In an earlier article, we talked about why trying to improve the advertising cost of sale (ACoS) of your Amazon ads could be hurting your business. Managing your Amazon ads exclusively to ACoS often leads to missed opportunities and less profitability in the long run. When you use ACoS as the centerpiece for analysis, planning, and management, you will limit your growth and overall profitability.
Unfortunately, too many ad managers still make the mistake of focusing on ACoS alone!
Yes, ACoS shows how much money you’re spending in relation to sales, but it doesn’t consider the myriad other factors that can lead to profitability with your Amazon ads. That’s why we help brands maximize their overall profitability and improve ROI with their ad budget by looking at ACoS combined with a number of traffic- and conversion-related metrics.
By Dave Karlsven and Joseph Hansen
The Amazon Advertising Metrics that Matter Most
So what are the metrics we look at in combination with ACoS to help brands maximize profitability and improve ROI with their ad budget?
Here are the key traffic metrics we focus on improving for our clients:
Together, these Amazon advertising metrics give us actionable data that helps us improve campaign performance for maximum ROI.
Remember: a high-ACoS keyword may be driving significant sales outside of direct attribution—but looking at ACoS doesn’t reveal this connection. That’s why we look at the traffic and conversion metrics that matter in tandem with ACoS to get the whole picture and generate a better ROI for our clients.
Putting ACoS in Its Place: A Real-World Example
Here’s an example of how we did this recently for one client:
During the discovery phase of newly launched ad campaigns, the client was concerned about the high ACoS on some of their keywords, and asked us to pause those keywords in an effort to stem the “losses.”
We dug into the data and found that indeed there were keywords with high ACoS and no promising sales… yet.
We didn’t believe these keywords had received enough clicks for us to make a statistically relevant decision on what to do with them yet. So, we convinced the client to keep the ads for those terms running.
This wait-and-see approach turned out to be smart.
Amazon started to show the ads more often, and this allowed the client to start making back the money they’d initially spent… and then some.
If we had turned off this single keyword, which started out with a high ACoS due to a low conversion rate, then the brand would have missed out on over $20,000 in sales on that keyword alone—sales that only cost them ~$1,000 to generate.
That’s a 20-to-1 return on directly attributable ad spend (ROAS), which is fantastic. And that figure doesn’t even count additional organic sales that started coming in for the brand because of the ads—organic sales that can’t be accounted for by simply looking at ACoS.
If we’d decided to pause the keywords based on their high initial ACoS, we would have missed out on a ton of sales and a huge return on investment for the client.
Why a Low ACoS Can Be Deceptive
Another client example demonstrates how a low ACoS doesn’t mean your ad campaign is optimized to deliver maximum sales and profits.
Another of our clients thought their Sponsored Product ad campaigns were doing great because the overall ACoS was “low” (at a level with which they were perfectly happy).
However, when we began working with them, we dug into the data on their campaigns, and they were surprised to learn that we were finding all sorts of keywords that were “losing money.” Meanwhile, there were other keywords that could have been generating so much more sales if they reallocated budget from the losers and scaled the winners.
There were plenty of keywords in their campaigns on which they’d spent several hundred dollars apiece in the past month without a single sale.
Meanwhile, other keywords were receiving over a 10-to-1 return, but they couldn’t be scaled because their budget limits were capped out due to the “loser keywords” the client was paying for instead.
This client was deceived by the low total campaign ACoS caused by those higher-return keywords, thinking everything was going fine.
The opportunity cost of this assumption was big. They were bleeding money on very poor-performing keywords, and missing high-return sales on the best keywords because the overall performance seemed good.
So it goes both ways…
High ACoS and low ACoS can both be deceiving. In either case, you can make poor decisions if you aren’t looking at the traffic and conversion metrics which matter most.
But as with most things, there are exceptions that prove the rule. What do you do if things are looking pretty extreme?
Is a Really High ACoS Ever Reason to Panic?
As with all things, a rule of thumb almost never applies in 100% of scenarios. And “How high of an ACoS is too high?” is a reasonable question to ask.
For instance, we’ve worked with ad campaigns running above 200% ACoS, which is a scary number for many clients to stomach. How long should you allow this bleeding margin on each dollar of ad spend to go on?
This is business, not high-stakes gambling—we don’t want things to get extreme. In these situations, as always, taking a holistic view is important.
Here’s the key question to ask yourself:
Is the high ACoS imminently jeopardizing our fiscal situation?
If so, then scaling the ads until they gain enough traction for the campaign to be profitable is not an option. Instead, more sustainable marketing methods should replace that ad campaign to better fit the business’s budget.
