06/09/2024
Calculate your profit performance
While break-even ACoS ensures you’re not losing money, target ACoS goes a step further.
Your target ACoS is where you’re not just breaking even but also achieving a specific profit margin after accounting for advertising costs.
Target ACoS = Profit Margin Before Advertising – Target Profit Margin After Advertising
It may be lower or higher than your break-even ACoS, depending on whether you want to maximize profitability or growth.
For example, if you are launching a new product or entering a new market, you may be willing to accept a higher ACoS to gain visibility and market share. On the other hand, if you have an established product or a competitive advantage, you should keep target ACoS lower to increase your profit margin and ROAS.
Let’s continue with the same product example. If you want to maintain a profit margin of 10% after advertising, your target ACoS would be calculated as follows:
Target ACoS = 25% – 10% = 15%
So, your target ACoS, in this case, would be 15%. This means that if you want to keep a net profit margin of 10%, you should only spend 15% of your revenue on advertising.
Note: There is no one-size-fits-all formula for finding your target ACoS, but a good starting point is to use your break-even ACoS as a reference and adjust it according to your goals and situation.
