Most companies claim that paid PPC (Pay Per Click) advertising is a driving factor in their operations*. We’re talking about the main PPC advertising channels: Google Ads, paid social media advertising, and, of course, Amazon PPC. Essentially, paid Amazon advertising is similar to the well-known Google advertising: it works on an auction principle, won by the seller who bids the highest price for a position based on a keyword. Ads are marked with a special “Sponsored” tag, and when a buyer clicks on such an ad, the seller pays a certain fee to Amazon.
Amazon PPC advertising is a particularly broad area that we recommend delving into starting with an understanding of the basic concepts and metrics that measure the effectiveness of advertising campaigns.
* https://www.sellerapp.com/blog/amazon-ppc-basics/
Amazon ACoS and TACoS: what are they?
ACoS. While it’s important to monitor several other advertising campaign metrics, the most crucial one is ACoS (Advertising Cost of Sales). ACoS defines the advertising expenditure and is the key metric used to evaluate the profitability of Amazon advertising campaigns. ACoS is calculated by dividing the total amount spent on advertising by the total sales generated by those ads. For instance, if you spend 100 euros on Amazon advertising and receive 200 euros in sales, your ACoS would be 50%. The goal is to have as low an ACoS as possible, as it indicates achieving the same amount of sales while spending less on advertising:
- An ACoS of less than 25% is considered low, indicating that the advertising is operating efficiently and the conversion rate is good.
- An ACoS between 25% and 40% is considered moderate, indicating that the results are not bad, but we recommend looking for ways to optimize the advertising.
- An ACoS above 40% is considered high, indicating that you may be using inappropriate keywords or phrases in your ads, have chosen poor campaign settings or structure, or your Amazon listings are disorganized and ineffective.
More on Amazon ACoS: https://www.junglescout.com/blog/amazon-acos-why-its-important/
TACoS. TACoS (Total Advertising Cost of Sale) is a metric that measures advertising expenses and compares them to the total revenue from both ad-generated sales and organic sales.
TACoS is calculated by dividing the total advertising cost by the total revenue (advertising and organic) and multiplying by 100. For example, if you spend 100 euros on Amazon advertising and your total revenue from advertising and organic sales is 1000 euros, your TACoS is 10%:
100 / 1000 = 0,1
0,1 x 100 = 10%
While ACoS is the primary metric for Amazon advertising effectiveness, tracking TACoS is also important as this indicator provides a comprehensive view of the overall profitability of an Amazon business and allows the assessment of the revenue gap between ad-generated and organic sales.
More on Amazon TACoS: https://www.junglescout.com/blog/amazon-tacos/
What other concepts need to be understood for clearer results?
Impressions, Clicks, and their ratio (CTR, Click-Through Rate). If you are at least minimally familiar with Google Ads, you already understand these concepts, as they are measured in a similar way in both platforms and mean the same thing. Impressions – the number of times your Amazon PPC ad was shown to shoppers, regardless of whether they clicked on it; clicks – the number of times shoppers clicked on your Amazon advertisement. CTR – the ratio of these two numbers, for example, if your advertisement is shown 100 times and gets 1 click, the CTR is 1%.
CPC (Cost Per Click). This is the amount that sellers pay to Amazon when a shopper clicks on an ad. The amount can range from a few cents to euros per click.
Attributed Sales. This is the total sales amount generated by Amazon PPC ads over a certain period. This metric may appear in reports only after 48 days, so the results cannot be analyzed here and now.
If you are already selling on Amazon or just planning to start, you will eventually come to the stage of launching Amazon PPC. Start preparing for it by familiarizing yourself with the basic concepts and metrics that will measure your Amazon advertising results. If, however, you have decided that this stage is not for you, we, DIGITAL FREAKS, are ready to lend you a helping hand. Let’s discuss your options!