Amazon Ads Yield High Conversions but Low Profits for Sellers

Many Amazon sellers face a common dilemma: their advertising campaigns generate impressive conversion rates and growing order volumes, yet the Advertising Cost of Sale (ACOS) appears alarmingly high, squeezing profit margins. Is this a successful campaign worth celebrating, or a money-losing effort that should be terminated immediately? The answer isn't as simple as looking at a single metric.

Imagine achieving peak traffic for your carefully managed store, only to realize each sale comes at a loss. This frustrating scenario often leads sellers to panic when ACOS exceeds targets, prompting them to shut down campaigns prematurely. However, this knee-jerk reaction might cause missed opportunities.

Is High ACOS Always Bad?

The answer is: not necessarily. Evaluating advertising effectiveness requires looking beyond ACOS to understand the strategic purpose behind each campaign. Like chess moves that serve different purposes—some for immediate advantage, others for long-term positioning—Amazon ads serve varied objectives.

Consider this real-world example:

A seller's campaign showed an ACOS of 52.44%, with a $1.32 cost-per-click (CPC), 2.61% click-through rate (CTR), and 30% conversion rate (CVR). Over seven days, it generated 159 orders (22.7 daily). While the ACOS appears problematic, the campaign's primary goal was improving organic ranking for a core keyword. Through sustained advertising, the keyword rose from beyond the 20th position to the top 5, driving substantial organic traffic and increasing overall store sales.

Another case involved a new product launched in February 2024. The seller used Sponsored Products (SP) exact match ads to push a core keyword to the first page. Despite an ACOS exceeding 60%, the improved organic ranking generated enough natural orders to offset advertising losses.

These examples demonstrate that assessing Amazon advertising requires understanding whether campaigns achieve their intended purposes. So what are these potential advertising objectives?

Five Key Amazon Advertising Objectives

1. Paid Traffic Generation: The fundamental function of all advertising—whether SP, Brand (SB), or Display (SD) ads—is driving traffic through CPC or CPM models.
2. Ranking Improvement: When prioritizing keyword ranking growth, select ad types that effectively boost positions:
   • SP Keyword Ads - Exact and Phrase Match:
     • Exact Match: Highly precise, matching search terms nearly identical to target keywords (accounting for minor variations like plurals or articles). Delivers better conversion rates.
     • Phrase Match: Allows prefix/suffix additions to target keywords. Requires careful negative keyword management to maintain relevance.
   These match types outperform broad match for ranking because they target more qualified shoppers, improving CTR and CVR—critical ranking factors.
3. Related Item Traffic: When products with similar organic rankings generate different sales volumes, disparities often stem from "Frequently Bought Together" or "Customers Also Viewed" placements. To increase this traffic:
   • ASIN Targeting: Target competitor ASINs based on their strength—high-performing, strong, comparable, or weak competitors.
   • Category Targeting: Use SP/SB/SD ads to capture category-specific traffic.
   • Automatic Campaigns: Leverage "Similar Products" and "Related Products" features.
4. Keyword Expansion: When products have limited keywords or unclear high-performers, use ads to discover new terms. Start with phrase match, transitioning to broad match after 2+ months. For automatic campaigns, begin with close match before expanding.
5. Profit Generation: While ideal, profitability is challenging for ranking-focused SP keyword ads due to high bids required for premium placements. Similarly, keyword expansion campaigns prioritize discovery over immediate returns. Clearly define each campaign's primary goal rather than attempting multiple objectives simultaneously.

Strategies for Profitable Campaigns

While not all campaigns prioritize profitability, sellers can develop dedicated profit-generating initiatives:

• Brand Video Ads: Dynamic product presentations that boost engagement and conversions.
• Display Retargeting: Remarketing to users who viewed your or similar products.
• SP Product Targeting: Precise ads targeting specific items or categories.

Scaling Successful Campaigns

For campaigns with favorable ACOS, focus on expanding reach through:

• Search Term Reports: Identify high-performing keywords with low impression share rankings (below top 3) and increase their budgets.
• Cross-Format Expansion: Extend successful SP keywords to SB product collections/stores, testing phrase/broad matches.
• ASIN Targeting Expansion: Complement existing efforts with SB/SD ASIN targeting.
• High-Performing Keyword Consolidation: Group top-converting terms into dedicated campaigns.

Advertising as an Integrated System

Effective Amazon advertising requires coordinated campaigns serving distinct purposes—ranking improvement, keyword discovery, product association, and profitability. Sellers should:

• Clearly define each campaign's primary objective
• Evaluate performance based on goal achievement
• Adjust strategies as objectives evolve

By adopting this strategic perspective, sellers can move beyond ACOS anxiety and develop advertising systems that drive sustainable sales growth.