What is ACoS?
If you’ve looked at your ad campaigns, you’ve more than likely seen your ACoS. But what is your ACoS? It stands for Average Cost of Sale. As a math equation:
ACoS tells you how much money you are spending on advertising in order to sell a product. It can be calculated per keyword, per campaign, or overall.
When we talk about ACoS, we like to talk about a client’s threshold. To calculate your ACoS threshold, add up all of the costs associated with your product: manufacturing, FBA fees, warehousing fees, shipping and handling fees, packaging costs, etc. These should all add up to less than what you are selling your product for, if they don’t you either need to raise your price or find a new product to make!
With the cost of your product as a percentage of your sale price, you can figure out how much you have to spend on advertising and what your ACoS threshold is.
Your threshold should not be 100% of your product’s listed price. For example: if your product is listed for $20 and your product costs are $10, it wouldn’t make sense to say that you can spend $10 per product on advertising – how would you make money? Instead, a better ACoS threshold is closer to 20% and in some cases 30%, especially if you assume that product cost is typically around 50%. This means that your actual product cost, including ACoS threshold, will end up being between 70% and 80% of your listed price.
The easiest way to control ACoS is to set your keyword bids extremely low. Unfortunately that also means your ads will not show up frequently and they may never make it to the first or second position. The best way to control your ACoS and keep it around 10% is to use the following tactics:
Set up Auto, Broad, and Exact campaigns
Set Auto bids and budget low (we like to use $5 for a daily budget)
Set Broad bids low as well (typically 50% to 75% of Exact bids for similar keywords)
Keep a close eye on Exact keywords and adjust bids accordingly