Why Is Your ACOS So High?

Why Is Your ACOS So High? Michael Erickson Facchin: So what we are looking at here in the orange bars is the amount of non-converting spend for the last year for a real account. And you'll notice in November 2023, there was $50,000 of non-converting spend. And this trend continued for many months, eventually was brought down. But for the most part, we're looking at an account, which is actually a high performing account, has a good ACOS. Everybody's happy about it. Yet, when you begin to peel back, you realize that almost $500,000 a year is being spent on things that do not have orders. Today, we're gonna be talking about ways to reduce this, ways to trim it out. We're gonna be touching on three ways to get this done in our series of non-converting spend. So, the name of this episode is, Can We Please Talk About Non-Converting Spend? A.K.A. The Reason Why Your ACOS Is High. I'm recording this in December 2024. My name is Michael Erickson Facchin. Welcome to The PPC Den podcast, the world's first and longest running show all about how to make your Amazon PPC life a little bit easier and a little bit more profitable. Now, today we're gonna get down in the weeds. We're gonna get down in the muck. We're gonna get muddy because we're gonna be dealing with good old-fashioned foundational PPC. Designed to just help improve your ACOS. Not much more about that. If you're new around here, please go and get our Google Sheet with all of our episodes categorized and organized for you in a way that is really easy and digestible. It's been described to me recently as one of the best free courses on Amazon advertising that there is. So go get it. It's free. Check it out. Unknown Speaker: I've launched campaigns. And picked keywords. I've got my bids. Set placements too. And bad mistakes. I've made a few. I've had my share of problems. Oh, yeah, yeah, yeah, I'm a creepy suit and my frills We are the PPC. No time for medicals, cause we fixed the game. Michael Erickson Facchin: I like to start my visual presentations here and if you are driving in the car or doing your dishes or on a run or at the gym, don't worry, I'll be reading everything to you. And this is a quote from Roy T. Bennett. He says, be thankful for everything that happens in your life. It's all an experience, even when you find out how much non-converting spend you have, ladies and gentlemen. So let's jump into it because this presentation is about fixing your ACOS. When I talk to sellers, there's one thing that they find most important, which is, please, will someone help me fix this gosh darn high ACOS? And number two is, of course, getting more sales. So really what people want is, can I get more sales at a better ACOS, please? Now, here's the truth about ACOS. I'm reading this to you. PPC accounts do not have a high ACOS because of the clicks that convert. They have a high ACOS because of the clicks that do not convert. What does this even mean? Said another way, the reason you have a high ACOS is because of all the non-converting spend, not the clicks that converts. The clicks that do convert, the clicks that do have orders, even if it doesn't look good right now, those are your golden children. Those are the things that you should be waking up every morning and thanking and kissing and hugging. It is the things It's the clicks that do not have orders that are your problem. So here's a common way that people interact with their PPC accounts, which they should not be doing. You should not be going and sorting by ACOS, highest to lowest. Now, when you do, you will see things, you'll find keywords in there that have an ACOS of 100%, 200%. And yes, there are ways to fix it. And there are things that you will do over the course of listening to a show like this. We talk about bid optimization, budget optimization, and targeting optimization, and all these different things to bring a keyword that's at 100% down to 50% and from 50% down to 30%. There's lots that we talk about to bring that down. One of the big ones, of course, being bid optimization. In reality, these keywords with orders, the things that have an ACOS, that's not really your problem, bro. The things that are your problem are the amount of spend that you're spending on things without conversions. The non-converting search terms, that is your problem. That's why your ACOS is so high. So, I use a real world example of an account that I believe does this egregiously. And this is my friend's account. This is an IRL friend who found out what I do. And he's like, Oh, like, let's talk about it. And I gave him a whole bunch of stuff to do. And so I know he's not listening. Because he doesn't do this. I didn't take my advice. Because inside his account, it's an ecom brand selling on Amazon. This is a real account, ladies and gentlemen. 35,000 a month in ad spend, so it's a pretty beefy sized account. 35,000 a month in ad spend, 28,000 non-converting. 35 spend, 28 non-converting. My friends, that is 80% non-converting spend in this account and this account I actually has a good ACOS. It's 135,000 sales. So on the left screen cap right there, I did a filter or I'm sorry, I calculated all the spend, 35,000. And on the right side, I calculated how much spend with a filter for seven-day sales equals zero from their sponsored product search report. So this account is truly, truly wild. It has a 25% account ACOS. But it's wasting 80% of their spend. Now, if you've been listening to the show for a while, you probably have a keen sense of it. But basically, this account, the things that do convert, convert extremely well. And that masks, that hides all the amount of non-converting spend for them, meaning their overall account ACOS could be like 10, 15, but instead it's way up here at 25%. Now, most people in 2024 going into 2025 