The Advertising Cost of Sale (ACoS) is a measurement of how much is spent on advertising relevant to the overall amount made from sales of the product.
It is measured comparatively in dollars and can be understood by a simple formula:
Ad spend : target sales.
To understand the ACoS, it is useful to think about the cycle of advertising and sales. For a product to be ‘out there’ in the marketplace, it needs to be brought to the public’s attention. This is why advertising is important.
Amazon advertising costs money, and you need to know how much you can afford to spend on advertising. This will be determined in relation to the overall budget for the production and sales of the product.
Having done market research, you should be able to get quite an accurate picture of the sales of your product. When you calculate the return on this, you can get an idea of how much you can afford to spend on advertising.
So, the ACoS becomes the advertising spend relative to the revenue received from target sales.
You should aim for a low ACoS, because that is indicative of an overall higher profit.
It is important for a product to have an ACoS to inform the advertising campaign for sales on Amazon.
The Advertising Cost of Sales allows you to track costs. It gives an indication of projected sales and the profit that may be generated. It can also indicate the amount that you can afford to spend on advertising.
It is advisable to avoid over-spending on advertising, as this may cut into the profits on the product.
Working out the ACoS can be understood as:
Amount spent on advertising divided by the overall revenue x 100
So: Ad spend / total revenue x 100
Let’s assume that ad spend = $100 and total revenue = $500
$100 / $500 = 0.2 x 100 = 20.
You should aim to target a specific ACoS, because this will give a relatively accurate picture of projected sales in relation to the advertising budget.
The lower the Advertising Cost of Sales will result in more profit overall, if the sales meet the projected numbers.
The ACoS needs to be worked out in relation to Amazon PPC, because advertising is only paid when customers click on the product.
A higher Advertising Cost of Sales means that more advertising is possible, which equals more exposure of the product and, theoretically, a greater number of sales. The result of this should be a higher profit. This does depend on the sales being as high as projected.
The Advertising Cost of Sales works according to the total sales, so the profit may seem to be profitable. However, it doesn’t consider the expenses into account.