Why a target ACOS is usually a guess
Ask ten sellers what their target ACOS is and you will get ten round numbers. Ask where the number came from and the answers thin out quickly.
Break-even ACOS is not a preference. It is a calculation, and it is different for every SKU in your catalogue.
The calculation
Break-even ACOS is your contribution margin expressed as a percentage of selling price. In other words: the share of the sale price that is left after everything except advertising.
That means you need, per SKU:
- Selling price, net of GST
- Landed cost of goods
- Referral fee at the correct category band
- Closing fee
- Fulfilment — pick and pack, plus weight handling
- Storage, apportioned by how long the unit actually sits
- Returns and RTO cost, at your real rate for that SKU
- Payment gateway charges where applicable
- GST on the fees themselves
Subtract all of it from the net selling price. What remains, divided by the net selling price, is your break-even ACOS.
What people get wrong
Averaging across the catalogue. A single blended break-even hides the SKUs that are already underwater. The point of the exercise is to find those.
Ignoring returns. In fashion and in several electronics categories, the return rate is the single largest variable in the model. Using a catalogue average here will mislead you by more than every other error combined.
Forgetting GST on fees. It is small per unit and material across a year.
Using list price instead of net. The number you are dividing by has to be the money that actually reaches you.
What to do with it
Once you have break-even ACOS per SKU, three decisions get easier:
- Bid ceilings. A SKU cannot profitably be advertised above its
break-even unless you are deliberately buying rank or launch velocity — and if you are, that should be a budgeted decision with an end date.
- Assortment. SKUs whose break-even ACOS is very low were probably priced
wrong, not advertised wrong.
- Pricing. Sometimes the answer is not a lower bid. It is a higher price,
a different pack size, or a different fulfilment route.
A worked example
Take a SKU selling at ₹999 net of GST, with a landed cost of ₹420, a referral fee of 12%, closing and fulfilment of ₹85, and a real return rate costing ₹60 per unit sold across the SKU.
Fees: ₹120 referral, ₹85 fulfilment and closing, ₹60 returns. Total ₹265. Add the ₹420 cost of goods and the SKU consumes ₹685 of its ₹999.
₹314 remains. That is a break-even ACOS of roughly 31%.
Bid to 31% and you break even. Bid to 20% and you are making ₹110 a unit before overhead. Bid to 45%, as a surprising number of accounts do on their "hero" SKUs, and every additional sale makes the year worse.
Where to run it
Our Break-Even ACOS calculator does the arithmetic for a single SKU. For a full catalogue across all eleven cost layers, the Amazon Profitability AI tool inside SMEMinds Playbook runs it in bulk against live fee tables.