Consumer Behavior and True ACOS
What is ACoS?
ACoS is the "Advertising cost of sales" or, per Amazon's Seller Central, "the percentage of direct sales you made from Sponsored Products ads, or the overall brand sales you made from Sponsored Brands that resulted from your advertising campaign. This is calculated by dividing total ad spend by total sales from advertising.
ACoS = total ad spend ÷ total ad sales x 100
For example, if you spent $2 on advertising and those ads resulted in sales of $20, your ACoS would be 10%."
One easy way to get an immediate visual of your ACoS is through Reviewbox's Ad Station portal (see below). A general rule of thumb is the lower the ACoS, the better.
Example of ACOS report from Ad Station
What is "True ACoS"?
The true cost of something should include opportunity cost - not just cost of click but cost of lost revenue as well. With that in mind, let's consider additional variables surrounding ACoS.
First, Amazon doesn’t include the return rate in their ACoS so the ACoS that you see is not factoring in any losses from returned product. Second, consumer behavior needs to be noted when developing campaigns to help determine if the click that generated an advertising cost was a necessary cost.
Organic Search Terms
Does the presence of an ad effect the buyers behavior? For example, say a consumer searches for “red stand mixer” and your company has a sponsored ad campaign bidding on that search term. However, the first organic search item is also your brand's mixer. Which item will the customer click on? Well, if they are like some consumers and only click on the first item shown (regardless of sponsored or not) then the ad spend was worth it. However, some consumers skip right over the sponsored products and click on the first organic ad. You would have won that sale anyways. Taking this consumer behavior into consideration, then when organic position is really high in relation to sponsored position then true ACoS is higher. Campaign managers should take into consideration the value of organic rankings when creating campaigns and assume a higher ACoS.
This is another type of campaign where campaign managers need to take into consideration consumer behavior. Branded campaigns have a traditionally low ACoS. However, before you start celebrating a low ACoS and designing additional branded campaigns, be sure to look into your organic search terms and their rankings.
It has been shown that branded term campaigns have a low ACoS. Why is this? Because a majority of the time when a consumer searches a long tail branded keyword, they know exactly what they are looking for and a sponsored ad will not sway them. Having a low ACoS on branded terms is actually not the full picture because most likely, you would have won that sale anyways.
Say a consumer searches for "Twinings Tea". This is a relatively short tail search term and this is what they will find:
Notice that there is a sponsored brands campaign by Twining, in addition to two additional sponsored products, before we get to the first organic search product which is a Twinings product. So, the question is - how beneficial is it to run the sponsored brand ad if you are already ranking high organically for that term and you know that consumer behavior proves you would have won that sale despite advertising?
In short, the best way to begin estimating your true ACoS while developing campaigns is to start by looking at organic search rank and factor consumer behavior into campaign decision making.