ACoS: the advertising cost of sale

The ACoS (“Advertising Cost of Sale” – or the advertising cost per sale) is the percentage of attributed sales spent on ads. It is calculated by dividing the total advertising costs by attributed sales. For example, if you spent 4 euros on ads resulting in sales of 20 euros, your ACoS is 20% (because: 4/20 = 0.20 euros). A number of factors are important when determining the ideal ACoS:

Selling price – the price you charge customers.
The margin of your items.
Procurement costs.
Commission to bol.
Various variable costs such as: shipping costs, delivery costs, etc.

Example: the retail price of a book is 27 euros. The purchase cost is 6 euros and the commission is 2 euros. For miscellaneous, you pay 8 euros in shipping costs. Subtracting all costs from the selling price leaves 11 euros (27 – (6 + 2 + 8)= 11).

This means you can spend up to 11 euros on advertising costs without losing money. Suppose you use a 40% profit margin, then you can spend 6.60 euros (60% of 11 euros) on advertising costs to get a sale and still make your profit margin. Then, to calculate your ACoS, simply divide the amount (advertising costs) by the retail price (6.60/ 27.00 = 0.24 euros). This will give you an ACoS of 24%.

What is (a good) ACoS?

ACoS is your advertising costs divided by your sales. In other words: the percentage of your turnover you want to spend on sponsored products. Say you spend 100 euros on sponsored products and this generates 1,000 euros in sales. Your ACoS is now 10%.

Your profit margins determine how good your ACoS is. Say, your profit margin is 20%, this means that your ACoS should at least be lower than 20% to advertise profitably.

Why do I get a bad ACoS?

There can be several reasons for poor ACoS:

Competition in the category is tough.
Bid prices are high.
The item is not generating enough sales.

What can I do if I get bad ACoS?

Exclude keywords or URLs that trigger ads from items that are not relevant.
The results of your campaign often improve when you advertise with items that have less competition or have a clear advantage over the competition. Think of good reviews, special specifications or a competitive price. Therefore, compare your itemwith your competitors on these 3 points. Do you see that your competitors have a more competitive price, more/higher reviews and/or better specifications? Then see if you can change this. If you cannot, then exclude these items from the campaign.