ACOS: A Beginner's Guide

ACOS (Advertising Cost of Sale) is a simple percentage that connects ad spend to sales revenue. For merchants running paid campaigns—particularly on marketplaces like Amazon—ACOS answers the question: "How much of my sales revenue is being sacrificed to pay for advertising?" It’s often the first metric sellers learn because it is easy to calculate and provides a fast sense of campaign efficiency.

The core formula is straightforward: ACOS = (Ad Spend / Attributed Sales) × 100%. If you spend $50 in ads and those ads are credited with $500 in sales, your ACOS is 10%. A lower ACOS generally indicates greater ad efficiency, while a higher ACOS suggests ads are expensive relative to the revenue they produce.

Why ACOS matters for beginners

• Easy to understand. You don’t need advanced accounting to use it.
• Actionable. If ACOS is higher than acceptable, you can test ways to reduce it—improving keywords, creatives, or bids.
• Benchmarking. It gives a quick way to compare campaigns, products, or time periods.

Real-world example

: imagine a new seller launches sponsored ads for a kitchen gadget. In the first month they spend $200 and Amazon attributes $1,000 in sales to those ads; ACOS = 20%. The seller can now compare this 20% to their gross margin or break-even advertising cost. If their profit margin after product cost is 30%, a 20% ACOS might be acceptable because ads still leave margin for profit and operations. If their margin is only 10%, the same 20% ACOS indicates they are losing money on ad-influenced sales.

Important nuances for beginners

• Attributed Sales vs. Total Sales. ACOS uses sales attributed to ads, not necessarily all sales that might be influenced indirectly. Always check how your platform defines attribution windows.
• ACOS is not profit. It compares ad spend to sales, not to net profit. A low ACOS can still be unprofitable if product costs or other expenses are high.
• ACOS varies by objective. If your goal is brand awareness or market share, you may accept a higher ACOS than if your goal is immediate profit.
• Short-term vs. long-term impact. Ads can deliver long-term value—new customers, higher organic ranking, repeat purchases—that ACOS doesn’t capture directly.

How beginners should use ACOS

1. Set a reference: calculate your target or break-even ACOS using product margin and business goals.
2. Monitor ACOS by campaign and product to identify high-cost areas.
3. Use ACOS together with conversion rate, click-through rate (CTR), and impressions to diagnose campaign health.
4. Improve incrementally: test one change at a time—keyword bids, negative keywords, or ad copy—and watch ACOS change.

Limitations to keep in mind

• Attribution differences. Different advertising platforms use different windows and rules, so ACOS comparisons across platforms can be misleading.
• Short-term focus. ACOS favors cost efficiency over strategic growth measures like lifetime value.
• Influenced by external factors. Seasonality, product reviews, and competitive activity can move ACOS independently of your ad optimizations.

Beginners should treat ACOS as a friendly early-warning metric: it’s quick to calculate, easy to monitor, and helpful for daily campaign decisions. But as you grow, pair ACOS with profitability calculations and customer lifetime metrics to make fully informed choices. Start by choosing a target ACOS that aligns with your margins, track changes after every test, and remember that ACOS is one useful lens among several for running healthy advertising campaigns.