2022 holiday season is being an odd one. Amazon advertising spend tends to increase during this time of the year. But the recession created a lot of uncertainty, making a lot of sellers and advertisers to cut down advertising costs. Is this the solution though?
Advertising is an essential pillar to selling on Amazon. Done correctly, it can only benefit your products and brand. Are your investments in advertising bringing you profits or losses?
Many brands wonder what the ACOS (Advertising Cost Of Sales) is and how to get the most out of it, based on their investment in advertising.
The ACOS is the relationship between advertising expenditure and advertising revenue. It is one of the main metrics to know the return on investment in advertising (i.e measure the success of your advertising campaigns).
ACOS = Advertising expenses / Advertising revenues
To begin with, it is necessary to know the profit margin (ACOS of equilibrium) of your product. For the investment in advertising to be profitable, it should not go over the product’s profit margin. Knowing the ACOS break-even point is very important. It allows you to see immediately if campaigns are generating profit or loss.
To improve your ACOS, you have to focus on the life cycle of the product: Offer > Printing > Click > Purchase.
It is easy to think the lower the ACOS is, the better, but it is not always the case. The ACOS increasing is not necessarily bad, it depends on what the objective of the campaign is. If the goal of the campaign is to reach as many people as possible, then it may be good for the ACOS to increase. On another hand, if you are aiming for as many sales conversions as possible, then be more conscious about it.
Start by understanding the expense and revenue metrics that drive the ACOS:
Advertising Expenses = Clicks x Cost per Click (CPC)
Advertising revenue = Orders x Average sales price (MAP)
ACOS = Clics x CPC/ Orders x PMV
There are also two other key metrics for ACOS: the Click-Through Rate (CTR) and the Conversion Rate (CVR).
What are the metrics that influence CPC, CTR and CVR?
First, let’s look at the Click-through Rate (CTR). This rate indicates how attractive an ad is as a result of users’ specific searches. When a user clicks on the ad, it is because they consider it relevant to the competition and they begin to consider the purchase of the product.
The CTR does not affect the increase or decrease of the ACOS as long as the conversion rate remains stable. Increasing the CTR is a good thing as long as the current ACOS is below its break-even point.
If the CVR is not kept constant, it is important to act on the CTR because it will affect the ACOS. To avoid damaging the ACOS, if you want to increase the CVR, the objective must be to increase the CTR with qualified traffic.
On the other hand, we have Cost per Click (CPC). It is very important because the CPC influences the ACOS to be the price of clicks that advertisers generate in their campaigns. It has a direct relationship with ACOS.
Finally, we there’s the Conversion Rate (CVR), which influences the ACOS since the purpose of advertising is to drive conversion or sales. It has an inverse relationship with the ACOS.
Once the potential customer has clicked on the advertisement, they confirm that it seems relevant to them. From then on, the product detail page (PDP) is in charge of convincing the potential customer to buy your product. The main objective of the PDP is to increase the CVR.
If the ACOS is too high, how do we lower it?
The first thing to do is to make sure that the PDPs are optimized in the best possible way:
Useful titles, bullet points and descriptions that contain the most efficient keywords.
Photos and videos should portrait the benefits of the product.
Comments and ratings reflecting the positive experiences of customers.
To optimize ACOS you must manage your PPC campaigns well through ongoing maintenance. This means that you have to focus the ad spend on keywords & goals that attract qualified traffic.
Top of Search placement reports tend to guarantee a significantly higher CVR, or better ACOS. Placement adjustments can be used to show that you are willing to increase the offer and place yourself in those positions.
At the end of the day, Amazon PPC campaign metrics take a lot of time and specialization. If you are short on time this holiday season, or are unsure on how to draw a proper campaign strategy, follow our blog to learn more.