What is break-even ACOS?
Break-even ACOS is the ACOS at which your ads cost exactly the profit their sales leave. It equals your profit margin before ads. Below it, each ad sale still makes money; above it, each ad sale loses some.
It turns the question "is a 30% ACOS good?" into a plain yes or no for your product: yes if your break-even ACOS is above 30%, no if it is below.
How do you calculate break-even ACOS?
Take what one sale leaves you before ads, divide it by the selling price, and multiply by 100.
Example: a product sells for $30. It costs $7 landed, Amazon keeps $4.50 of referral fee (15%) and $5.50 of fulfillment fee, and $1 goes to shipping it to Amazon. Profit before ads = 30 − 7 − 4.50 − 5.50 − 1 = $12. Break-even ACOS = 12 ÷ 30 × 100 = 40%.
Break-even ACOS = (price − product cost − Amazon fees − other costs) ÷ price × 100
What is a target ACOS?
Your target ACOS is your break-even ACOS minus the profit margin you want to keep after ads.
With a break-even ACOS of 40% and 10% of the price kept as profit, the target ACOS is 30%. At that ACOS, each $30 sale still leaves $3 once the ads are paid.
Set your bids from the target, never from the break-even: the break-even leaves nothing, and real campaigns swing around their average from one week to the next.
Target ACOS = break-even ACOS − profit margin to keep (in % of the price)
Break-even ACOS for KDP books
For a book, the profit before ads is the royalty KDP pays per copy: break-even ACOS = royalty ÷ list price × 100.
An ebook at $4.99 with the 70% royalty option pays about $3.40, depending on its file size: a break-even ACOS of about 68%. A paperback at $14.99 that pays you $4.50 per copy breaks even at 30%.
Amazon's ACOS only counts sales. Kindle Unlimited page reads earn royalties too, which Amazon reports apart as KENP royalties, so a book enrolled in Kindle Unlimited can make money above this break-even ACOS.
Break-even ACOS for Merch on Demand
Merch on Demand shows the royalty of each product at each price: divide it by the list price. A $19.99 shirt that pays a $3.00 royalty breaks even at an ACOS of 15%.
Thin royalties leave little room. At a 15% break-even, a keyword that needs 10 clicks for one sale must cost less than $0.30 a click to pay for itself.
Which costs go into break-even ACOS?
Every cost that comes with each unit sold, and nothing else.
- The landed product cost: manufacturing, freight to your warehouse, duties.
- Amazon's referral fee, a percentage of the selling price.
- The fulfillment fee: FBA, or your own shipping if you ship yourself.
- Storage, packaging, shipping to Amazon and returns, averaged per unit sold.
- Not your ad spend (that is what the ACOS measures), and not your fixed costs such as software or salaries, which the profit left after ads has to cover.