🚀 5 Effective ways to control high ACoS
During covid, when even conglomerates were finding it difficult to sustain, there was a trend of high growth on Amazon. It was a time when many Amazon sellers saw very high sales and business growth. And so did the Amazon advertising. In Q3 of the last year, Amazon`s ad revenue saw a steep 41% yearly gain. This growth trend was driven primarily by the sellers who began spending heavily on digital advertising after a tough period of lockdown and slow business due to pandemic.
Amazon advertising is a strong tool which enables sellers to reach the correct audience at the time when they are about to make a buying decision. It enables sellers to drive brand awareness and visibility of their products, and also push their brand to customers of closest competition. It is the preferred form of advertising for many brands as it gets converted into sales directly. But it also means that it is a very tough and competitive landscape, where one needs strong strategies in order to get successful. The cost of Amazon advertising is deducted from the revenue you make on the platform. It means that the advertising charges are deducted from the total sales you make on the platform and an unplanned campaign can burn a hole in your pocket. This is resulting in many sellers complaining about the high ACoS and campaigns not performing well for them. Amazon advertising like any other form of digital business needs strong strategies and correct analysis of data available. Here in this article, we discuss 5 key steps you can take to control your high ACoS.
What is ACoS?
ACoS in Amazon advertising stands for advertising cost of sales. Since Amazon advertising charges are deducted from the revenue you generate on the platform, it is a term defined for Amazon specifically. In simple terms it means how much you spend on ads to earn back in sales.
ACoS = Ad spend/ Ad sales
This is a metric which can be used to measure the efficiency of your campaigns. When ACoS is low, it means you are getting more sales from your ad spend and while it is high, it means you are spending a bigger chunk of your revenue on ads.
Is low ACoS always profitable?
Not necessarily! Low ACoS does not necessarily mean higher profit margins. Adopting too low a target of an ACoS can affect your sales, product ranking and overall business growth. On the contrary, adopting a very high ACoS target can affect your profitability.
Many marketers keep the profit margin as their static target ACoS and run their campaigns within this limit. Though this strategy ensures that no money is lost in advertising, it also does not allow you to leverage the benefits of advertising. Selecting the correct target ACoS for a business is a dynamic task and changes according to the campaign type and objective. It is a combination of many factors such as profit margins, category of the products, expected growth and competition.
Though there is no benchmark for correct ACoS, there are some checks which can ensure we target the right audience and control our ad spend.
1. Adding more manual campaigns
Amazon offers two types of campaigns on its network, automatic & manual. Automatic campaigns are managed by the Amazon system showing your ads to the most relevant search queries. To run an automatic campaign, we only input daily budget and the maximum cost per click (CPC). Whereas in the manual campaigns, we add keywords in the relevant match type along with an optimal bid. Manual campaigns give more flexibility and control over our targeting and also ad spend.
Many sellers chose automatic over manual campaigns since those are easy and quick to start. But ideally we should let automatic campaigns run for some time and gather performance data. We should then use this data to set up a manual campaign with correct choice of keywords and CPC bids.
2. Selecting optimal CPC bids
It is important to select the correct and closely related keywords for ad campaigns. But this is equally important to select the correct value of CPC bids for the keywords.
Amazon provides a bidding range for each keyword with the values of lowest and the highest bids. The correct method is to select the optimal bids basis the search volume and relevance to the advertised product. For eg. the bidding range for a particular keyword is $0.70 to $5.0. This means you can bid from $0.70 to up to $5.0 for this keyword. Bidding 70 cents naturally will not drive much traffic and sales to your campaign, but bidding $5 can result in high ACoS and ad spend. Thus, based on the relevance of the keyword for the product being advertised, we should select the optimal bid value for that keyword.
Amazon has also introduced dynamic bidding where we can increase the bid value based on the preference of placement of the product on product pages or on the search results page. We can set dynamic bidding either up or down, based on the desired placement.
3. Adding negative keywords in the campaign
There are many reports available on Amazon for sellers to make an informed business decision. Similarly there are many advertising reports available as well which collect advertising related data and metrics. Over a period of time, we can consult information available in these reports to see which keywords are working for the products and which are resulting in high spends with no or very little returns.
The idea behind negative keywords is to take out the search terms which are not performing at all. After we have enough performance data, we are in a position to gauge what worked for the products and what stopped the campaigns from performing. Just identify them, list them and add them as negative terms in the campaigns to stop the negative effect from growing. Negative terms can be added in both the types of campaigns- auto and manual.
4. Selecting correct match types
There are different match types available for the keywords on Amazon- broad, phase and exact. Broad match type allows Amazon to display ads to search terms that not only match the keyword but are also related to the keyword. This might include synonyms, misspellings, and variations of the keyword. Phrase match allows you to narrow your target search terms to specific phrases in the search queries. While exact match type means targeting the customers who have searched exactly for the same keyword.
Broad match type generally results in higher ad spend as this shows up ads to the customers who are broadly searching for our product. This drives lots of unnecessary clicks and ad spend. Exact match type will certainly lower the number of clicks on your ad, but will also drive more conversions. This is because they drive people who are searching exclusively for your keyword and are more interested in the associated product. The correct strategy is to maintain a correct balance of all the match types with optimal bids.
5. Competition mapping
Though Amazon policy does not permit adding competition keywords in the campaigns, it is very helpful to look at competition strategies to decide your next steps. Identify and target leading brands in the category which get top search placements. See the keywords they are currently bidding on, try to understand and learn their strategy. This analysis will help reduce the time needed to understand the behaviour of your product and will also help in optimizing the ad campaigns.
The performance of an ad campaign is a combination of various factors and strategies. It also needs a continuous and regular optimization to get desired results. It is thus important to find the correct ACoS target for the products and then use various strategies to reach that target.