How to Reduce your Amazon ACOS

Amazon ACOS: Six Proven Ways to Reduce it!

It’s the Holy Grail for Amazon sellers worldwide: low ACOS Amazon sales!

In this comprehensive guide from Ihor Dubovetskyi, CEO at Profit Whales, we take a detailed look at the best ways you can achieve them. Read on to find out more!

What is Amazon ACoS?

AСOS stands for Advertising Cost of Sales, so ‘Amazon ACOS’ is Amazon Advertising Cost of Sales. It’s calculated by dividing the money you spend on clicks from Amazon ads, by the amount of sales those clicks brought in.

Before diving into the actionable steps for lowering Amazon ACOS, I want to briefly talk about when you don’t want to lower this metric, as this subject is seldom discussed by Amazon’s community of sellers.

When a high Amazon ACOS doesn’t matter

Let’s start with an example to demonstrate a situation where high ACOS Amazon sales aren’t necessarily a bad thing.

An Amazon seller is selling Scratchable World Maps. You know, the ones where you scratch off a country after visiting it, uncovering the word. This product is a quite seasonal one. In fact, it only sells well during gift-giving occasions like Christmas. This means it’s really important to approach this hot period as well prepared as possible in relation to inventory and Amazon Best Sellers Rank.

The strategy we successfully applied to this product was this: running Amazon Sponsored Product PPC at a loss for the low season. Their seasonal ACOS looked like this:

  • Low-season: 50-70%
  • High-season: 15-25%
  • Break-even: about 35%

9 out of 12 months are low season. And still resultant high-season sales are covering the losses five-fold. This is due to the SKUs being top of the Amazon Best Sellers Rank at the right time.

The example above demonstrates that it’s important to be thoughtful about your overall objectives for your PPC sales.

Yes, most of the time, ads are there just to generate you extra product sales, and keeping Amazon ACOS low is a perfect business goal. However, If you are trying a new product, creating a new PPC campaign, or you’re simply warming up prior to the high season, you should reconsider this thinking.

Running PPC at a high Amazon ACOS over a 3-4 weeks period of time (typical reaction time for new Best Sellers Ranking to settle) can prove beneficial to your overall sales in the long run. Both your PPC and Organic sales can more than cover for the loss in the upcoming season.

Okay, so we’ve discussed the scenarios in which a high Amazon ACOS is acceptable, or even beneficial. Now let’s take a look at how to achieve low ACOS Amazon sales.

How to lower your Amazon ACOS

The key to success with Amazon ads is to get them close to or below the break-even point, if possible. Many sellers use ads to help them get more reviews or improve their best sellers rank. It’s not just about profitability.

With that in mind, let’s jump into the six ways you can lower Amazon ACOS.

1. Prioritize your best SKUs

Prioritize your best SKUS

A quick way to optimize your Amazon ACOS for a product with many variations would be to only advertise the best-selling one. The extra sales made from advertising the popular one will often compensate for a drop in sales of less popular variations.

If this could be relevant to you, give this approach a try and see if it works for you.

2. Analyze the effectiveness of your current keywords

By keywords, I mean not just the keyword you’re using, but also competitors’ SKUs and categories in which you’re running your PPC campaigns.

Every product on Amazon has an intrinsic pool of relevant keywords. These are the search terms customers use to find it on Amazon. Some of these keywords are high volume search terms and others are more specific and narrower (these ones usually convert better as well).

Some keywords might seem relevant, but actually aren’t at all (like “Xmas toy” for example). These will cost you too much to advertise on and you won’t see good results.

To understand which keywords are good or bad, you need data. Lots of data. Your Bulk Download File and Search Term Report from Seller Central should both be your number one source of information to enable this optimization.

Download them for the longest period possible (after the last major changes in your Amazon PPC campaign, of course) and sort the data by ACOS. 

3. Pause keywords than overspend ad budget

High Amazon ACOS

You will need to pause these straight away. Even if they seem relevant, they are just not cutting it for you. Maybe you will give them another chance in the future. But right now – just pause them. Bulk File is the best source of data for these keywords.

4. Optimize keywords slightly over break even

Mid ACOS Amazon sales

These keywords, from break-even to >80% ACOS have the potential to bring you sales at a reasonable cost. Try the following method to calculate a coefficient which you can use to find a good bid limit for these keywords:

  • Divide your actual ACOS by your desired ACOS for a particular keyword. For example, if your actual Amazon ACOS is 65% and your desired ACOS is 25%:  65/25 = 2.6.
  • Next, you take your current bid for this keyword – and divide it by the coefficient (2.6 in our example). 
  • Let’s say the bid was $3.70. So 3.7/2.6 = 1.42. 
  • Ta-da! You should set your bid at $1.42 or lower. This way you will retain some sales, but roughly at a desired ACoS.

Again, use the Bulk file for this.

Finally, find keywords that brought you no sales (i.e. have no Amazon ACOS), but had clicks. If there were 15+ clicks and 0 sales for any given keyword you either were VERY unlucky, or this is a poor choice of keyword. Whatever the cause may be – you can deal with it later. Right now just put these keywords on a pause.

5. Double down on high performing keywords

Once you’ve dealt with ineffective keywords, you should address the high performing ones.

Try increasing bids for keywords with a good ACOS so they generate more sales. This is done using the coefficient we calculated earlier in the article. 

This time, your coefficient will be below 1, so the new bid will be higher than your current one for these keywords. This should allow your ads to show higher in search results.

Double down on winning keywords

6. Don’t forget keywords without many impressions

Unlike keywords that have lots of impressions but a low CTR, keywords with low impressions might still turn out to be effective if they had a higher bid. 

Try giving them bids as high as your well-performing ones. Give them a chance for a week or two. If they still show low impressions or low click-through-rate then you can just pause them. But if they start showing clicks and conversions; congratulations, you’ve unearthed another little diamond to your PPC collection!

7. Take advantage of automated Amazon PPC tools

Another option is to use a service that can perform regular Amazon PPC optimization for you, like the Profit Whales Optimization tool. It takes your desired Amazon ACOS level and manages bids, pauses ineffective keywords, and even adds new keywords you might’ve missed out on.

A seasoned PPC Manager can, no doubt, do this job well, but an automated service is a real time-saver, especially for sellers who do a lot of admin themselves.

Automated campaigns are usually PPC Manager’s best tool for catching new keywords. However, for some products without a brand and a very competitive low price market (like furniture accessories or decorative clothing items), advertising auto or on a specific category can make you decent sales.

However, automated advertising (and broad keyword campaigns too) can easily cross the line between highly relevant and mostly irrelevant results. 

And that about sums it up. Depending on your level of competition and product seasonality, the effectiveness of your bids will change, so really, you should perform this check-up on a regular basis.

Let the data guide you, and never think that you’ve done all you could to make your Amazon PPC perfect. Out of 5 best Amazon sellers I’ve worked with over the last year, none believed that. In my opinion, that’s what makes them the best.

Good hunting to you, fellow Amazonians!

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Ihor Dubovetskyi, CEO at Profit Whales Amazon Advertising Automation Software powered by Science and Data with the mission to build long-term relationships with Sellers and Brands on Amazon Marketplace