The Truth About ACoS and Your Brand on Amazon
Advertising Cost of Sales (ACoS) is a popular metric brands that sell on Amazon aim to lower or improve. It’s even listed first in our guide, 8 Vital Metrics to Measure Your Brand’s Health on Amazon. But focusing too much on ACoS can have a negative impact on a brand in the long-term. In this blog post, we share the reasons why and provide perspective on this baseline metric.
Why do Brands Focus Too Much on ACoS?
Brands measure ACoS to evaluate the efficiency of their advertising efforts. It’s a metric exclusive to Amazon and is valuable in understanding overall advertising performance. A metric like this is an easy way for brands to get a quick impression of how well campaigns are performing. It also provides a data-backed score for brands to refer to while strategizing.
But there are cases in which deprioritizing this metric is necessary. For example, when conquesting competitors, you should expect your ACoS to raise, and thus your return on ad spend lower. Here we explain why this is okay and why ACoS shouldn’t be the only focus of your brand’s measurements.
How Should Brands View this Metric Instead?
Although it’s convenient to view metrics like ACoS in isolation, doing so doesn't shed light on the full story. A brand’s ACoS can be affected by many different factors. For example, ad-type, seasonality, targeting strategy, and other trends cause ACoS to fluctuate.
Instead, when your brand measures ACoS, it’s most important to understand that advertising has a direct effect on the sales velocity of an ASIN. This leads to increased organic search rankings and overall sales growth (ie. the “flywheel effect”). Many brands focus on having the "best return", or a low ACoS, which can be a detriment to overall Amazon business growth. At the end of the day, brands need to control profitability, and advertising spend is an important piece of that calculation, but they shouldn’t lose sight of overall business growth. for the sake of an improved ACoS.
With that said, ACoS should be measured, but should not be the lone evaluation point of a brand’s strategy. A low ACoS doesn’t always produce the most profit or long-term effectiveness, and evaluating a number of different metrics will help your brand avoid tunnel vision.
The Complexities of ACoS Brands Should Know
ACoS also can be misleading because it operates on a last-click attribution model. So it’s possible for shoppers to view or click on another ad-type and then move into the consideration phase. But when the customer is ready to buy and they click on a Sponsored Product Ad, only that campaign receives credit. As a result, there’s not a clear way to know exactly how a customer found a listing or which ad-type had the greatest influence. In the future, we can expect Amazon to roll out a multi-touch attribution model to help brands get answers to these questions.
Without a multi-touch attribution model, it’s even more important to measure more than ACoS. Only having part of the story can lead brands to make decisions that ultimately reduce any organic momentum.
Brands looking for a more holistic view of how advertising impacts overall sales usually look at Total Advertising Cost of Sales (TACoS). This is another Amazon-specific that measures beyond advertising-attributed sales. ACoS is a driver of TACoS and it’s beneficial to measure the two together.
We understand the tendency to focus on ACoS and allow it to drive strategy. But there is more to know and measure that can help your brand reach its full potential. In our guide, 8 Vital Metrics to Measure Your Brand’s Health, we share more about ACoS and additional metrics for brands to measure to ensure they’re taking a holistic approach.
If your brand could use the support of a strategic partner, schedule a free consultation. And as always, we’re here to answer any questions.
SIGN UP FOR OUR WEEKLY NEWSLETTER
News, Views, and Valuable Resources
Delivered to Your Inbox Each Week