When it comes to measuring your Amazon ads’ effectiveness, chances are you’ve been led up the garden path by Amazon. I’m talking about “advertising cost of sales” or ACoS specifically here.
Lies and Damn Lies
Do you know this old saying?
“There are lies, damn lies and statistics!”
Now it’s true that you SHOULD monitor certain KPIs (Key Performance Indicators). Amazon ad optimization is, in fact, CRITICAL to your success or failure – more than ever!
This is especially true now that Amazon is forcing sellers to use advertising ever more to reach consumers.
But it’s SO important to measure the right thing! I’m not convinced that ACoS (advertising cost of sales) is one of them.
ACos is BS!
In fact, I’d coin a new phrase: “ACoS is BS!”
Listen to this podcast to find out:
- Why “advertising cost of sales” (ACoS) is a distraction
- Why Amazon really wants you to focus on ACoS – instead of how much money you’re giving them…
- What REALLY matters instead (hint: it’s a based on a PRODUCT, not a KEYWORD or campaign)
- What financial metric about your product you should tie in with your Ad spend metrics
Get this right and you’re already ahead of 90% of sellers I meet – even those who I thought should know better…
Why ACos doesn’t Matter
ACoS =ad spend PER keyword, per ad group or per campaign ÷ sales via advertising.
But this doesn’t account for this fact: on the Amazon platform, the main purpose of advertising-driven sales is to get organic ranking for a specific keyword. This, in turn, should lead to sales driven by organic traffic.
This makes ACoS an essentially meaningless metric, in my opinion.
Instead, we should be looking at the overall effectiveness of advertising at the product sales level.
I spend $/£/€X on advertising, and I get $/£/€Y back in sales.
This gives a different metric which is much more powerful. Turn that into a percentage and you have a very key metric, which helps you assess the effectiveness of your ad spend.
Allied with your gross margin by profit line, you have a couple of essential metrics which basically show you, quickly and simply, whether your product line is making profit, breaking even, or falling into the red by making a loss – a loss often driven by excessive advertising spend.
Watch my full discussion with Why advertising cost of sales (ACoS) is BS!
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