Troubleshooting an unbalanced Amazon Advertising ACOS

Amazon Advertising: Why is my ACoS so high?

Let’s talk ACoS.

Average cost of sale, or ACoS, is the metric Amazon advertising provides you to determine the return on investment for an advertising campaign. The higher your ACoS, the more you’re paying in advertising for each dollar in sales – thus reducing your ROI. While some campaign strategies might tolerate a higher ACoS than others, any good advertising strategy takes ACoS into consideration. Only two things are to blame if you’re struggling with a profit-focused campaign strategy or high ACoS in your ads. It’s either poor conversion (many clicks but few sales), and/or a high CPC to sales price ratio for your item (something’s got its thumb on one side of the ACoS scales).

Let’s look at each of those problem areas in more detail and how you can fix the common issues in each. By doing so, you can boost your sales volume and more importantly your overall profitability via strategic Amazon advertising.

> When your high ACoS is due to low conversion rates

Since Amazon charges for clicks rather than impressions, the only way you lose money on an ad is when shoppers click but don’t purchase. There are two common reasons for this:

  • Poor keyword targeting. This ad is triggering on a keyword that either you (if it’s a manually targeted campaign) or Amazon (if it’s an automatically targeted campaign) think is relevant, but actually isn’t. It’s likely causing this ad to be shown to shoppers who want something similar – but not exactly like – your product. They’re interested enough to click, but not interested enough to buy. For example, perhaps customers are searching for a “waterproof phone case” and that triggers an ad for your phone case – but yours isn’t actually waterproof.
    • How to fix it:
      • Check the reports for customer search terms that generated clicks but not sales, and make sure your targeting keywords don’t include those. (You may even want to add them to the excluded keyword list.)
      • Look through your existing ad keywords and pause poor performers that fall significantly above your acceptable ACoS.
      • Consider using more phrase and exact match keyword types to tighten up your targeting.
      • If you recently changed your copy or keywords, see whether there was a spike in impressions around that same time, indicating the ad was being targeted to a different or broader set of people.
  • False promises. Customers buy your product because it fills a need or solves a problem. But if they get to your detail page and realize your product does not fill that need or solve that problem, they won’t buy. Sometimes this is due to the item being misrepresented in search. But more frequently, it’s that the listing doesn’t give the shopper the information they need and/or is of poor quality.
    • How to fix it:
      • Make sure your listing is optimized.
      • Be certain that your title and hero image are clean, accurate, and representative.
      • Fill out all available bullets and use multiple images to show different parts of your item or examples of it in use.
      • Leverage customer feedback.
        • Check whether customers have asked questions on the listing, and make sure they are answered accurately. Consider adding content from commonly asked questions right into the bullets so future shoppers have the information right away.
        • Read negative reviews and see what factors made customers unhappy with their purchase or feel like the item was misrepresented. If you have poor reviews, work to improve your product and use a feedback solicitation service that complies with Amazon’s guidelines.

Bonus tip: Remember that Auto targeted campaigns use your backend keywords and front-facing content to match a customer’s search to a product ad. If you’re seeing high ACoS on your Auto targeted campaigns, take a hard look at your copy and backend keywords. Your content may be creating problems with your ad targeting!

> When your high ACoS is due to an unbalanced CPC to sales price ratio

A high cost per click isn’t inherently a bad thing – and for certain terms or certain times of year, it’s simply a harsh reality. However, you can lose revenue and see a high ACoS when the cost and/or margin of the item is not high enough to offset the CPC – even if your converstion is excellent. If your conversion rate was 100%, A $1.00 CPC on a $25 item would give you an ACoS of 4%. But that same CPC on a $5 item gives you an ACoS of 20%. To change this ratio, you either need to reduce your CPC/spend or increase your sales price.

  • Dealing with a high cost per click. A high CPC generally means that there is intense competition and/or very high traffic for a specific keyword. It can also mean that a specific keyword is being triggered frequently, but is actually a mediocre or poor match for your items.
    • How to fix it:
      • Go after low-hanging, low-priced fruit. Use existing ad data and other resources to find keywords that you can still win even with a lot CPC. Make sure that synonyms, common misspellings, and permutations like singulars and plurals are all part of your keyword strategy. You can frequently find good performers that cost far less, if you look.
      • If you’re converting well, understand that lowering your CPC isn’t likely to destroy that. Reduce CPCs across the board – even on high performers – to a more reasonable level. Base this off of your product’s price rather than the “win rate” Amazon is suggesting.
      • Adjust your campaign type to something that’s more profitable to manage. Headline ads are great, but tend to be a very expensive placement that isn’t the best choice for all sellers. Product Display ads (in Vendor Central) and well-managed Sponsored Listing ads can be far more cost efficient. In addition, make sure you’re running both Auto and Manual campaigns so you can continuously optimize your Manual campaign with data from the Auto campaign.
  • Dealing with a low price point. For items with a low sticker price, even a low CPC can still cannibalize almost all of your margin. This can make it exceptionally difficult to come out with a strong ROI.
    • How to fix it:
      • Increase the sales price. This is the simplest solution!
        • Advertise items in your catalog that have higher prices and margins.
        • If your items tend to be low-cost across the board, consider tricks like selling them in multipacks or bundles to kick up the cart price.

On Amazon, ads are becoming a requirement to be successful. Successful campaigns require a significant investment in time and effort for ongoing optimization and realignment to your goals. If you want to boost your Amazon sales and pull marketshare from your competitors by using Amazon advertising, drop us a line.

Tiger Paton

Tiger Paton was the Creative Lead at Digital Brandworks, a digital consultancy that provides customized solutions for improving marketplace performance on Amazon and beyond.

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