Amazon advertising can feel like a sea of acronyms — CPC, CTR, ACoS, and more. Understanding these terms can help you to track whether or not your advertising strategy is effective, along with giving you the tools to optimize your ads over time.
We’ve put together an overview of seven key metrics for Amazon ad performance, including how to calculate them.
1. Impressions. This measures the number of times that a potential customer was shown your ad. It tells you how many times a potential customer had the opportunity to click on your ad, but doesn’t tell you anything about that person’s behavior. Amazon doesn’t charge for impressions; it charges for clicks.
2. Clicks. When an ad is rendered, a person can choose to click on that ad. Measuring clicks tells you how many times potential customers chose to click on the ad. Amazon ads are Pay-Per-Click (or PPC — yup, another acronym!), so Amazon charges based on clicks.
3. Cost-Per-Click (CPC). Amazon charges sellers per click, but not all clicks are created equal. CPC varies widely across categories, depending on how competitive the category is. Because Amazon advertising operates on an auction model, how much you’ll pay for any given click can change. The CPC metric on an ad tells you the average cost you pay per click.
You can calculate CPC by dividing money spent on an ad by clicks that ad received.
CPC = Ad Spend ÷ Clicks
4. Click-Through Rate (CTR). Click-through-rate measures the percentage of impressions that result in clicks. This is helpful for evaluating the relevancy of keywords that you’re bidding on. A low CTR with a lot of impressions means Amazon is delivering your ad, but then people aren’t clicking on it. Typically that means you’re bidding on non-relevant keywords.
You can calculate CTR by dividing clicks by impressions.
CTR = Clicks ÷ Impressions
5. Conversions. Conversions measures the number of times that an ad resulted in a sale. You might think of conversions as the number of sales that can be attributed to advertising.
6. Advertising Cost of Sales (ACoS). Advertising Cost of Sales is a measure that’s unique to Amazon. It tells you the ratio of ad costs to ad sales. This can help you to understand the efficiency of your advertising. Trends in ACoS depend on the lifecycle of an advertising campaign and goals for that campaign. A newly launched campaign may have a high ACoS while that campaign is establishing itself and gathering data with impressions and clicks. A campaign in a profitability stage will have gathered the data and gained the traction to be able to run at a lower ACoS.
ACoS is calculated by dividing ad spend by ad sales.
ACoS = Advertising Spend ÷ Advertising Revenue
7. Total Advertising Cost of Sales (TACoS). While we recognize the value of ACoS as an important metric for campaign performance, at Teikametrics we’re big fans of a slightly different metric — TACoS.
The value of this metric is that it takes into account not only the effects of advertising on ad-attributable sales but also the effects of advertising on organic sales. Our Flywheel software calculates TACoS so that you can truly understand whether your advertising is creating the Flywheel effect and helping your product rank higher organically and increasing overall profitability. High TACoS at the product level indicates inefficient spend, whereas low TACoS means your advertising is efficiently contributing to organic growth.
TACoS is calculated by dividing advertising spend by total revenue.
TACoS = Advertising Spend ÷ Total Revenue
Flywheel makes it easy to track ad performance metrics at the account, campaign, or product level.
For example, if you’re launching a new product your primary goal could be to increase clicks and impressions. Or, if a product is steadily selling you may want to focus on lowering TACoS. In either case, you should set your goals using specific metrics that match your overarching objective. That way you can easily track changes over time in Flywheel, determine whether you’re meeting your goals, and adjust your advertising strategy as needed or when your goals change.
Before long, you won’t even remember a time when you didn’t know what all the acronyms meant — and you’ll be on your way to managing your ads like a pro.