Next to the Roas metric we have another very important metric which is the ACoS. If you are an Amazon seller you can’t be unaware of this metric. On the contrary, if you have never heard of it, we are now going to explain it in more detail.
First of all, we give a definition of ACoS. This metric shows us the relationship between the expenses and the revenue of our campaigns in the Marketplace. In other words, it reflects the profitability of the Ads on Amazon.
To measure the profitability of your ads, i.e. how much you have earned in relation to the expenditure you made with the advertising campaign, you can calculate it as follows:
ACOS= (advertising investment ÷ sales generated by advertising) * 100
By logic, if your expenses are lower than your profit margin, it means that your campaign is profitable. Here is an example:
If you have invested 60 euros in an advertising campaign that has generated 600 euros, applying the formula ACoS= (60/600)*100=10% means that for every euro you have generated, 10 cents have been spent.
In addition, to define whether your ad is profitable or not, you can look at the ACoS along with other metrics such as Impressions, Total Clicks, Total Campaign Investment and Overall Sales to get an overall picture of the situation.
Sometimes a high ACoS is necessary and is not a symptom that things are going wrong. If we are thinking for example about launching a product in a very competitive niche or selling excess inventory, it is logical that it is more desirable, even if you are losing out, to have a higher ACoS than to pay additional storage fees.
In any case, deciding whether the level of expenses is good or bad depends on the objective of your strategy.
Starting with the formulas, we can see that the ACoS is the inverse of the Roas metric:
ROAS = (sales generated by advertising /advertising investment)* 100= 1/ACOS
Therefore, the difference between ACoS and ROAS is that ACOS on Amazon shows you the advertising cost of sales, i.e. how much you spend on ads to earn each euro with attributed sales, while ROAS uses the reverse calculation: how much you receive for each euro invested in advertising.
This is the end of our lesson on “What is ACoS? Measuring Your Advertising Campaigns”. If you have doubts or want to deepen in some aspects ask us with a comment. To not miss other content from Epinium University, subscribe to the Newsletter.
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