By Marina Sala, on 3 January 2024
Every brand allocates a specific portion of its annual budget to advertising. It is essential to have metrics that enable the analysis of campaigns to determine their profitability, such as ACOS (Advertising Cost of Sales). But what exactly is ACOS, and how is it calculated?
What Is ACOS in Digital Advertising
ACOS, or Advertising Cost of Sales, refers to the percentage of a company's revenue allocated to digital advertising campaigns.
This marketing metric is used to compare the amount invested in advertising with the amount received or the profits obtained. In other words, ACOS indicates how much money has been earned in relation to the money spent. This allows you to assess the profitability of an advertising campaign.
ACOS is often confused with ROAS, but they are different metrics that serve a similar purpose. It should also not be mistaken for ROI, which considers a broader range of investments, not just advertising.
Calculating Advertising Cost of Sales (ACOS)
To calculate ACOS, the following formula is used:
ACOS = Ad spend / Ad revenue x 100
For example, for an advertising campaign that cost 125 dollars and generated 500 dollars in sales, the result would be:
125 / 500 x 100 = 25%
This result indicates that 25 cents have been spent on advertising for every dollar earned, making the campaign positive and cost-effective, as profits were obtained with a modest investment.
Typically, the goal is to minimize ACOS, so it is crucial to regularly review general keywords, exact or phrase match keywords, and negative keywords to identify potential improvements. Additionally, time and patience are key to enhancing your results.
What’s the Difference Between ACOS and ROAS?
ACOS is often confused with ROAS, which is a metric that indicates the return on ad spend.
The main difference between the two metrics is that ACOS is used to understand the investment made in advertising to generate profits, while ROAS is used to determine how much profit is obtained for every dollar invested in advertising. In other words, ROAS would be the inverse metric of ACOS, since it is calculated by dividing advertising revenues by the investment made:
ROAS = Sales generated through advertising / advertising investment x 100
Despite this difference, both metrics are useful for understanding the effectiveness of advertising campaigns, making them equally valuable.