4 Reasons Not to Use ACOS as a Sole Measure of Success in Amazon Ads
(Especially for Book Publishers & Authors)
ACOS (Average Cost of Sale) is certainly one of the most important metrics to track, monitor, optimize toward, and set goals around when it comes to advertising on Amazon. But there are other metrics that need to be factored in as you set expectations for defining a successful campaign.
If your job includes advertising your company’s products on Amazon, and you’ve been given an ACOS goal to hit, we hope this list helps you explain to your boss the nuances of accurately defining success within this powerful ad platform.
This is especially true for authors and book publishers, because there are two unique advertising opportunities in that market which make ACOS an incomplete picture of the impact the ads are having (Kindle Unlimited and Audible). Number three in the list below is unique to the publishing industry, but the other 3 reasons apply to all products sold and advertised on Amazon.
Reason #1: ACOS is Based on the Discounted Consumer Price
Reason #2: ACOS Doesn’t Factor in Organic Lift
Reason #3: ACOS Doesn’t Include Revenue from Kindle Unlimited or Audible
Reason #4: Focusing on ACOS Can Lead to Big Missed Opportunities
Let’s unpack each of these four reasons.
Reason #1: ACOS is Based on the Discounted Consumer Price
ACOS is a formula that takes your ad spend and divides it by the revenue attributed to clicks on your ads (it is the opposite of ROAS - Return on Ad Spend - which uses flips the equation by dividing sales by ad spend). However, with Amazon Ads, the revenue figure that is incorporated into the equation is based on what the consumer paid, not how much money you get from Amazon for the sale.
If you want a true ACOS number based on profitability after ad spend, you’d need to add Amazon fees, their discounted terms (if you are a Vendor), overhead, shipping cost, production cost, royalties, etc. But that’s not the only complication of basing goals on ACOS alone.
Since Amazon’s discounts on products can change hourly, ACOS is a moving target. It is variable and not constant.
The metrics in the table below illustrate this with a simple example. The only different in the top row versus the bottom one is the consumer discount. The advertiser pays the same amount for the click that resulted in a sale ($2.50), and even though they will get the same amount of money from Amazon for the sale in both scenarios, ACOS looks like it was 7% higher (worse) when the discount is increased.
There’s one last consideration related to how ACOS is based on the consumer’s discounted price. Higher price point products will appear to do better than lower-priced ones.
Why does this matter? If your team is responsible for promoting products in the impulse buy price point but you are given the same ACOS goal as another team assigned premium products with a hefty price tag, that isn’t a fair measure of success.
If you’re targeting the same market with similar categories, search terms, and competitors, the cost per click will likely be the same, regardless of the price point (unless you earn significant trust from Amazon by establishing relevance and authority - but that’s a whole other article).
This time, the only difference in the two rows of the table below is the retail price.
When the discount is the same (10%) and the ad cost is $2.50, the ACOS looks 20% worse for the $10 product than it does for the $35 one. So, if your company sets an ACOS goal across the board for all teams, product lines, and products, it would help to become familiar with all of the nuances that should be factored into the success equation, so that you can deliver a more accurate report on your ad investments.
Reason #2: ACOS Doesn’t Factor in Organic Lift
As an agency that specializes in Amazon advertising with a unique specialty in the book industry, we invest millions of dollars each year on thousands of products.
Over the last few years, we’ve conducted tests to measure the impact ads have on organic sales. Initially, this research was necessary to answer the common objection that the ads were just paying for clicks and sales they would have received anyway - even if the ads weren’t running.
Since our clients were afraid that their ads were just “cannibalizing” their normal sales, we worked closely with them to look at the data in a more nuanced way. We analyzed organic sales, and conducted tests that pulled back ads for a short time to see how much impact they were having.
In every case that we analyzed, whether it was for an historically bestselling product, an underperforming one, or a new release, the ads always created a measurable lift in organic sales (sales growth that isn’t attributed to clicks on ads). When the ads stopped, the organic lift quickly vanished and returned to previous levels.
In cooperation with our partners, we’ve proven that Amazon Ads are necessary to create, increase, and maintain a lift in sales (both organic and paid).
Why is this true? How do ads increase organic sales? It all comes down to what we call “The Trust Factor.” Every sale that comes from an ad helps make a case to Amazon that your product should show up in more search results because it is relevant to those searches and will be bought when it is seen.
The equation for The Trust Factor is Relevance + Authority = Trust.
Not only does every sale that comes from an ad increase Amazon’s trust in your product, every sale also improves its bestseller rank so that it appears earlier for those browsing by product category.
