What Is a Good ACOS? A Poor Question with a Better Answer
If you're asking your agency, "What is a good ACOS or ROAS for my product?" you're opening yourself up to risk.
It’s a common question, but one that exposes you to potential misalignment between your goals and those of the agency managing your advertising.
Here’s the catch: An agency that bills based on a percentage of ad spend or sales is naturally incentivized to maximize those values – not necessarily to maximize your profit. What’s “good” for them might not be good for you.
For brand managers and P&L owners, a “good ACOS” isn’t about vanity metrics or inflated ROAS. It’s about one thing: 👉 Profitability – immediate or future.
ACOS Should Be a Function of Your Business Goals
Let’s break it down with real-world examples:
Selling apparel with 30% channel margins? A “good ACOS” might be anything below 30%, ensuring you maintain profitability on each sale. In fact, an ACOS closer to 20% allows for a healthy buffer to absorb Amazon fees and other expenses, leaving you with a 10% margin.
Selling high-LTV supplements with 5x Subscribe & Save rates? Your ACOS could exceed 100%, and it would still be profitable over time. The first sale might break even (or even lose money), but the long-term value (LTV) of that customer makes it worthwhile.
👉 The real question isn’t “what is a good ACOS?” but rather, "What ACOS supports my profitability goals and long-term growth?"
Why Agencies Can’t Always Answer This for You
Agencies operate on incentives. The more you spend, the more they make. Even if you think their goals align with yours, that may not always be the case.
Here’s where it gets risky:
An agency that charges a percentage of spend might focus on maximizing spend to grow their fees.
An agency that charges a percentage of sales might prioritize scaling aggressively – even at the expense of your margins – to drive short-term growth and inflate their commission.
In either scenario, your profitability can take a backseat to their billing cycle.
👉 "A good ACOS is one that makes sense for your margins, product lifecycle, and growth ambitions – not one pulled from an agency’s best-case scenario deck."
How to Take Control of Your ACOS
The solution is twofold:
Test Your Agency’s Knowledge
Instead of looking for flexible fees, gauge how well your agency understands unit economics. Ask, “What is a good ACOS for this product?” If they answer without referencing your margins or asking for unit economics, they don’t have the full picture.
Know Your Unit Economics
When you fully grasp your Amazon P&L (fees, margins, and lifetime value), you can define success by your standards. This empowers you to make more informed decisions, preventing unnecessary ad spend that doesn’t move the needle.
At Virtuous Commerce, we emphasize understanding the full unit economics behind each product. By mapping ACOS to actual profitability, we ensure our clients grow sustainably.
Real-World Example: ACOS Done Right
A health and personal care brand approached us with a 40% ACOS, believing it was too high. After diving into their LTV metrics, we discovered:
65% of their customers reordered within 60 days.
The average customer purchased 3x per year.
With margins at 50%, they could afford to run ACOS as high as 120% for initial orders.
Result? We shifted their strategy to focus on NTB (New to Brand) and competitor targeting. ACOS rose to 75%, but overall profitability increased by 30% within six months due to repeat orders.
👉 Key takeaway: High ACOS isn’t always bad. It depends on your long-term game.
Building a Profitable ACOS Strategy
Here are the steps we recommend to determine a profitable ACOS for your business:
Know Your Margins
Understand how much margin exists per sale. Factor in Amazon fees, shipping, and COGS.
Calculate LTV
Identify how many times the average customer purchases from you over 12 months. Higher LTV products allow for higher initial ACOS.
Understand Incrementality
Focus on ad-attributed sales that genuinely contribute to growth. Evaluate how much overlap exists between ad-driven purchases and organic sales. The more incremental the sale, the higher ACOS can be justified.
👉 Goal: Maximize your ability to spend while ensuring the incremental profitability of the advertising program.
Final Thought:
If you don’t know your numbers, you’re flying blind. Take control of your ACOS. Understand your unit economics, LTV, and contribution margins. Then, you can confidently answer the question: "What is a good ACOS for my brand?"
