How to Lower Advertising Cost of Sales
Traffic remains king in e-commerce, and if you're selling on Amazon, sponsored ads could be your best friend. When done right, they drive relevant, high-converting traffic to your product listings. However, one of their downfalls is it can get expensive to run experiments and optimize. It takes time to nail down your keywords, and you're constantly waiting for Amazon to tell you what works nad what doesn't, which means you end up paying for good and bad traffic during the testing phase.
One of the inherent flaws of the current system is that you give up time for Amazon to fully optimize your listing, but it's the way Amazon has things set up. This is going to eat up your ACoS and other profits as well.
As someone who’s been down that road before, I know how it feels. To help with lowering ACoS, here are few simple steps for running effective campaigns right from the beginning and avoid the expensive trial and error phase.
What is Advertising Cost of Sales (ACoS)?
Advertising Cost of Sales (ACoS) is a term used in Amazon sponsored ads. It is a key metric used to measure the performance of your Amazon sponsored ads campaigns by indicating the ratio of ad spend to targeted sales and is calculated like this:
ACoS = 100 x (Total Ad Spend / Total Sales)
The higher your ACoS, the higher your ratio of ad cost to sales revenue and vice versa. Ideally, you want as high a sales revenue figure as possible, with as low an ACoS as possible. So, as an example, if you spent $10 on advertising and it resulted in a single sale of $40, your Advertising Cost of Sales would be 100 x 10 / 40 = 25%
Once you have your product’s profit margin as a percentage. You can deduct the ACoS percentage to get your final margin.
For example: Goods retail for $30, profit margin is 40% ($12), and ACoS is 10% ($3). You’d then take home $9 as profit on sales from your ads.
When you’re selling on Amazon, it’s also important to track and calculate all your costs (manufacturing, inspection, shipping, tax, Amazon fees etc.) so you will know how much profit is left on each sale. By doing this, you’ll also have an idea on how much you can “afford” to spend on Amazon ads, while still making a profit.
But for startups and new sellers out there, there’s not a lot of room for experimenting which campaigns or ads will work for you or not, so we’ve rounded up a few tips that will boost your sales by maximizing your product discoverability, so you don’t rely entirely on sponsored ads for your business.
How you write your Amazon content can work wonders by driving significant traffic to your listings. Our goal is to help your products get found at the highest rate possible and to do that, we must understand how the Amazon A9 search algorithm works.
Amazon's platform indexes your product content and uses that content to determine relevancy for what shows up on the SERP (search engine result page) when somebody shops on Amazon. What Amazon determines as relevant is driven by conversions, and the platform aims to get potential customers directly to the most relevant page for them.
Relevancy on Amazon is what converts.
- Take time to research your customers. What language do they use to search?
- Read product reviews to find out what customers like or dislike about your competitors.
- Priority stacking: Cater to Amazon’s algorithm while also designing listings based on your customer’s language.
Your title is the most important place to start, since it's the most highly indexed term for search by the A9 system. Your title should be rich and readable but focus on terms more than semantics. Both your content and sales history will come into play when appearing on SERPs.
Having relevant keywords in your title helps the A9 system tag your product, and it also helps to increase conversions for your shoppers.
Tip: I usually get the best results when I use all caps.
Your product description is something that most people are not going to read as much as the title but is still worth optimizing. With how the back-end search terms work for Amazon, you no longer need to have commas between your words, just a space would do.
Avoid keyword stuffing, because it won't help you rank any better. Listing a keyword multiple times won't do much more than annoy your readers, so if you already have keywords at the begnning of your description you don't need to add them in towards the end. Write these descriptions to converse with your customers, not throw keywords at them.
Tip: You can also use boldface and line breaks to craft rich descriptions and break up sections. Use some light HTML editing in there if you know how.
Read Customer Reviews
The great thing about Amazon is the information that's available to you. Whether you're looking up your own or a competitor's product, you can analyze reviews to see how customers talk about the product, what's most important to them, and what can be improved.
What qualities are they looking for? It can be as simple as “I love the sound quality” or “I was impressed with how it can be easily connected to my phone etc.” These are and benefits that a customer has when they’re happy with the brand. If you see negative reviews, work on those and make improvements.
