Think your Amazon Ad is Profitable? Better look again
For most indie authors, Amazon ads are an unavoidable fact of life. But Amazon’s oversimplified reports can leave the author with the wrong impression. Getting to the truth of the numbers requires a little digging.
The main problem with the Amazon reporting method is the ACOS number. Amazon calls this the Average Cost Per Sale. The theory behind this number is that this tells you what percentage of your sales you spent on advertising. This is a great number to know because it will tell you if you are spending more on advertising than you are making back in profit. The problem with this number is that Amazon uses the book’s cost for the customer as its number for determining sales.
This is deceptive because writers don’t get 100% of the sales, they only make a percentage of that sale as their royalty. In other words a book that costs the consumer $4 at Amazon’s 70% royalty rate, only makes the author $2.80. But Amazon calculates the cost per sale using $4, not the actual profit to the writer of $2.80. If the author had spent $1 for that click (Yes, there are many genres that cost that much) then according to Amazon the cost per sale is 25%. The reality is that the cost per sale to the author is 36%.
If we consider that most clicks don’t result in a sale that distinction becomes critical. If the author had two unsuccessful clicks before generating a sale, Amazon would still report the ad as being profitable: 75% ACOS, but the author would have actually lost money because she spend 3$ on ads, but she only generated $2.80 in royalty payments.
This number gets more deceptive when you have a mix of print and ebook sales. If you only have an ebook, your Amazon reported ACoS should be below your royalty rate (70% or 30% depending on your royalty structure.) But print books must account for the cost of printing. I’ve priced my print book so that it generates a similar royalty to my 70% ebook, but the percentage of profit is actually closer to 30% of the cover price. But Amazon reports my cost per sale based on the print book cover price. Talk about misleading!!!
As an author you need to know what your real ACOS is
Finding the real numbers
Unfortunately, Amazon doesn’t make it easy to find the real numbers. Their ad campaigns do not offer monthly stats, and you don’t get your final royalty statements until two months later. One possibility is to start a new ad campaign every month. All you need to do is copy the current one and set the timeline to run for one month. This will help you keep an eye on your monthly expenditures. You can manually monitor your real costs by comparing them to your current estimated sales. (You can also estimate your KU sales by using last month’s rates as a guide and then make a final comparison when the real numbers are released.)
Doing the math
How much did you spend on ads? (Spend)
How much did you make on royalties (Royalty)
Subtract your (Spend) from your (Royalty) to get your profit.
Take your (Spend) divided by your (Royalty) (Spend)/(Royalty) to get your true ACoS. Anything above 100% and your are losing money.
If you don’t want to generate new ad campaigns every month, you can also create a spreadsheet.
Here’s a copy of mine (numbers have been changed). This shows you the costs I track. Notice that some months I made money and others I lost money, but if I looked only at Amazon’s ACOS, I would mistakenly believe that every month showed a profit!
Indie authors must treat their writing like a business and this means tracking your expenses. By having your real sales and profit figures, you can make better decisions about where to spend your marketing dollars. Don’t let Amazon’s deceptive practices cost you money. Dig deeper to find your real cost per sale.
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