What is ACOS?
Advertising cost of sale, the percentage of advertising-attributed revenue consumed by the advertising itself. The inverse of ROAS, used mainly on Amazon.
ACOS = (Ad Spend / Ad Revenue) x 100
A worked example
You spend Rs 20,000 on Amazon Sponsored Products and the campaign is credited with Rs 80,000 in sales. Your ACOS is 25 per cent. Expressed the other way, that is a ROAS of 4.0, the same fact stated as a percentage of revenue rather than as a multiple of spend.
Why it matters
ACOS is the working metric on Amazon, and the reason it is expressed as a percentage rather than a multiple is that it sits naturally next to your margin. Your break-even ACOS equals your contribution margin percentage after all marketplace fees. If Amazon takes 18 per cent in referral and closing fees and your gross margin is 45 per cent, your contribution margin is roughly 27 per cent and that is your break-even ACOS.
Anything below that is profitable on the marginal sale. Anything above it is buying revenue at a loss, which is sometimes a deliberate launch strategy and sometimes an accident nobody noticed.
The distinction between total ACOS and ad-attributed ACOS matters too. Amazon reports ACOS against ad-attributed sales only, but successful advertising also lifts organic rank, which produces sales the ads did not directly cause. Total ACOS (ad spend divided by all sales) is the honest measure of what advertising costs the business.
The nuance most people miss
Optimising to the lowest possible ACOS is a trap. You can always reduce ACOS by cutting spend on anything less than perfectly efficient, and you will end up with a small, tidy campaign that makes very little money. During a launch, a deliberately high ACOS buys reviews, sales velocity and organic rank, all of which lower ACOS later. Judge a launch campaign on rank and review accumulation, not on ACOS.
Common mistakes
- Comparing ACOS across categories with different fee structures as though the numbers mean the same thing
- Optimising to the lowest ACOS rather than to the highest total profit
- Forgetting that break-even ACOS must be calculated after marketplace fees, not on gross margin
- Treating launch-phase ACOS as a performance failure rather than a planned investment