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What is ACoS?

I often get bitching about Amazon advertising and terminology, and one of the most frequent questions is "What is ACoS?" ACoS is how much you spend on advertising for every dollar of revenue you generate. It can also be thought of as the ratio of your advertising spending to your target sales. You can calculate your ACoS using the following formula: ACoS = total advertising spend / total sales.

Understanding advertising acronyms is important because these measurement tools can be used to take action on campaigns to meet your advertising goals. These goals may be different if you are a new brand looking to increase the number of impressions and get more Amazon customers to see your product ads, or on another product ad lifecycle, just wanting to get a return on your ad spend through sales conversions. This blog article looks at different ways to measure Amazon advertising, including impression and conversion rates.

What is an impression in Amazon advertising?

When you're new to the Amazon marketplace, it's important to make sure Amazon customers know your product exists. Every time a customer sees an ad for your product displayed on Amazon through an Amazon ad, it counts as an impression. Impressions are the best way to measure how many potential customers have seen your product ad. Impression doesn't measure how many people clicked on your ad or visited your detail page. If your goal is to increase awareness of your products on Amazon, analyze impression metrics and optimize campaigns by adjusting campaign budget spending and keywords that bring in the most impressions.

How do I measure the effectiveness of an Amazon advertising campaign?

Measuring the effectiveness of an Amazon ad campaign is important because you can see the return on your Amazon ad spending. When an ad is shown and a customer clicks on it and then buys a product, that's considered a conversion or product sale related to the ad. You turned a non-paying customer with an ad into a paying customer. Here's an example of the results of a potential advertising campaign. You run an ad that generates 100,000 impressions (number of ad views), which leads to 10,000 clicks on the product ad, resulting in 1,000 conversions (product sales). Understanding the funnel and metrics that an Amazon customer goes through from ad impression to conversion and product sale helps determine the effectiveness of an Amazon ad campaign, which is measured using ACoS and RoAS.

What is ACoS and what is RoAS?

ACoS and RoAS are measures of sales return performance from advertising spend. ACoS stands for Advertising Cost of Sales (ACoS) and is the percentage of direct sales you got from an advertising campaign, which is calculated by dividing campaign expenses by sales generated during the campaign. The formula to calculate ACoS: ACoS = Cost/Sales. Using the example above with 100,000 impressions resulting in 10,000 clicks, that resulted in 1,000 paying customers. Suppose the product was $50 and you were paying 50 cents per click.

By analyzing ACoS, you can compare campaigns to see which one is most effective. A lower ACoS indicates that you are spending less money to get more sales, and a higher ACoS means that you are spending more money to get less sales. A lower ACoS is better than a higher ACoS to optimize the best return on your Amazon ad spending.

Another measure of advertising spending effectiveness is Return on Advertising Spend (RoAS) RoAS is the inverse of ACoS and is an index (multiplier) of sales relative to spending. The RoAS calculation is as follows: RoAS = Sales / Costs. Advertisers can use RoAS as another measurement to compare the effectiveness of campaigns and keywords. The greater the RoAS, the more effective ad dollars are spent to return sales; the lower the RoAS, the less effective ad dollars are spent to return sales. Using the same example, here's how RoAS is calculated.

There are many ways to evaluate Amazon Advertising. If you're very new to the marketplace, display and traffic metrics may be one of the metrics you're focusing on as you try to get as much attention to your new products as possible. If you dominate your category and have a mature brand, optimizing for conversions will allow you to generate more sales in a profitable and sustainable way, or you may focus more on impressions than conversions and sales when launching a new product. Regardless of what metrics you focus on in Amazon Advertising, knowing the terms and what they mean is important for optimizing your campaigns to achieve your Amazon Advertising goals.