Achieve Your ACOS Goals on Amazon PPC with this Bidding Formula
Your Amazon ACOS is too high. You’re constantly tweaking bids, but nothing seems to move the needle.
You know PPC is crucial, but managing bids effectively can feel like a constant battle against an ever-changing algorithm.
In this article, we’ll break down a simple yet powerful bidding formula that helps you achieve your target ACOS every time.
Understand Your Target ACOS
Before diving into the formula, it’s essential to understand your target ACOS.
What’s the ACOS that allows you to be profitable while remaining competitive? It depends on your profit margin, your business goals, and your competitive landscape.
Here’s why that matters:
Setting a realistic target ACOS keeps your ad spend efficient. Overshooting target eats into profits, while undershooting it limits your reach and sales.
Calculate Your Break-Even ACOS
The first step is to calculate your break-even ACOS. This is the ACOS at which your advertising costs equal your profit margin.
Here’s the formula:
Break-Even ACOS = (Sale Price – Cost of Goods Sold – Amazon Fees) / Sale Price
Let’s look at a real example:
- Revenue per unit: $50
- Cost of Goods Sold: $20
- Amazon Fees: $10
Break-Even ACOS = ($50 – $20 – $10) / $50 = 0.4 or 40%
In this case, your break-even ACOS is 40%. This means you can spend up to 40% (or $20) of your sale price on advertising before you start losing money.
Factor in Your Business Goals
Your target ACOS might be lower or higher than your break-even ACOS, depending on your overall goals.
Are you trying to increase market share? You might be willing to accept a higher ACOS in the short term to gain visibility and drive sales.
Are you focused on maximizing profits? You’ll want to aim for a lower ACOS, even if it means sacrificing some sales volume.
Account for Competitor Bids
It’s also important to consider what your competitors are doing.
If your competitors are aggressively bidding on certain keywords, you may need to increase your bids to stay competitive, even if it means exceeding your target ACOS temporarily.
However, don’t get caught up in a bidding war. Constantly monitor your ACOS and adjust your bids according to your targets while adapting to the market conditions.
Conceptually Understanding ACOS
ACOS is simply Spend divided by Sales. When you’re trying to hit an ACOS target, you’re trying to hit a ratio between how much you spend and how much sales you generate.
In our example, we are willing to spend up to $20 to acquire a $50 sale or a 40% ACOS target.
Your keywords have spend and sales attached to them. We can look at the performance of each on a keyword level, and break down the spend and sales into two very important metrics:
CPC: Cost Per-Click
RPC: Revenue-Per-Click [LINK TO ARTICLE REVENUE PER CLICK IS KING}
Since the cost setting in Amazon is click-based, not “order” or acquisition based, we have to look at your keyword spend and sales on a click by click level, then calibrate what your CPCs need to be based on the target ACOS.
This helps us determine what to pay for clicks, thus our bids.
The Bidding Formula for High ACOS Keywords
This formula helps you determine the optimal bid for each keyword or target. If we start by looking at the individual keyword performance, we can determine what we should be paying for each click to hit the target.
Keyword ACOS = CPC / RPC
> Cross Multiply
CPC = RPC * ACOS
So then,
Target CPC = RPC * Target ACOS
Let’s break this down:
### Example: Lowering Your Bid
Let’s say you have a keyword with the following performance, and you want to lower your ACOS to 10%.
CPC: $2.00
RPC: $10
ACOS: 20%
Target CPC = $10 *0.1 (Target ACOS) = $1.00
In this case, the formula tells you to lower your bid to $1.00. This would set your cost per click in line with revenue per click to hit your 10% target.
Setting Maximum and Minimum Bids
It’s important to set maximum and minimum bid limits to prevent the formula from going too far in either direction.
* Maximum Bid: The highest amount you’re willing to pay for a click.
* Minimum Bid: The lowest amount you’re willing to bid to remain competitive.
Most sellers don’t realize how important these limits are. Without them, the formula can drive your bids too high or too low, hurting your performance.
Here’s how to determine your maximum and minimum bids:
- Check the suggested bid range: Amazon provides a suggested bid range for each keyword. Use this as a starting point.
- Analyze your competition: See what your competitors are bidding on similar keywords.
- Consider your budget: Make sure your bids are sustainable within your budget.
Adjust the Formula Incrementally
Don’t apply the bidding formula blindly. Adjust your bids incrementally to avoid sudden changes in performance.
Start with small bid adjustments (e.g., 10-20%) and monitor your ACOS closely. You can gradually increase the adjustment percentage as you become more confident in the formula.
Beyond the Formula: Refinements
The bidding formula is a great starting point, but it’s not the only piece to the puzzle. Here are some additional tips to optimize your bids and achieve your ACOS goals:
Account for Placement Performance
Placement modifiers allow you to adjust your bids for different ad placements, such as top of search, resort of search and product pages.
Analyze your placement performance and increase your bids for placements with higher conversion rates. You also need to factor any placement adjustments into your base bid settings to ensure bids are properly calibrated across each placement.
If you use the formula above and ACOS goes up or you lose sales, check your placement performance to see if lowering your bids dropped you out of the auction for placements that were driving sales.
Use Dayparting to Optimize Bids
Dayparting involves adjusting your bids based on the time of day or day of the week.
Analyze your sales data to identify peak conversion and off-peak hours. Increase your bids during peak hours and decrease them during off-peak hours.
You can learn more about how to properly deploy a dayparting strategy in your Amazon PPC account here.
Negative Keywords & Match Types
Regularly review your search term reports and add irrelevant or poorly performing search terms as negative keywords.
This prevents your ads from showing up for those terms, reducing wasted spend and improving your overall ACOS.
If you are using auto, broad or phrase match types and you lower bids, it is possible that the batch of keywords your ads were delivering on could change. This could be one other thing to check if you optimize bids down and start seeing ACOS go up or sales go down.
AdLabs customer, Scott H., said: “TACOS is down significantly while sales are now happening across our entire catalog.” This shows the importance of using your data to negate keywords and optimize your ACOS.
Take Control of Your ACOS
The bidding formula outlined in this article gives you a framework for achieving your target ACOS on Amazon PPC.
Remember to understand your break-even ACOS, factor in your business goals, and continuously refine your bids based on performance data.
By implementing this formula and following the tips above, you can take control of your ad spend and drive profitable growth on Amazon.
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