If you’re running PPC ads on Amazon, one of the most important metrics you’ll encounter is ACOS (Advertising Cost of Sales). It’s a key indicator of how well your ads are performing and whether they’re actually making you money. Understanding ACOS is essential for maintaining profitability and ensuring that your advertising budget is spent wisely. In this guide, we’ll break down everything you need to know about ACOS, from how it’s calculated to strategies for improving it.
What is ACOS?
ACOS stands for Advertising Cost of Sales. It’s a metric that tells you how much you’re spending on ads to generate each pound of revenue. The formula is simple:
ACOS = (Ad Spend ÷ Sales Revenue) × 100
For example, if you spend £100 on ads and generate £500 in sales, your ACOS is 20%. This means that for every £1 you earn, £0.20 is spent on advertising. A high ACOS could indicate inefficient ad spending, while a low ACOS suggests a cost-effective campaign.
Understanding ACOS helps sellers make data-driven decisions about their advertising strategy, ensuring that they aren’t overspending while still achieving their sales goals.
Why Does ACOS Matter?
ACOS is crucial because it helps you determine if your advertising is profitable. A lower ACOS generally means you’re spending less on ads for every pound earned, while a higher ACOS suggests that your ads are costing you too much relative to your sales.
A good ACOS depends on your business goals. Some sellers aim for profitability, keeping ACOS low to maximise net earnings. Others accept a higher ACOS in order to drive brand awareness, launch new products, or gain market share.
For example, if you’re launching a brand-new product, you might be willing to accept a higher ACOS to generate early sales, increase visibility, and gather customer reviews. However, if your goal is profitability, you’ll need to maintain an ACOS that allows for a comfortable profit margin after all expenses are accounted for.
What is TACOS, and Why is it Important?
While ACOS focuses on your advertising spend in relation to your immediate sales, TACOS (Total Advertising Cost of Sales) takes a broader view by incorporating your total revenue, not just the revenue from ad-attributed sales. The formula for TACOS is:
TACOS = (Ad Spend ÷ Total Revenue) × 100
TACOS helps measure how effective your ads are at growing overall sales, including organic sales that come from increased brand awareness. A declining TACOS over time indicates that your organic sales are growing in relation to your ad spend, which is a great sign of a sustainable advertising strategy.
If TACOS is too high, it may suggest over-reliance on ads, meaning your organic sales aren’t keeping pace. To improve TACOS, sellers can focus on:
Strengthening organic rankings through better SEO and listing optimisation.
Increasing customer retention and repeat purchases.
Improving brand loyalty and recognition to drive organic sales.
Keeping an eye on both ACOS and TACOS ensures that your advertising strategy is balanced and supports long-term growth.
Want to learn more about TACOS and how to lower it? Check out our blog – Is Your TACOS Too High? Here’s How to Lower It Without Killing Your Sales.
What is a Good ACOS on Amazon?
There’s no universal ACOS target that works for every seller, but here are some general benchmarks:
Low ACOS (<15%) – Ideal for sellers focused on maximising profit. If you can generate sales at this level, your advertising strategy is highly cost-effective.
Moderate ACOS (15-30%) – Common for sellers who are balancing profit and growth. Many businesses fall into this category as they invest in expanding their market reach while maintaining healthy margins.
High ACOS (30%+) – Often seen when launching a new product, entering a competitive niche, or aggressively increasing market share. While this approach can lead to long-term gains, it must be carefully managed to avoid excessive ad spend.
To determine your ideal ACOS, you need to know your break-even ACOS, which is the point where your ad costs equal your profit margin. Anything lower than your break-even ACOS is profitable, while anything higher means you’re losing money on advertising.
How to Reduce ACOS and Improve Profitability
If your ACOS is too high, here are some proven strategies to lower it while maintaining strong sales:
1. Optimise Your Keyword Bidding
Not all keywords are equal. Some convert well, while others drain your budget without generating sales. Regularly review your campaign reports and:
Lower bids on underperforming keywords that have high spend but low sales.
Increase bids on high-converting keywords to maintain visibility.
Pause keywords that are irrelevant or consistently generate clicks without conversions.
Using Amazon’s search term reports can help you identify which keywords are worth your investment and which ones need to be adjusted.
2. Use Negative Keywords to Reduce Wasted Spend
Negative keywords prevent your ads from showing for irrelevant searches, reducing wasted spend. For example, if you sell premium leather wallets, adding “cheap” or “fake” as negative keywords stops your ads from appearing for searches like “cheap wallets.” This ensures that your ad budget is spent only on customers who are genuinely interested in your product.
3. Improve Product Listings for Higher Conversion Rates
Your ads can drive traffic, but if your listing isn’t convincing, visitors won’t buy. Ensure your listing has:
High-quality images that showcase different angles and features.
A compelling product title with key selling points and relevant keywords.
Clear bullet points that highlight product benefits and key specifications.
A strong product description that persuades customers to purchase.
Competitive pricing to remain attractive in your market.
A higher conversion rate means fewer clicks are needed for each sale, ultimately lowering your ACOS.
4. Consider Your Pricing and Margins
If your ACOS is consistently high, your product pricing might not support profitable advertising. Make sure you’ve factored in all costs, including:
Amazon referral fees
FBA/FBM fulfilment costs
Shipping fees
Cost of goods
Using a tool like Seller Margins can help you track all these costs and ensure your ads remain profitable.
Managing your ACOS effectively is crucial to running a profitable Amazon business. Whether you’re focused on keeping costs low or scaling aggressively, understanding how to tweak your bids, optimise listings, and target the right audience can make a huge difference.
Additionally, monitoring TACOS alongside ACOS ensures that your advertising efforts are contributing to long-term growth rather than just short-term sales.
If you want an easy way to track ACOS, TACOS, and all your Amazon expenses, SellerMargins.io provides a detailed breakdown of ad spend, profits, and hidden fees, helping you make smarter advertising decisions.
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