What is an ACoS Target?
ACos Targets communicate to the bidder the willingness to spend on advertising. It indicates the percentage of each dollar of sales one is willing to spend on a click to try and get that sale.
For instance, if a product sells for $10, and ACoS Targets are set to 10%, then this is indicating to the bidding algorithm a willingness to spend up to $1.
Setting ACoS Targets in Flywheel is one of the settings required to enable bid automation. ACoS Targets are set at the ad group level based on product advertising goals and product margins.
How does setting ACoS Targets impact my advertising performance?
Recall that bids are calculated using payoff, conversion rate, and ACoS Target:
(payoff) x (conversion rate) x (ACos Targets) = Value Based Bid
The ACoS Target you set will directly impact bid calculations, as you are telling the Flywheel bidder how much you are willing to spend on advertising for each dollar of sales you get.
Higher ACoS Targets will make the bidder more aggressive and lead to higher bids. Higher bids may lead to:
More conversions, driving higher sales volume
Higher spend on advertising, which may lead to higher ACOS
Lower ACoS Targets will make the bidder more conservative and lead to lower bids. Lower bids may lead to:
Lower spend on advertising which can lead to lower ACOS
But fewer clicks and conversions, decreasing total sales volume
What factors should I consider when setting ACoS Targets?
1. Goal/Objective of the Campaign:
Launch → Increase Sales → Higher ACoS Targets
Profit → Reduce Spend → Lower ACoS Targets
Think about where your products are in their life-cycle (how long has it been advertised) to help determine your goals. Products with at least 180 days of sales data are favored more by Amazon’s algorithm and could require a less aggressive advertising approach to generate sales.
2. Pre-Ad Gross Margins of the products:
Knowing the gross margin of your product will give you an idea of how much money you have to spend on advertising after factoring in the cost of selling your product. The equation below can be used to calculate margins for each product.
With goals and margins in mind, you can then start to settle on an ideal setting for ACoS Target for your campaigns and ad groups.
If your goal is to grow and increase sales, consider setting higher ACoS Targets, as the bidder will bid more aggressively and try to get your ads in a better position. This can lead to more spending on advertising.
If your goal is to profit, consider setting a lower ACoS Targer, as the bidder will bid more conservatively and only spend on advertising that it thinks will be most profitable for you based on the lower ACOS that you are comfortable with. This can lower spending on advertising and make it more efficient, but can also decrease total sales.
Check out this chart to understand the relationship between goals, margins, and ACoS Target. Factor in your category competition to determine where your business falls on the range. This is just a guide.
3. Category Competition:
Higher ACoS Targets are needed for more competitive or saturated categories. Increased competition results in higher CPC. To remain relevant, you need to have a higher willingness to spend.
Sample Competitive Categories: cell phone accessories, pet supplies, supplements, grocery (keto, tea), health & beauty, kitchen items, etc
4. The Current ACoS of the Campaign: “10% Rule”
As a rule of thumb, changes to ACoS Targets should be done in incremental steps, usually within 10% of the current ACoS or higher. For example, if the campaign is running at 45% and you want to decrease spend, then setting ACoS Targets at 41% is a safe step in the right direction. Then sales and ad spend can be monitored to review impact.
Setting ACoS Targets that is more than 10% lower than the current campaign ACoS may result in an excessive decline in sales.
If a campaign has no ACoS, an initial ACoS Targets setting near the product gross margin percentage would drive a break-even ad spend as a starting place for ad performance monitoring, which can then be followed by refined settings to support the ad strategy.
5. Campaign Structure:
ACoS Targets are set at the ad group level. ACoS Targets set for campaigns will apply to all ad groups, and you have the ability to use different bidding strategies based on the goals of different ad groups.