How Amazon advertising’s low ACoS could be killing your Amazon growth

Many Amazon advertisers believe a low Advertising Cost of Sale, or ACoS as it’s known, is a good thing. However, any business who understands the intricacies of Amazon advertising knows that this isn’t always the case for every campaign. At first glance, like anything that has a low cost, a low ACoS appears to mean you have achieved a higher ROI. On reflection, a low ACoS can sometimes indicate that you’re not targeting a wide enough audience, or only converting on branded searches.
In this article you will learn why you shouldn’t always obsess over achieving a low ACoS at the expense of everything else. In our experience in developing Amazon advertising strategies for our clients we have learned about some frequently missed opportunities that result from making advertising decisions based exclusively on ACoS. Instead, our experience has taught us that it’s best to consider other critical metrics to make smart decisions about ad spend and drive greater profits and sales. 

What is the ACoS myth?

Advertising Cost of Sales (ACoS) is calculated as ad spend divided by ad-attributed revenue, expressed as a percentage. This is one of the key metrics to watch with Amazon Sponsored Ads, helping to determine advertising profitability. The higher the ACoS, the bigger your ratio of ad cost to sales revenue. It is no wonder that many people advertising on Amazon believe a high ACoS to be unprofitable.

ACoS should always be analysed according to your advertising objectives – sales, product visibility, or brand awareness. Category competitiveness, product price and product life-stage will also influence ACoS. Basically, by focusing on achieving a low ACoS as a metric for success, brands usually don’t end up driving incremental sales and new customer acquisitions. Therefore, a low ACoS may mean a positive Return on Ad Spend (ROAS), but you may not be able to increase your overall market share on Amazon.

When low ACoS from Amazon advertising could be killing your growth?

  • When you’re being too targeted

You’ve found a niche – great! Matching customer searches with products that fulfil their needs is the whole point. But, if you want to grow your share, you also need to get in front of customers who may just be browsing, looking for similar products or checking out your competitors. For this you’ll need a little more investment, and so your ACoS will increase.

  • When you’re only selling on branded searches

You have great brand affinity and there’s a good deal of demand for your products on Amazon. You need to make sure shoppers looking for your products can find them. However, be careful not to over-invest, especially if you already have good organic share of the shelf. Targeting generic keywords and improving visibility amongst browsing shoppers through use of Sponsored Display ads and category targeting will help your long-term rankings and ultimately grow your Amazon business.

  • When a competitor targets your keywords

If a competitor undercuts your price on a product and is more aggressive on their bidding strategy for the same profitable keywords you’re bidding on, this is a problem. The competitor will have a lower priced product with a higher CTR, resulting in a greater relevancy and market share. As a result, in order to compete with this crafty competitor you will need to either increase your bids on these keywords or risk losing impression share and sales. 

We never settle for just a low ACoS!

Our mission at Molzi is to strike a balance between maintaining great advertising ROI and using Sponsored Ads as a lever to grow market share on Amazon. Amazon advertising is a complex advertising solution that enables your brand to get your products seen by Amazon’s large active shopper base. In fact, we are increasingly seeing large brands shift their advertising strategy and budgets away from incumbents like Facebook and Google towards Amazon. If you’re not already utilising Amazon advertising already then you need to consider it. If you already are using Amazon advertising to drive traffic to your ASINs, ensure your advertising strategy is optimised to meet the objectives of your business. If you’re using an agency or Amazon expert, ask them what percentage of your ad sales are being driven by branded keywords versus generic keywords. Look at NTB (new-to-brand) sales from Sponsored Brand ads – are you successfully finding new customers? 

Our team of Amazon advertising experts doesn’t work in isolation – we use ads to drive your market share and grow your Amazon business, not just to get good campaign performance. We can help your brand develop and implement a robust advertising strategy that meets the needs and goals of your business. Contact us now to find out how we can optimise your Amazon advertising today!