AMS reporting is horrible. Amazon gives you this pretty little dashboard that looks like it tells you what you need to know, but if you actually use the dashboard numbers as provided, you’re going to mismanage your ads.

I think most self-publishers have clued into the fact that you can’t just look at the ACoS and say that anything less than 100% is good. Most everyone I see talk about ACoS knows that it’s based on the list price of their titles, so it doesn’t account for their payout percentage. Knowing this, they use 70% (or 35%) as their threshold to judge an ad or keyword instead of 100%.

But that’s flawed, too. As we already discussed, you have the value of a customer to consider. If x% of customers who buy book 1 go on to buy book 2 and y% of those go on to buy book 3 you need to account for that in your numbers.

Another thing you need to account for is KU borrows for any title that’s in KU. Sometimes this amount is insignificant (like for my non-fiction), but often times that borrows revenue is what makes an ad profitable (like for my romance novel). So you need to account for it.

But how?

Ideally you’d determine what percentage of customers for that title buy vs. borrow. Problem is, you don’t have that information. You will never know how many people borrow your book vs. buy it. You can guesstimate based on your rank each day and your sales and using the sales/rank chart Phoenix Sullivan has put together, but as more books are listed that ranking chart becomes less and less accurate.

What I do is focus on what I call full-read equivalents. So if I have 10,000 page reads and a book with a KENPC of 500 then that’s 20 full-read equivalents. (It could be 10,000 people reading one page for all I know, but you have to work with the information you have, right?)

I then use that number to calculate a ratio of borrows to sales. So if I have 30 sales and 20 full-read equivalents, then I have a borrow/sale ratio of 20/30. I can then use that ratio to create a factor that I use to gross up my AMS-reported sales number. (Just to give you an idea, for my fantasy series that number is 1.61 but for my romance series it’s 3.10.)

So instead of the $10 in sales that AMS tells me I have, I’m actually looking at $16-$43 in sales.

Of course, I then have to adjust that number based on what an average customer who buys is worth to me, what an average customer who borrows is worth to me, the proportion of customers who buy vs. borrow, and what the list price of the advertised book is. (It’s the weighted average customer value divided by list price of the book I’m advertising.)

Because I use AMS to advertise full-price books that second number is actually a number less than 1. It takes that $16-$43 value for sales and brings it back down into the range of $14-$26. But I ran the calculation for a 99 cent series starter for a five-book series and it was 5.4.

The math stays the same, but the numbers vary greatly depending on the series you’re advertising.

Key takeaway here is that unless you have a standalone title that’s not in KU, you need t realize that your sales from your ads are greater than the amount reported by Amazon.

One last thought.

My next step after I do all this is to calculate an estimated profit and loss from that adjusted number and prioritize all ads with a positive adjusted profit and loss.

You could also use the adjusted sales number to calculate a revised ACoS and keep any keywords or ads where the revised ACoS was below 100%. For example, my best performing keyword on my romance ad shows an unadjusted ACoS of 154% but when I account for borrows and sellthrough it has an adjusted ACoS of 60%. (I just thought of this and ran it on my romance keywords and think I might play with it some more, because it highlights some words I should probably bid higher on that aren’t my highest in sales but are my lowest in terms of ACoS.)

Anyway. Hope that made sense. I’m including the actual formulas in the Excel for Self-Publishers book I’m writing in case it didn’t and you want them. Although, honestly, I think that book is going to appeal to about five people. It’s been good to write though, because it lets me refine my thinking on all this. I’ve already updated my ad tracking worksheet because of it as well as this whole analysis.

(Of course, now that I thought of including a revised ACoS I have to go add that to the book. Grrr.)