4 Ultimate strategies to reduce your ACOS in 2024

ACOS (Advertising Cost of Sale), which is the ratio of ad spends to ad sales quantifies the effectiveness of dollar spent on Amazon ads. Amazon brands/ sellers try to maintain low ACOS as it is a guiding beacon to profitability. A high ACOS signifies inefficient spending leading to lower profitability. In the past few years, advertising on Amazon is becoming increasingly expensive and thus, maintaining ACOS is becoming difficult. This is because cost per clicks (CPCs) are rising. A recent study in Marketplace Pulse (other sources included) shows that Amazon CPCs increased from 0.88$ in 2020 to 1.34$ in 2023.

Let’s face it: maintaining ACOS is hard. But there are some hard strategies that can help eliminate wasteful spends and lower it. In this post, I will give you a complete guide to reducing ACOS.

Let’s dive into it, shall we?

Strategy#1: Be retail aware:

You will be surprised that the first 3 strategies to lower Amazon Advertising ACOS have nothing to do with Advertising, and yet everything to do with advertising

1.1 Prioritize the right ASINs to advertise

You want to move your inventory as fast as you can.

So, what do you do?

You end up advertising your slow movers, thinking that the fast-moving ASINs will move fast anyway, so why advertise.

OR

You advertise all your ASINs.

Except that it is a recipe for disaster. While I was at Amazon, our studies revealed that 40% success of Amazon ads depends on which ASINs you advertise. That is why, we used to send out notifications to brands, sellers and agencies on high converting ASINs that were missed out on advertising.

High converting ASINs or high selling ASINs will increase your sell through rate on Amazon. A.T T.H.E L.O.W.E.S.T A.C.O.S.

Below are 2 different accounts.

Account 1 has no ASIN prioritization. Spends are “almost” equally divided into Band A, Band B and Band C ASINs.

Account 2 has prioritized top selling ASINs by spending 46% Ad money into Band A ASINs.

Notice how ACOS for Band A ASINs is lower than ACOS for Band B and Band C ASINs. Higher the spend on low ACOS ASINs, better your overall ACOS. This will also show in your overall sales.

Account 2, therefore, has a better ACOS despite spending more on advertising.

Using tools like atom11, you can monitor, change and track % spends by ASIN Bands. This will not only help you lower your ACOS, but also increase ad sales.  

1.2 Content Optimization:

Content optimization focuses on increasing organic conversions  - basically make more sales with the same number of clicks. It involves focusing on product image, title name, detail page bullet points and A+ content.

Here is a quick description:

(a)  Product image:

What if I can give you a mantra to power-pack your main image so it is a Click-Magnet.

The mantra is “USE THE DEAD SPACE”.

Use dead space to SPECIFY atleast 1 of the following:

1. Grammage: 100 gm pack, 60 pack

2. Ingredients/ flavors/ colors: Contains Vit E, Orange Flavor

3. Functionality: Ex. Cookie Sheet, Cotton Towels

4. Tools/ Packaging: Show packaging

5. Selling Point/ USP: Any specific USP that differs you from the competition

Let’s call it the G.I.F.T.S framework

See below, an example of Zulay Kitchen accessory which shows all colors available for the product, functionality (frother), packaging as well as USP (lifetime warranty)

(b)  Other images:

Make sure you are using other images are used well to show “How to use”, “How you are different than others” , “Use cases – what problems is your product solving and how”.  

(c) Product title:

Stick to the following points while framing your product title:

• Start with the most important information. Ex. your brand name, your sub category, your usage value, i.e. how can your product be used.

• Include relevant KWs and frame them in a sentence. Stick to the sequence that you would use to find your product. Use Amazon’s high search KWs to find what sequences are used most.  

• Use title case. First letter of every word should be capitalized.

