Advertising Cost of Sale (ACoS) is a common Amazon metric that reflects the actual expense of generating revenues from customer transactions due to advertising. It is the advertising spend divided by revenue generated as a result of the advertising spend.
It is a separate metric from the general marketing or advertising budget. This information looks at the specific cost of ad spending analytically compared to the sales that activity generates.
If a business spends less on advertising than it receives in total revenues from transactions, a profit margin from this activity gets created.
When calculating ACoS, the figure gets expressed as a percentage.
A business must first determine what they have spent on ad spending. This figure often comes from pay-per-click campaigns, but it can originate from any advertising effort that provides direct analytics to consumer behavior from the outreach effort.
Generalized advertising in traditional mediums, such as television or radio, cannot provide an ACoS figure unless it is the only marketing method used by the business.
Once the expenses are determined, the online store can evaluate the total revenues generated by the ad spending.
After these two figures are known, you would divide the ad spending amount into the total revenues to determine your ACoS percentage.
For example: if an online store spends $1,900 on an ad spend that generates $4,700 in total revenues, their ACoS would be 40.4% (1,900 divided by 4,700).
A high ACoS indicates that it costs more to achieve revenues, lowering the e-commerce entity’s profit margin.
In general terms, a business wants high sales revenues and low advertising spending. This combination creates the profits an online store needs with this activity.
Once an ACoS figure gets determined, it can serve as a comparison benchmark to other campaigns or a competitor’s outcomes.
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