What is ACoS?

The formula

ACoS = ad spend ÷ sales credited to the ads × 100

ACoS is the measure marketplace ad consoles show most often, especially for sponsored-product ads. It answers one question: for every rupee of sales the ads are credited with, how many paise went on ads?

ACoS and ROAS carry the same information turned upside down. An ACoS of one-fifth is a ROAS of 5. Use whichever your team reads more easily, but do not mix the two in one report.

Break-even ACoS

An ad campaign stops making money when ACoS rises above the share of net revenue left after product cost and fulfilment, which is CM2 as a share of net revenue. If CM2 is ₹30 on every ₹100 of net revenue, the break-even ACoS on net revenue is 30. Above that, every order the ads bring in loses money at CM3.

A lower target than break-even leaves room for the order's share of fixed costs and for profit.

Why the console figure flatters the result

The sales figure in an ad console is not net revenue:

• It is usually the price the customer paid, which can include GST, and GST is not your income.
• It counts orders that are later cancelled, returned or come back as RTO.
• It credits a sale to an ad if the shopper clicked the ad within the platform's attribution window, even if they would have bought anyway.

So the console ACoS is usually lower than the true ACoS on net revenue. Convert it before comparing it with your margins, and judge campaigns over a long enough period for returns to show up.

TACoS: ads against total sales

TACoS (total advertising cost of sales) = ad spend ÷ total sales of the product, from ads and organic search, × 100.

TACoS shows how much the business as a whole depends on ads. A falling TACoS while sales grow means organic sales are growing faster than ad-driven ones. A rising TACoS means sales are being bought.

Using it well

• Track ACoS by campaign and by SKU, because a few high-margin SKUs can carry campaigns that lose money on others.
• Set a different target for launch campaigns, where you accept a high ACoS for a limited time to build reviews and ranking, and for mature products, which should run near or below target.
• Include ad spend in your SKU-level P&L, so a product's profit is shown after the ads that sell it.