Overtaking your Competition in Amazon
There is this one place in Amazon where competition is at it’s finest - The Amazon Buy Box. And we can’t blame sellers fighting over it. Winning the buy box is an ongoing process, so it's important to make sure you always have the right set of advantages needed to win.
First things first, let’s make sure you are buy box eligible. Here are some questions to ask.
- What’s your fulfillment method? FBA or FBM?
- What is your total landed cost?
- How fast are your shipping times compared to others?
- How consistent are you with your inventory?
Becoming an eligible seller requires meeting very high standards, and excelling in the qualifying criteria is the best way to achieving this status. Also, let’s not forget that to be eligible for Buy Box, every merchant must have a Professional Seller account and needs to have been trading for at least 2-6 months.
Does Amazon always win the buy box? The short answer here is NO. While it might be harder to win the buy box when Amazon enters the competition because they have perfect metrics and lower prices, Amazon still wants that consistent perfect customer experience, so they may award the buy box to another seller if the circumstances align.
Avoid Price Wars
Contrary to popular belief, the lowest prices don't always win the buy box. While the price is a crucial part of winning the buy box, it is not the sole factor.
There are three people affected by a price war: you, your competitor(s), and your buyer. The damage to your and your competitor is obvious—lower profit margins and buyers who will come to expect those kinds of prices from you all the time. Sometimes, customers will also begin to equate “cheap prices” with “cheap products” and that’s not good, either. Instead of going into a price war, check out these other ways to win!
Take your time in researching other options. Competitive pricing is the key, but if you can't or don't want to lower your price, you can raise value instead.
Raise your seller score, answer customer comments and queries within 12-24 hours, speed up your delivery times, and encourage satisfied customers to leave a high rating. You can also consider offering bundled products to provide an offer that isn't easily imitated.
Know your competitors
It’s critical that you understand your competitor’s behavior. Know what their repricing method is, their cost structure, and their limits so you’ll know how to build and react to their products. Once you pick that up, you can analyze and start playing with the pricing until you figure out what works best for you.
Be a market leader
Your competitors may stick to a rule-based repricer, which will keep their prices the lowest possible while maintaining their ideal profit margins. However, you can change the game by increasing your prices instead and watch how the industry reacts.
Finding More Traffic, Finding More Sales
It’s not enough for your products to rank well, it's also important to make sales. We already talked about content optimization, so let's go over a few more tools and techniques that can help you drive visitors to your listings and avoid leaving sales on the table.
Now that we all know how Amazon’s algorithm works, you can set up targeted campaigns to make sure you’re converting sales for those keywords. Take those keywords from your products and competitors and create either a phrase or a broad match campaign. This allows you to get to the long tail keywords that may not ever surface up in your list through auto-targeted campaigns. There are a couple of tools that you can try, like Scope from Seller Labs.
This tool will allow you to see all keywords your competitor is ranking for and the score or the strength of that keyword, the position where the product sits in Amazon, plus it’s estimated sales so you’ll get a better picture on which keyword is driving the most sales. You can also download this data on a CSV file and use it to create a broader phrase-match campaign.
You can also use a PPC management tool, where you can incorporate those powerful keywords into your PPC campaign. Take all your data and get keyword suggestions for your product or from any competitive ASIN and put them right into your listing before you upload your data into the Amazon system. Once this is done, you’ll also get some feedback on the bid match type to check the effectivity of your listings. While you have to start with optimization, doing these additional techniques leaves you with a highly convertible page so all of your marketing efforts won’t go to waste.
Lowering ACoS isn't always the end game
Many sellers use ACoS to determine the success of their ad campaigns. The difficulty in this, however, is defining the right target value for an ACoS - because the ACoS alone doesn’t say anything about how profitable a campaign really is. In order to determine whether a certain ACoS is good or bad, you’ll need to take the entire cost structure of your product into account. And clearly, not all Amazon sellers will have the same ACoS, as targets will be different from business to business or even product to product.
If you find yourself only breaking even on the ads, they can still be worth pursuing as long as the extra sales improve your Best Seller Rank (BSR) and therefore result in more organic sales. Utilize what you have and be sure to decide on what you think is best for your business.
Do you have other tips to share? Please let us know in the comments below!
Chad Rubin is the co-founder and chief executive officer of Skubana, a multichannel e-commerce software the enables brands to unlock growth by unifying their back-office operations.