Do you trust your ACoS?
But let’s start from the beginning. When manufacturers, sellers or their agencies place advertisements on Amazon, everyone naturally wants to know what the advertising brings, whether it is successful, or whether Henry Ford’s old phrase applies:
I know half of my advertising is money down the drain. I just don’t know which half.
The ACoS is then often used as the measured value. This means “advertising cost of sales” and reflects the ratio of advertising expenditure and the sales generated by this advertising as a percentage. ACoS is therefore advertising costs / sales.
For sellers on Amazon, this calculation is relatively simple and conclusive. It’s a different story with vendors.
To understand this better, we need to take a closer look at the “advertising revenue” variable.
What is the advertising turnover?
Amazon says in its support center: nothing!
However, it is now quite well established that Amazon uses the sales value to the end customer less sales tax for the ACoS calculation in its Ads console.
So if Amazon sells an item for 119€ to its customer, you sold one piece through your advertising campaign and spent 10€ on it, the ACoS would be 10% (10€ advertising spend / (119€ – 19% VAT)).
As a vendor, however, you do not sell for 100€, but you have a selling price to Amazon of rather 50€. That is, your real ACoS is 10€ / 50€ = 20%, which is double!
In this simple constructed example it is easy to calculate the real ACoS of the vendor, but if campaigns contain different ASINs, run over a longer period of time and we take into account that Amazon sometimes changes its sales prices several times a day, it becomes almost impossible to determine the real ACoS (RACoS).
Complicating matters further, Amazon has its own unique interpretation of how to allocate advertising revenue to the corresponding campaigns.
In fact, Amazon only says that the attribution window is 14 days and takes into account sales made after the ad clicks for your brand. In the case of Sponsored Brand, even independent of the Buybox owner.
This means that, as a vendor, optimizing an advertising campaign for the ACoS is not very effective. Especially when it comes to developing performance campaigns that should generate a positive return.
What is the best alternative? – The CPO as a solution
For performance campaigns, we like to work with the CPO. This expresses the ratio of advertising costs to the number of units sold (cost per order) and is given as an absolute value.
The CPO tells you how many euros you need to spend to sell one unit of your product.
How can you calculate your CPO?
The associated variables are the CPC (Cost per Click) and the CR (Conversion Rate). Both values can be found in the Amazon Advertising console.
The formula is: CPO = total costs / conversion
You advertise product A. From the current campaigns you know that the average CPC is 0.50€ and the conversion rate is 10%.
So for one purchase you need 10 clicks at the price of 0,50€ each. This results in a CPO of 5€.
So if your margin on the article is greater than 5€, you are in the plus with your ad.
How do you optimize your Amazon ad campaigns for CPO?
The cleanest way to optimize is to use single ASIN campaigns, or to combine only items together in a campaign that have the same CPO (e.g. color variants of a product).
Since no one is likely to sit down and check and adjust conversion rate and CPC for all keywords on a daily basis, there is no way around using a tool.
At least in the German-speaking tool landscape, CPO representation or optimization unfortunately looks thin. The calculation of the current CPO (based on the selling price to Amazon) is done by the ads module of AMVisor and the daily optimization of the ads campaigns with the target CPO value is done by Adference.
For Amazon Vendors, CPO is a much better and more reliable performance advertising campaign management tool than ACoS.