The truth is, if you’re losing that much money on ads, the fault probably doesn’t lie with the ads or the keywords they’re targeting. In our experience, if the ACoS is perilously high, there are likely to be conversion issues in driving purchases from the non-brand keyword traffic.
You see, ads become more expensive when:
- Your products perform well enough that Amazon provides impression share.
- Your products perform well enough that click-through rates allow for increased spend.
- Yet increased traffic does not convert.
Translation: More people are seeing your product—they just aren’t purchasing it.
You can lead an Amazon customer to your pH-balanced bottled water listing. But you can’t make them pull out their credit card and drink if the pricing, product description, pictures, video and reviews don’t appeal enough to them to purchase your product vs a competitor’s product.
This is another case where focusing on ACoS alone is of limited value. ACoS doesn’t help us get to the root of those conversion issues. All it tells us is that the client is spending a lot to acquire sales with ads because not enough of their ad-driven traffic is converting.
The bottom line is, you need lots of traffic going to your product and converting to produce a good ACoS. If this ratio of traffic to conversions is high enough, you can scale up your ad spend and make an even greater profit.
Traffic & Conversion Metrics > ACoS
All of this is why at Buy Box Experts we begin focusing our efforts on bottom-of-the-funnel factors: driving traffic to brand listings and improving listing conversion rates.
If we can improve a client’s traffic and conversion metrics, then a high ACoS typically takes care of itself!
In most cases, a high ACoS will come down to a profitable level over time. The paid sales driven by the high-ACoS keyword will also help improve organic search rankings to create additional organic sales.
We focus first on the traffic and conversion metrics that matter at the bottom of the funnel. This puts our clients in a position to bid on more general, non-brand terms higher up in the funnel (that usually come at a higher ACOS) and grow the business even more.
Our 5-Step Amazon Ad Optimization Process
You’ve made it this far, and now you hopefully understand how misleading it can be to focus on ACoS alone… and how beneficial ACoS can be when considered alongside those traffic and conversion metrics.
Our 5-step framework for Amazon Sponsored Products campaigns removes any blinders that might get in the way of increased sales and revenue.
We do it by managing campaigns to maximize sales velocity and setting the ad budgets as a percentage of total sales (including both ad-attributed and organic sales). This allows us to manage the ad spend to drive as many sales as possible with the ad budget while locking in on a minimum ROI target over time.
Hitting a minimum total ROI instead of staying under a maximum ACoS target makes a huge difference in our ability to scale a brand’s ad spend, sales, and profitability.
This 5-step budgeting and optimization process involves:
[Step 1] Conducting keyword research and gathering initial data
[Step 2] Targeting brand-related and [Step 3] non-branded keywords
[Step 4] Monitoring ad performance
[Step 5] Using our proprietary bid management formula to determine the proper bid levels for each keyword that will maximize a client’s potential profitability (without going over budget!).
This proprietary formula reveals the “best bid” indicators for:
- Which keywords should be bid higher and by how much to maximize profits
- Which keywords should be bid lower and by how much to stem losses
- And which keywords should be paused because they are either not relevant enough to the product or too high in the funnel for what a client’s budget can currently afford.
We use this formula day-in and day-out. That’s why it’s possible for us to say that the correct question isn’t “Will this formula result in a profitable ad campaign?”
But rather: “How much overall profit will result?” if we use it.
Brands Need to See the Full Picture of Their Amazon Ads
The competition on Amazon is stiffer than ever. You can sell on Amazon without using Sponsored Products ads, but you’ll be leaving a lot of potential profit on the table.
The majority of revenue being generated on Amazon is going to brands who have risen above their competitors by creating numerous repeat sales on the platform.
But for most brands, doing this is nothing short of impossible without an ad campaign that dramatically increases sales velocity.
As ad optimization experts, we understand how daunting Amazon’s ad platform can be, especially for brands confronted with the scary situation of a runaway ACoS.
If you focus entirely on isolated metrics like ACoS, you can quickly use up your ad budget without any profits to show for it.
If you’re concerned about the high ACoS on one of your ad campaigns, it’s crucial to take a step back and assess the other metrics that really matter when it comes to driving profitability in your Amazon business.
At this point, you can hopefully better see the full picture of what it takes to create success with Amazon Sponsored Products ads. But if not, we’re here for you.
Our mission at Buy Box Experts is to get our clients to profitability as quickly as possible—a journey that starts by focusing on the Amazon advertising metrics that matter.
Reach out to us to tell us about your business and see if we might be a great fit to work together and put our Amazon ad optimization process to work for your products.