The evaluation of the effectiveness of advertising campaigns on the Amazon platform is a crucial element of the sales strategy for many entrepreneurs and online sellers. For this purpose, Amazon PPC optimisation indicator, Total ACoS, is much better than the commonly used ACoS.
What is Total ACoS?
ACoS, or Advertising Cost of Sales, is the ratio of advertising costs to the revenue generated by it. Total ACoS, on the other hand, considers not only sales from paid advertising but also organic sales, i.e., those not directly related to advertising. It provides a more comprehensive picture of the relationship between advertising costs and sales.
How to Calculate Total ACoS?
Total ACoS can be calculated using the following formula:
Where:
- Advertising Costs are the total costs associated with paid advertising campaigns on the Amazon platform,
- Sum of Advertising and Organic Sales is the total revenue.
Example of Total ACoS calculation
Let’s consider a scenario of an Amazon seller who invests in paid advertising campaigns while simultaneously generating organic sales.
Quite high, isn’t it? Almost half of the sales revenue is “consumed” by advertising. If you subtract the other costs associated with the product from this – the purchase price, delivery, storage – you will find that the product is not profitable, it is a loss.
Then, by subtracting Total ACoS from the pre-advertising margin in percentage terms, we can easily assess the product’s profitability.
It’s better to use Total ACoS because it provides a more comprehensive picture. Advertising doesn’t have to directly impact sales. By displaying ads in search results, you can increase brand and product awareness, and the customer may purchase your product even after a longer period, when Amazon does not attribute that sale to advertising.
Value of Total ACoS – Analysis and application
Effectiveness of advertising
A low Total ACoS may indicate an effective advertising campaign, while a high one may indicate an ineffective one. If Total ACoS is high, advertisers should also analyse their ads and look for reasons, which can be diverse – unconvincing listings (images and texts), improperly chosen keywords, too high bids, too broad keywords.
Product Profitability
Total ACoS is also useful in calculating product profitability. When you know your TACoS and the product margin before advertising, subtracting TACoS from the margin will tell you whether your product is profitable.
Product position and dependence on advertising
If your ACoS is similar to TACoS, consider optimising the SEO of your product so that it is organically found on Amazon. If, on the other hand, the difference between them is large, it means that the share of organic sales is high, and the product’s position is strong. This could be due to the popularity of your brand or the high position of the product in search results.
If you’re looking for a full Ultimate Guide for Amazon Ads in 2024 please refer to our blog.