(d)  Product description:

Include the following in your product bullet points:

1. What is the product?

2. What is it made of? 

3. Where is it used?

4. What are the dimensions (if relevant)?

5. Who is the customer? Men/women/pets/babies etc.

6. What are the primary product benefits

(e) A+ content:  

A+ content gives anywhere from 5-20% of conversion boost to your products. If you do not have A+ content already added to your products, do add it – TODAY. If you have one, then keep experimenting with it (especially for your top 5 products) to increase conversions.

We had a detailed conversation with @Fatos Fatin, MD of Maxamaze, content optimization company, on Premium A+ Content. Watch this detailed conversation here: Detailed conversation with Fatos Fatin

1.3 Other retail signals:

Far too many people talk about it, but really no one tells you what it is to be retail aware. Here are a few examples:

(a)  Inventory:

Are you still advertising when you are low stock. This will lead to faster sell out and out of stock situation. And Amazon is going to penalize you for the same by removing you from your search rank for days even after you come back in stock. Simple rules like the below, can help you keep your inventory and also save yourself from high ACOS.

If Days on Hand is less than 15 days, pause product ad. When Days on Hand > 15 days, unpause product ad.

(b) PPC cannibalization:

Are you spending money on ads when you already have top spot on Amazon Search ranks? Set up your rules so that you can reduce top of search placement adjustment in such cases. This will reduce un-necessary spends from your advertising budgets and improve your ACOS (c)  Traffic: Do you ever analyse the search frequency rank trends for your KWs? If not, you absolutely should. You’ll get seasonality insights like “Shampoo KW search picks up in early March”. Not only this will help you plan inventory in advance, but also help you keep ACOS as you can increase/ decrease advertising intensity on important KWs using this data.

Strategy 2: Overall Optimization

2.1 Dayparting:

Dayparting is my second favorite advertising strategy that helps in maintaining ACOS (after ASIN prioritization).

Dayparting means adjusting your bids at different times of the day and week. The idea is to spend less ad monies at the "time of the day" or "day of the week" when conversions are low. And to spend aggressively when conversions are high.

For example, if mornings aren't great for sales but evenings are, you'd lower your ad spending in the mornings and allocate more budget for the evenings when you make more sales for the same amount spent.

In the screenshot below you can see that the brand sells most on Sundays and their conversion is min. during afternoons. So, they should typically increase budgets for all campaigns on Sundays. They should also reduce bids during afternoons, so as to control ACOS.

If you are looking to understand how to set up dayparting, you can read about it here: Efficient Dayparting Strategy for Amazon Ads.

You can use any software to set up dayparting for all your campaigns. Atom11 provides a very efficient dayparting set up on its platform. You can check it out here.

If you do not want to read about the dayparting strategy, then watch this video: Click here to watch video

2.2 Audit for max impact:

The best way to keep ACOS in control is to find what works for you. For ex. which campaign type works for you, or which type of KW match type works best, or which placement is giving best results. Once you know what works, you can double down on that strategy and keep ACOS in check.

Set your processes up to ensure this data is available at the drop of a hat. Because availability of data solves half the problem. Normally to audit spend profile and its effectiveness, you will need to download 7 different reports which will cost you time and resources. With atom11, you can get this report on a day to day basis.

We have discussed a detailed way of auding your ads account in this blog post: Data Driven Approach to Amazon Ad Optimization

Strategy#3: Keywords

One way of maintaining ACOS is to focus on the right Keywords. Frequently keep adding good KWs to your campaigns and negating the ones that don’t work.

3.1 Use Long Tail Keywords:

Harvest KWs from your automatic and manual campaigns and add them to either new campaigns or existing campaigns. Here are a few ways you can implement it using atom11:

(a) Longtail Strategy: 

Longtail KWs are keywords with less volume but very high relevance. For ex. the keyword “Shoe” is a generic KW with high relevance, high volume and ofcourse, very high competition. A longtail KW for Shoe would be “Red gumboots for heavy rain”. Longtail KWs perform great as they are less expensive and give good sales. You can find longtail KWs from Helium10 or even search terms from your automatic campaigns.