Another benefit to each sale from and ad is that it leads to more reviews which is one of the factors impacting Amazon’s SEO algorithm and each review improves conversion rates by establishing social proof.
We’ve done enough testing to confirm this hypothesis: Amazon Ads don’t cannibalize organic sales, instead, they actually increase it.
Reason #3: ACOS Doesn’t Include Revenue from Kindle Unlimited or Audible
The third reason is related to the book industry in particular. Since ACOS is measured by dividing the ad cost by the attributed revenue, there isn’t anything for Amazon to pull when a book is “purchased” via a subscription to Kindle Unlimited or Audible.
In some ways, advertisers are flying blind when promoting books that are included in these subscription plans. Revenue is earned by the pages read, but that doesn’t get attributed in Amazon’s ad dashboard.
It might seem like we could report on Kindle Unlimited orders instead of revenue, but since the book marketer can’t tell how many pages were read, this kind of calculation isn’t feasible.
Amazon Ads can still be an effective and profitable strategy for books in these subscription plans, but different metrics should be analyzed when defining success.
Reason #4: Focusing on ACOS Can Lead to Big Missed Opportunities
The fourth and last reason to take a more nuanced approach to measuring and defining the success of Amazon Ads is that focusing on lowering your ACOS can lead to lost opportunities.
If a marketer is given just one goal of lowering ACOS, there are ways to do that which reflect well in reports, but actually don’t bring the growth they appear to be bringing. There are two ways in which this is true - brand bidding and limiting your ads to only those products that have a higher price point.
Brand Bidding
If your only goal is to lower your ad’s ACOS, a relatively easy way to do that is to increase the percentage of your ad spend going to branded search terms. We call that “brand bidding.”
In the book market, that means bidding on searches for your book title and/or author name. Outside of the book industry, brand bidding includes your company name, product names, and various brand names that are a part of your company.
This is a good strategy because it ensures that your book or product isn’t pushed down the search results page by ads from competitors who are bidding on your book/product titles and author names/brand names, but it should be limited to a certain percentage of your ad budget. We recommend a cap of about 15%.
Limiting ads to only higher price point products
The second way to lower ACOS is to neglect the lower price point products and focus on your premium lines.
Why is that a bad move? Lower price point products are often the best way to introduce new customers to your company - customers who aren’t familiar with your brand and aren’t in the market for a premium product.
One of the figures to consider in your success formula is the average lifetime value of an acquired customer. How many additional products will they buy from you, all because they were satisfied with the $9.95 product that was their entry point into your world?
How many other people will they then tell about your product, either from word of mouth, social media, or their Instagram account or YouTube channel?
There will be long-term consequences if a company obsesses over low ACOS goals and that motivates their marketers to neglect their lower-priced products.
Think of all the lost sales that would’ve come from the entire fiction book series if they had found volume 1 and become entrenched in the story.
Think of all the lost sales of tools that could’ve happened if a customer had bought your $10 wrench and then became hooked on wanting their entire tool shed to be consistent with the same brand colors (ask me how I know).
Lost Potential Growth
In addition to the two reasons above, there is another lost opportunity that comes from obsessing over low ACOS goals - the lost potential growth that could come from building more trust for relevant, high-volume search terms.
High-volume search terms are among the most expensive because everyone wants their products to show up in those searches.
To use an example from the book industry, a marketer might be able to maintain low ACOS while limiting their ad targets to niche terms like “coming of age southern romance set in the 1950s,” but higher-volume terms like “romance books” will come at a higher cost per click (meaning higher ACOS).
However, with careful attention, optimization, and a little time, a very well-written romance novel can build trust with Amazon via ads.
Initially, the cost per click will be high, and this is where many book marketers stop and move to other strategies, but if they persist and earn enough trust with Amazon to where its algorithm considers your romance novel to be relevant because it knows it is purchased often enough when people search for “romance books,” your cost per click can drop by 90%!
There is a huge payoff for marketers who are patient and persistent with relevant, high-volume search terms.
But, since the short-term goal of ACOS is often set as the objective, few companies see the potential growth that could come from a higher ACOS strategy that involves investing part of the budget in this trust-building exercise.
Conclusion
ACOS is an important metric for sure, but it is dangerous to make it the sole metric used to define success. Our partners who are experiencing the most growth (especially our book publishing partners) implement a nuanced approach to setting and monitoring goals.
I hope this article helps you, your team, and your company make discerning decisions about your Amazon Ad investments. And if you’d like to talk to us about a potential ad management partnership, please reach out by completing our contact form below.