would kill for a 25% ACOS, but the point stands most of the time, non-converting spend is what is driving up your ACOS. So how, To think about this, we're going to be talking about this. I'm going to give you three ways by the end of this episode. Now I think about this sometimes, all the billions of dollars that all of us, and I say us because we're all Amazon advertisers ourselves, we're advertising on Amazon. How many billions of dollars we give of our hard earned money over to Amazon only to have potentially 50% of it go towards clicks that are not converting. So this is something that you won't often hear. But it's often the flashy things that get a lot of attention, the flashy things like some new thing. And of course, those flashy things we should do and get first mover advantage. And, you know, we're exploring all those things. I study all those new things quite rigorously. But let's not forget about first principles. $25 billion a year potentially in non-converting spend. That is the GDP of the country, Georgia. I've never been there, but it looks beautiful in pictures. So, it's worth remembering our first principles, which is dollars out the door and revenue in the door. So, first thing I'll say is, is all non-converting spend wasted spend? It's similar to the idea that all squares are rectangles, but not all rectangles are squares. Meaning, not all non-converting spend is wasted, but all wasted spend is non-converting. We use the ACOS power ratio to help us determine Like amount of waste and an ACOS power ratio sort of over three or four could be an indicator that there's a high chance of waste. And wasted spend is actually difficult to track down because it's tucked into non-converting spend. And non-converting spend is a way of life on any platform, anywhere. People will look at your social media and not buy something from you. You know, if you paid for those social media impressions and the people that didn't buy from you, that would be wasted spend. People click on your Shopify website from Google, that's not going to have 100% conversion rate. You bid on a keyword on Amazon, that's not going to have 100% conversion rate. So a 100% conversion rate is an impossibility on the internet, but It's just a matter of at what level is acceptable. There's a lot of different business considerations that you would make, like what is your overall ACOS? What is your overall margins? What is the goal of the business? And for the most part, any account really does have a threshold where even if the account is going swimmingly like my IRL friend, even if the account's going well, it is very likely that there's non-converting spend happening And it's more than you think it would be. And it's more than you want. And you'd be of the benefit to trim it out and then reallocate that spend towards things that do convert. Because your account level ACOS is only two things. It is the ACOS of converting keywords, which is usually very low for most people. And then there's ways to control it. Of course, we talk a lot about bid optimization and revenue per click bidding. It's something that we've talked about for years here on the show. And the second thing To know that contributes to your ACOS is, of course, the amount of non-converting spend. And the amount of non-converting spend is actually much easier to control. So we're going to focus in on it today. So hopefully today you've already had a little bit of a mindset that, oh, non-converting spend, you should be paying attention to this. I'm going to go over some concepts. Over the years, we've released some free tools, like some free spreadsheets to help you identify this stuff and how I manage it in our tool. First principle, what gets measured gets managed. Go here right now, my friends. Pause the episode if you're driving. Wait until you get home, but go download a sponsored product search and report. And then run a filter on it, right? Click on that column with the sales. And select zero for a sales value. Find out how much non-converting spend you actually had in the course of a search and report. So for this search and report, I like to do this month by month. If you can, try to combine at least two or three months for a search and report. And begin to log this stuff down, whether you log it week by week or month by month. One of my favorite episodes that I did in 2024 was what I call the interstellar Amazon PPC manager, which is like, imagine you couldn't log into your PPC account and you can only get stats back and you had to give directive about how to manage the account based off those stats. One metric that I would absolutely want to track is of course, the amount of non-converting spend. Because if that number goes up, And my ACOS is not where I want it to be. That would be one of the first things that I trim out. And, you know, I don't have a soapbox on this episode, but if I stand on it real quick, I would say we sometimes talk about like ACOS and PPC management. And like I've asked people before, like if you approach an account for the very first time, like let's say you're new or you bring somebody on board to manage your campaigns, one thing they'll generally do in the beginning is like do this, like download search and report how much non-converting spend. They'll get that number and then it never gets looked at again. And reducing waste in a PPC account should be something that we do all the time. We should always be looking at it. So just track this weekly or monthly if you can. I had a great episode with my friend Brent where we talked a lot about this concept. It was a good one. It was a beefy one. 46 minutes. So you can see the impact of this in accounts. So this is from another account. And one thing you'll see is December 2023, we had a 25% ACOS with a lot of non-converting spend. There's