(b)   Avoid competition Keywords:

Competitive KWs usually have high ACOS. You can try minimising competitive KWs to control ACOS. A good strategy to target competitors could be product targeting competitors with higher price point than you. We have seen atleast 5-6% better conversion on such targets. 

(c) KW Harvesting:

Keep harvesting KWs from your auto, phrase and broad KWs and adding them to current or new campaigns. These are usually Search terms with >3 orders in the last 7-14 days.

Let’s see how you can do it through an advertising software like atom11:

(i) Automate KW harvesting:

This takes the headache out of you to add and harvest KWs manually as atom11 will harvest KWs that are performing well and add them to your campaigns.

(ii) Manual harvesting:

The best thing about manual harvesting is that you can avoid KW stuffing in 1 campaign. Atom11 will harvest KWs that are not added to any campaign and in 1 click you can add those KWs to either their current campaign OR create a new campaign and add it there.

3.2  Negate frequently:

Amazon is becoming more and more upper funnel. Earlier only auto, broad and phrase match KWs resulted in multiple search terms, but now even exact match KWs also generate new search terms.

A lot of these search terms do not result in any sales, but keep spending money. Frequently negating these KWs can be a good way to keep your ACOS in check.

There are 2 strategies to negate:

(a)  Relevance check: Let’s say you sell Hair Oil. Then relevance negation would be “cooking oil” or “automobile oil” This is plainly relevance based and not basis any data.

(b) CAC based: You have to check what is your cost per acquisition of a customer for every KW. If your KW is spending more than the target CAC, then it should either be optimized for bid. If the KW is spending 4-5X your target CAC, then it should be negated.   You can easily automate search term negation through atom11 (similar to KW harvesting).

Strategy#4: Bids and Budgets:

4.1 Optimize your Bids:

When broken down to its basics, ACoS is just a function of two numbers: Your cost per click (CPC) and your revenue per click (RPC).

For example, let’s say you pay $1 per click ($1 CPC) and you earn $4 per click ($4  RPC). Your ACoS in this scenario would be 1 ÷ 4 × 100 or 25%.

Naturally, this means that an ACoS improvement would have to come from either an increase in RPC or a decrease in CPC, and since changing CPC is much easier, that’s what we’ll mostly focus on.  

4.2 Budget Optimization:

One quick way to slash your ACOS is rationalize budgets across high and low performing campaigns. It almost immediately gives you better results. In the mean time you can work on conversion optimization of the products that weren’t performing well or placement optimization.

 You can reduce campaign budgets of low performing campaigns by 50-75% to achieve your desired target ACOS. But do keep in mind that this should be done for campaigns that are atleast 1.5-2X above your target ACOS and are generating <X orders in last 30 days (X could be 1-4 orders or 5X less than average orders/ campaigns)

4.3 Placement optimization:

There are 3 placements on Amazon – top of search, rest of search and product detail page. Each placement has its own importance and performance potential for a brand – given its product quality, product placement, reviews, ratings etc.. . So you should adjust bidding according to placement performance for your account.

In atom11, we give your recommendations on low and high performing placements, so that you can adjust the same according to your ACOS targets.

Summary:

Great, so now you know the ultimate 4 strategies to lower your ACOS. As CPC increases on Amazon, it will be more and more important to follow these strategies and make your ads more efficient.

Let’s recap the 4 strategies that we have discussed above:

Strategy 1: Be retail aware

1.1: ASIN prioritization

1.2: Content optimization

1.3: Other retail signals like inventory and pricing

Strategy 2: Overall optimization

2.1: Dayparting

2.2: Audit your account

Strategy 3: Keywords:

3.1: Keyword harvesting

3.2: Keyword Negation

Strategy 4: Bids and Budgets

4.1: Bid optimization

4.2: Budget optimization

4.3: Placement optimization

With atom11, you get the best of both worlds – automation as well as manual curation of strategies to lower your ACOS. If you need help in implementing this, you can schedule a call with us here.