Advertising Cost of Sales (ACoS) is a term used by Amazon for their sponsored ads. ACoS is not common PPC jargon, so don’t be surprised if you haven’t heard of it.
The easiest way to think about ACoS is this. Once you have your products profit margin as a percentage. You would then deduct the ACoS percentage to get your final margin.
E.g. Goods retail for $30, profit margin is 40% ($12), and ACoS is 10% ($3). You’d then take home $9 as profit on sales from your ads.
Another more formal definition:
The higher your ACoS, the higher your ratio of ad cost to sales revenue. The lower your ACoS, the lower your ratio of ad cost to sales revenue. Ideally you want as high a sales revenue figure as possible, with as low an ACoS as possible.
ACoS = 100* (Total Ads Spend ÷ Total sales)
So… if you spent $10 on advertising and it resulted in a single sale of $40, your Advertising Cost of Sales would be 100*10/40 = 25%.
Example screenshot below showing the ACoS in the far right column.
ACoS = 100 * (Total Ads Spend ÷ Total Sales)
Additional Comment on ACOS
When you’re selling on Amazon its super important to have a spreadsheet where you calculate all your costs (manufacturing, inspection, shipping, import tax, Amazon fees) and therefore know how much profit is left on each sale. At which point, you want to know how much you can “afford” to spend on Amazon ads, and still be left with profit.
If you find you’re only breaking even on the ads, they can still be worth pursuing (which is a weird thing in the world of ads!). The rationale would be that the extra sales would improve your Best Seller Rank (BSR) and therefore result in more organic sales.
The only scenario where that may not be of use, is where you’re already top of the search results for the keywords that you want. But actually, because ads take precedence on the results page over organic results. Even if you’re at the top organically, you’d likely want to run product ads in addition.
>> To learn more about running profitable Amazon PPC ads, I’ve written a detailed blog post on how to build and optimize your Amazon Sponsored Product campaigns.