The ACoS Trap Every Amazon Seller Falls Into

AOS can go down while profit goes down too. Now AOSS is important but it's important to understand what was happening in the past and now why are so many brand owners still stuck with the AOS as the main and only metric. It is not a problem if it's the one of the many metrics or KPIs that you follow. But it's if the only uh metric that you drive your decisions off of that can be you know counterintuitive and you can actually lose money by reducing your a cost. Now for years it was the only metric that we as advertisers and brand owners had and it was the only way to judge the success of the account. So I remember several years ago the only important thing was like hey I can get your aos down to 10%. Now similar as on Google these many other individuals and companies are sending you emails like I can get you ranked number one on Google that sort of that was the same with with aos. So it was a simple metric like aos is down uh it's very low it means thumbs up if it's high you know uh you're doing a crappy job with us you know but obviously that that's not the case anymore because now we have all these other tools and um analytics like through Amazon marketing cloud in general I think the the overall knowledge about Amazon advertising has increased significantly which is a a great thing so the problem with a cost that I wanted to talk about is that a cost is a ratio it's not a profit signal yes you can uh calculate what your target a cost can be based on your COGS and other fees. When you take all of everything into the account, you calculate your profit margin and you can see what's your target a cost, okay? To have whatever 10 or 15 or 20% margin. And that's cool. You know, you shouldn't be uh you shouldn't stop doing that. You know, that's correct math and you have to know your numbers before you even start advertising on Amazon. You have to plan your product launch budgets as I already covered in previous videos, you know, but you know, it's um it's not a single metric that you need to follow. But I still keep hearing this like, okay, uh, what can we expect during the product launch? You know, we want to have our AOS down, you know, it's just not realistic, you know, uh, there. But I'm not going to go there. It's a it's a separate video. Um, because if if you just stick to the AOS, you can, you know, make impulse decisions. So you you can go into your campaign manager and see like something is like you know you you want to have a cost of 20% and you see something that's 35 you know and you uh reduce the budget and you reduce the bits hoping to bring the a cost down and you are bringing a cost down but h what h what happens is that you actually limit your overall sales you know if one campaign with 35% of a cost can have more can bring more profits than you know a campaign of 20% you know with with lower volume it's always a trade-off you know do you want to high volume and a little bit higher a cost and then more profit and drive know these um organic sales as well by know by pushing the the ads you know or you just want to know keep it under 20% a cost and then no complain and and um whine about your sales are stale and you know you don't see any any growth what is also possible you know you can calculate your break even a cost and just stick to it for for months you know after your product launch you know um and yeah by the way during a product launch a cost is something that should you should be looking at at all. You know, you can you should let it run up to 150, 20, 200%, whatever. No, just it's not the point, you know, but I'll cover that in in some other video. Um, so you have to account for organic rank. So I would gladly run ads at the break even a cost because okay you're not losing money you're not winning any money through ads you know not earning any money through ads but then again uh that kind that kind of volume that you're bringing with the ads you know is helping you with organic ranks as well you know with and in the long term it's going to pay off because you know eventually you will be uh lowering slowly and gradually your bids on advertising and organic ranks will um organic ranks will bring you more sales you know back basically for free. Another important also fact is that a cost as a sole metric excludes completely lifetime value of a customer. So that's something that you really need to account uh if you're selling consumables, you know, and you can have in any other category, you know, just repeat purchases, you know, LTV is something that you have to know. You have to calculate and be um willing to go and you know, there are multiple ways to to calculate that and I also share that as you can look up on our YouTube channel know but you know if you only look at the a cost and you say hey I don't want to have a cost on of 80% to acquire one one customer then but you don't realize maybe that once you acquire that customer he's going to be uh staying with you and you know keep buying for an additional 6 months or maybe he's going to subscribe and save and then there you go you know it's a it's worth the money you know to have this 8% 80% a cost but it's actually when you calculate the the lifetime value it can easily be like 10% or 14% you know but again it's It's a ratio. It's not a profit signal. Um, what to look instead? One of the the best uh metrics to look at alongside with a cost is always your profit margin. But al alongside profit margin, you the total a cost is like a metric that can give you some kind of a like more precise information on how you're doing and how profitable you are. I suggest that you always stick to to the profit margin you know how profitable you were previous week and previous two weeks pre previous months you know and that would give you a clear signal because total a cost can mislead you know you can have in one week you can have 18% of total a cost and that that can be um within boundaries and then your profit can go down significantly or it can go up significantly depends depending on all the other you know uh metrics that are happening in your in your account like whatever refunds or these increasing fees you know it's just you have to be careful with that. So it's not only a cost. I highly suggest total a cost for the for the start but there are other metrics you can you should be looking at. As I said if you're into consumables then LTV is a must. What also helps is profit per unit you know that's something that you can track in these uh multiple tools like you can sell is is a great one. It's a it's a really good tool at affordable um price you know and it gives you multiple um metrics that you can combine you know and get the clear picture. But profit per unit is also a good one. And then again I don't want to tell you that forget the a cost aos is important but you cannot look it as a single metric. You know you have to look everything holistically you know follow your revenue trends follow your week overweek data uh spot that um profit and know stick to to what's working and don't obsess over a cost. Don't go to your campaign and then go into panic attack whenever you see that a certain campaign has 150 a cost especially if it's a sponsor display. No cube column sponsor display is not meant to give you um immediate return. Sponsor display is for something else. Sponsor brand is for something else. Don't obsess sorry over a cost you know u we'll get into into weeds with with that uh additional troubleshooting meth methods in the upcoming videos but I wanted to start with the a cost. Now, again, it's um it's something that I keep hearing about like lower lower AOS, lower a cost. Um thank you for uh staying with me. Stay tuned for more videos and see you in the next one. Bye-bye.