The number that matters
Every sale on Amazon has the same basic sum behind it:
Profit = sales price − product cost − Amazon fees − advertising cost
Most PPC management only looks at the last part of that sum. ACOS (ad spend divided by ad sales) tells you how much you paid in ads for each dollar of sales. It doesn’t tell you whether that sale made money, because it knows nothing about your product cost or your fees.
That’s why we start every account by working out the unit economics of each product. Once we know the profit per unit before ads, we can work out what each campaign actually earns you.
Break-even ACOS: the first thing we calculate
Your break-even ACOS is your profit margin before advertising. If a product makes 40% profit before ads, an ACOS of 40% means ad sales break even. Below 40%, the ads make a profit. Above it, they lose money on the ad sale itself.
That one number changes how you read a report. A 30% ACOS is healthy on a product with a 45% margin and a loss on a product with a 25% margin. Treating them the same, as a single account-wide ACOS target does, means you under-invest in your best products and over-invest in your worst.
A worked example: when a higher ACOS makes more money
Take a product that sells for $25. Product cost is $7 and Amazon fees (referral and FBA) are $8. That leaves $10 profit per unit before ads: a 40% margin and a 40% break-even ACOS.
Here are three ways to run the ads in a month:
| Low ACOS | Balanced | Aggressive | |
|---|---|---|---|
| ACOS | 20% | 28% | 35% |
| Ad spend | $1,000 | $2,800 | $5,250 |
| Ad sales | $5,000 | $10,000 | $15,000 |
| Units sold from ads | 200 | 400 | 600 |
| Profit before ads | $2,000 | $4,000 | $6,000 |
| Profit after ad spend | $1,000 | $1,200 | $750 |
The “low ACOS” month looks best in a traditional report. The balanced month makes more money. The aggressive month sells the most and makes the least.
Most products have a level of spend where profit peaks, and it’s rarely at the lowest ACOS. Finding that level, and moving it as costs, prices and competition change, is the job.
These numbers are illustrative. Real accounts are messier: conversion rates change as you bid higher, clicks get more expensive, and some keywords never pay. That’s exactly why we measure profit per product instead of relying on a rule of thumb.
Why we look at the whole account
Ads don’t only produce ad sales. Extra sales through ads can help a product’s organic rank, and better rank brings more organic sales. Amazon doesn’t publish its ranking formula, but sales history is widely understood to matter, and many sellers see organic sales move with ad activity.
So we track total account profit, from paid and organic sales combined, as well as ad profit. Sometimes the right move is to spend more on ads for a product at break-even, because the organic sales it supports are where the profit is. Sometimes it’s the opposite: a product ranks well on its own and the ads are just buying sales you’d have got anyway.
TACOS (ad spend divided by total sales) is a step in the right direction because it includes organic sales. But it still ignores margin. A falling TACOS on a product that loses money on each unit isn’t good news.
Targets set by product, not by account
Not every product has the same job. We give each one a target based on its margin and where it is in its life:
- Launch: new products where we accept break-even or a small, planned loss to build sales history and reviews. We agree the budget and the time limit with you first.
- Grow: products with room to win more of the market, managed to the spend level that maximizes profit.
- Harvest: established products with strong organic rank, where we protect key positions and cut spend that isn’t adding sales.
What we need from you
To manage profit, we need your product costs. We’ll also ask for any other costs you want included, like inbound shipping or prep. We treat this data as confidential, and it’s covered by our terms.
Without cost data, an agency can only manage to ACOS. That’s the gap we set out to close.