over $20,000 in non-converting spend. The very next month, that non-converting spend was brought down a lot and we dropped to a 20% ACOS. So fantastic optimization here, right? Has a lot of non-converting spend, shrink it down. In January, ACOS gets better. Shrink it down in February, ACOS gets better. And that stays the trend for this particular account all the way until July 2024, where non-converting spend was increased and our ACOS moved from 19% to 24%. So you can watch your non-converting spend be heavily, heavily correlated with changes in ACOS. So the more non-converting spend you have, generally the higher the ACOS of your account gets. And this is a graphic that we added recently And I absolutely love it because it allows people to sort of see their accounts in a particular way. Other things that I think would be valuable for you to track on a weekly basis, like because you're calculating the amount of non-converting spend. So that's the amount of amount of spend and then without order spend. So this is your non-converting spend. So without order. So you track that right next to it. And then, of course, track the percentage, right? You've already tabulated it, so now the percentage is actually quite easy. Now, a lot of accounts that I see, they might have a 20% non-converting spend all the way up to 70, 80% non-converting spend. And truthfully, the ACOS can be all over the place. And ultimately, my hunch is that no matter if you feel good about your ACOS or if you feel bad about your ACOS, most people generally have this urge to make it lower no matter what it is. And again, the big thing, get more sales at a better ACOS. So like, how do you do both of those at the same time? People often say that it's the most impossible thing to do. Get more sales at a better ACOS. They often say that these are conflicting goals because if you're trying to expand the account, if you're trying to grow the account, you're launching new campaigns, you're launching new keywords, you're doing new things. And that generally gets you more sales volume, but it also brings along non-converting spend and brings up your ACOS. Managing your non-converting spend allows you to thread that needle because if you get rid of your non-converting spend and then you spend more on stuff that does convert, You will be in a very good position to get more sales at a better ACOS within a single month. And you can look here, I won't spend too much time on it, but this account actually does do that sometimes. They get more sales at a better ACOS because they're addressing the amount of non-converting spend. You can pause it here and look at this. I won't spend too much time reading a spreadsheet to you, although I really do like it. I would use my calming voice. In June 2024, we had 58% Non-converting spend with an ACOS of 19%. July. I'm kidding. We'll move on. Now in that last column, we do have the ACOS power ratio, which is basically the ACOS of the account divided by the ACOS of what you would have had if you only had converting spend. So this is what I mentioned in the beginning of the show. Your ACOS is high. Your ACOS you don't like, and it's not because of the things that do have orders. It's because of the things that don't have orders. So if you look at the things with orders, you know, On this account as a whole, it would have had an 8.7% ACOS, but when you add all the non-converting spend, it more than doubles up to 21%. So for the most part, this is going to be true in most people's accounts. You know, if you have a 50% ACOS average, it is very likely that the ACOS of things with an order is probably like 10 or 15%. So when you add in all the non-converting spend, you end up with your account level ACOS. We measure that by ACOS power ratio, which is the difference between your Normal ACOS versus your ACOS of things with orders only. Episode 121 of this here show talks about the ACOS power ratio. So please do your own exercise here. Please really do this. Download a search term report, look at the amount of non-converting spend, what's the percentage of it, and begin to track this monthly. You have enough in your account to at least do two months. Amazon sort of makes it difficult unless you've queued up those search terms and stored them over time. So let's talk about those three strategies. The first strategy is a tried and true. We've talked about this before on the show. Download a search and report, sort it by spend, run the filter for no sales, and you will see things above a certain threshold. For the most part, people will feel uncomfortable about their ad spend at like 25 without an order or 30 without an order. It's an easy way to draw a line in the sand, which basically 3X your average cost per order. So whatever your average cost per order is, put a line in the sand, And then just begin to eliminate anything like that. You don't need a tool to do this necessarily. You can use a spreadsheet and then go and upload these negatives. I did mention I would show you how I do it inside AdBadger. So inside AdBadger, you can sort of customize this on a per-campaign level. You can customize when it runs. So a lot of people run it on Sundays and then log it on Monday and see what was added. What's interesting about the things that we prioritize was we put a six-month look-back window at minimum. You can also go 999 days. To ensure that anything there gets added and trimmed out. So being able to store it so you can avoid these things that get like two clicks a month. Never convert over a year. It's 24 clicks over two years. It's 48 clicks without an order. It's very important to do. The second thing to do, of course, is Ngram analysis. You can go to Google, type in Ngram Ad Badger. I've done a lot of this over the years. I think the first time I brought it up was