
* You sell your product for $10
* Your product costs you $1 to manufacture
* You spend an additional $4 on transport, packaging, taxes, fees etc. You are left with a profit margin of $5
Gross Revenue ($10) minus All expenses ($5) = Profit Margin ($5)
So far you have now acquired two very important pieces of information:
* What is ACoS
* What is Breakeven ACoS. – According to our example above our breakeven ACoS is 50%
5 divided by 10 x 100 = 50%
Things are now getting a lot more interesting so please pay close attention! This is the bit that saves you money!
The idea behind PPC Winner is to help you to create the ultimate target ACoS and we will do that but we want you to understand the reasoning behind what we do so you don’t fall into the trap of interfering with Virtual Steve by overbidding or underbidding through panic and wasting your hard earned advertising dollars.
Sometimes it is acceptable to have an ACoS which is higher than your breakeven! Read on to understand why.
KNOW YOUR MARKETING STRATEGY! (Why are you advertising?)
In order to decide on your Target ACoS you must decide what you want to achieve. Surprisingly enough, not all advertising is aimed at making a profit and sometimes you ACoS will be high and you may even make a loss. Look at this as an investment in your business!
Strategies which will probably cost you money and have a higher ACoS in the short term include:
* Product Launch and Creating Brand Awareness
* Liquidating a product.
At this point, your ACoS will probably be high – no need to panic! This is perfectly normal! Remember the old adage – You have to spend money to make money!
After many months of research, hard work and investment of time and money, your product has finally made it to Amazon. So where are all the thousands of people you were expecting to purchase your product? Could it be that they just don’t know you exist? Or they cannot find you among the other 10’s of pages of Amazon Sellers selling the same or similar product?
You have to launch your product!
We will assume that you are already selling your product at a discount to increase interest, getting reviews (according to Amazon Guidelines) and that you have a kick-ass, professionally written listing with amazing pictures.
Now is the time to use sponsored ads to increase sales. The aim is to improve organic rankings in the long run, so at this point, you want to sell as much as you can through ads.
At the same time, not only are you selling but you are also promoting your brand. At this stage, you want to appear on the first page for all the essential keywords in your category. It will cost you in terms of your ACoS (your ACoS will be high) but it is worth the visibility it will give your products. The benefits of this strategy far outweigh the losses you will make on the products sold.
By using PPC ads we introduce our product to the Amazon algorithm and we learn from it on which keywords or phrases Amazon chooses to show our product and on which we are selling. From this, we know which keywords are essential to incorporate into our list in order to promote organic sales.
If Amazon is showing our product in irrelevant places i.e. if we are selling a meat mallet and we are appearing under 15 1b hammers, then we know that Amazon has not understood our product and that there is something amiss with our list in which case it’s time to go back and make changes to our list and backend search terms.
You’ll push sales and your ACoS may be higher than your breakeven!
Why? Because we are looking to get as much exposure on Amazon as we possibly can. Are we worried? Absolutely not! This is all part of the grand plan!
ADVERTISING A PRODUCT THAT IS ALREADY DOING WELL ORGANICALLY
You’ve been selling for a while and your product is doing well under certain keywords organically and even appearing on the first page under those keywords. Now is the time to set your ACoS to breakeven or below because now you are aiming for profit!
A PRODUCT YOU WISH TO LIQUIDATE
So this product has not done so well. It’s just hanging around and costing you money in storage fees. Now is the time to liquidate by selling off your excess inventory.
ACoS – yes, once again you will accept a high ACoS.
This is a question of cutting your losses. Where will it cost you more? By advertising with a high ACoS or by paying Amazon storage fees?
READY TO GET STARTED?
I hope I’ve cleared up some of the confusion surrounding “how high your ACoS be?”.
Shai Venezia, the co-founder of PPC WINNER, is an expert in online advertising.