August 2022. And if you're new to this concept, again, most search terms only have one or two clicks, and it's very difficult to do anything about it. These things may never hit your upper threshold, right? But when you look at a search term report by amount of clicks, you know, in this one, it has over 750, one term has almost a thousand clicks. Yeah, I got a couple terms in here, almost 250 clicks. For the most part, most terms have very, very few clicks. In fact, that particular account, 94% of it was clicks went to five. Only 5% of it had clicks over five. So, most of your search terms are accumulating spend without orders are actually very, very low and it's difficult to do anything about it. So, you can get a free spreadsheet. It's in that checklist. It's an Ngram analysis. You basically paste in your search terms and what it does is it takes each search term and it splits it out, one, two, and three. So, it says running water bottle. It'll split it out and it'll find every single search term with the word running in it or every single search term with the word water or the word bottle in it. And it will tell you for every single search term with the word running in it, you had 45 clicks and no sales instead of just looking at running water bottle, which had only one click. So, that's really, really handy. Please go learn about Ngrams if you're not doing it. I don't think you're doing search term management. It's one of the most important things. Another thing that I find really, really valuable is, of course, duplicated search terms. So, duplicated search terms is as it sounds. When you're looking at a search term report downloaded from Amazon, you see a bunch of different rows and you might have the same search term in five, 10 different rows. And that is fine for the purposes of reporting what search term and what ad group did well, but it's difficult if you're trying to find out, like if you combine those 10 search terms that are the same in five different places, It's difficult to do that with a normal search term report, so you must have a way for you to combine duplicated search terms. Now, actually, duplicated search terms, I do not have a free spreadsheet on, but I should probably create one where you just paste in your search term report, and it'll just highlight the duplicated ones for you. Now, that's a default setting in Google Sheets. Take a spreadsheet, put it into Google Sheets, highlight the row, conditional formatting, highlight duplicates. This is the easiest way for you to go and find duplicates. You can also run a pivot table on it where you basically go and combine your search term, and it'll tell you, combine the amount of clicks, like some of the clicks, some of the spend for you, which will be really valuable for you. So please do some kind of duplicate search term analysis. I built Duplicate Hunter, which allows me to do this in sort of an app-based way, which I really appreciate. But my point here is, Please track your non-converting spend over time. Please be sure you have some time dedicated or some tool dedicated to upper limit threshold management where you're managing your search terms. Number three, please do n-gram analysis so you can find trends in low-click search terms. And of course, do some duplicate hunting so you can find where search terms are doing well, where they're doing poorly. Combine it for more data. Incredibly valuable stuff. So those are the three things that I do to keep my non-converting spend at bay. My bonus ones are proactive negative keyword research. I talk a lot about that on the show. Go out there and use a keyword research tool to instead of find terms you want to go after, but use it to find terms you do not want to go after. So a really simple example is like to punch a competitor in and like your competitor has unique terms that don't apply to you. Boom. Those are new negatives for yourself. Go use a tool, like go find some new negative phrases. I talk a lot about it on that show. I talk a lot about this on the show. Campaign structure and product considerations will be another bonus, which is basically I generally find the more non-converting spend one has, the higher their SKU count. Somebody with one SKU versus 100 SKUs versus 1,000 versus 10,000, a person with 10,000 is likely going to have More non-converting spend because every single product seems to have its own amount of non-converting spend that follows it around. So it's worth considering when to combine this stuff and when to break it out. This applies to keywords as well. So sometimes you might have a keyword or a search term that when it's by itself racks up non-converting spend, but perhaps if you roll this in to a sort of more broad match type, you'll actually end up doing a little bit better. That can happen. My friends, we've made it to the end of the episode. Be sure to like and subscribe on YouTube if you're watching this on YouTube. You can join 10,000 of us from Badger Nation on YouTube or you can sign up for our newsletter where we publish weekly Amazon advertising tips and news. You can join 25,000 people over there or you can subscribe to the podcast wherever great podcasts are found. My name is Michael Erickson Facchin. It's an absolute pleasure to do this screen share with you, publish this episode today. I hope you go out there and you feel a little bit more empowered to get down in the weeds with me and get into the shop, get the wrench out, start demolishing Some non-converting spend and bring that percentage of non-converting spend down. I'm almost positive you can probably bring it down wherever it is from like 50% to 45% very easily and you'll be saving a couple grand a month hopefully. Have a good one. My name is Michael Erickson Facchin and I will see you next week here on The PPC Den Podcast.