In this article, we'll explore why TACoS is a more valuable KPI than ACoS and how it can help Amazon advertisers make smarter decisions to drive profitable growth. By the end of this guide, you'll learn how to calculate Amazon TACoS, what does it mean and how it can help you measure profitability and make smarter advertising decisions.
What is Amazon TACoS?
TACoS stands for Total Advertising Cost of Sales, and it is a metric used to measure the effectiveness of Amazon Advertising campaigns. TACoS is the ratio of the total amount spent on advertising to the total sales generated from that advertising.
In other words, TACoS is the percentage of total sales revenue that is spent on advertising. A lower TACoS indicates that the advertising campaigns are more efficient and cost-effective.
TACoS is particularly useful for Amazon sellers who want to track the overall profitability of their advertising campaigns. By measuring TACoS, sellers can determine whether their advertising spend is generating enough revenue to justify the cost of advertising.
To put it simply, TACoS is the ultimate KPI to measure the impact of your advertising dollars on your total revenue.
How To Interpret Amazon TACoS?
So many Amazon PPC experts naively promise to lower your ACoS and help save you a dollar or two by decreasing ad-spend or bids. This is especially detrimental because your ACoS could be high but your revenue could also be high as a result and by decreasing bids or ad-spend, this might be harmful than beneficial.
Here’s a common scenario where sellers shoot themselves in the foot:
Let’s say you’re only selling 1 product, and generating $100,000 monthly on this product, and spending $20,00 on Amazon advertising. Which puts you TACoS at 20%.
A PPC GURU from Fiverr tells you he can save you money, and lower ACoS, and so he/she decrease your ad-spend or bids on some high converting campaigns or targets, and now your only spending $15,000. So you sou say to your self:
Not so quick. You must first ask yourself this.
What’s the effect of dropping ad-spend to lower TACoS?
In most cases, by decreasing ad-spend, you’ll also see a drop in total revenue.
This is more common in competitive categories, but what isn’t these days.
The caveat is by decreasing bids and spend on important campaigns / targets, your organic revenue is likely to drop so you total revenue will be dropping with your ad-spend.
So if we use the example above, and you’re generating $100,000 in revenue and if it dropped by 20%.
It means you’re now generating only $80,000 in total revenue and spending $15,000 to generate that 80k. Which puts you at %18.75 TACoS.
Even so now your ACoS is lower, your REVENUE, and PROFITS are now DOWN.
So think of TACoS as seeing the bigger picture of your Amazon data. And by adopting TACoS as the main KPI, you’ll be making SMARTER decisions that can yield more revenue and profits.
TACoS VS ACoS
The key difference between TACoS and ACOS is that TACoS includes all sales (organic and from ads), while ACOS only includes sales from ads. TACoS is a more general metric that gives you an overall picture of your advertising spend, while ACoS is more specific and focuses solely on the performance of your advertising campaigns.
When it comes to utilizing these metrics, you can use TACoS to evaluate the overall performance of your advertising campaigns and to identify any areas where you might be overspending, underspending. If your TACoS is too high, you may need to adjust your ad spend or optimize your campaigns to improve their performance.
ACoS, on the other hand, can be used to evaluate the performance of individual campaigns, ad groups, or keywords. By monitoring your ACoS, you can identify which campaigns are generating the most sales and which ones might need to be adjusted or paused.
What is a good TACoS on Amazon?
A low Amazon TACoS percentage indicates high net revenue, and possibly profits while a high tacos percentage indicates the opposite. So the lower the Amazon TACoS, the better.
As a seller, you’re responsible to crunch your own numbers, and figure out your account TACoS, per the account, and across your catalogue. For example, even if your TACoS is high, you can still have a high profit margin if your cost of good is low or if your average order value is high.
After you measure your cost of goods, FBA fees, storage fees, logistics plus Amazon advertising cost, and any miscellaneous expense, then you can figure out if you’re profitable or not, and by how much.
Both KPIs are important metrics to monitor when advertising on Amazon. TACoS gives you a general picture of your advertising spend, while ACoS allows you to evaluate the performance of individual campaigns. By understanding and utilizing these metrics, you can optimize your advertising campaigns and improve their effectiveness on the platform.
In the world of Amazon advertising, making rational decisions is crucial for achieving success. By using metrics like TACoS to track the effectiveness of advertising campaigns, sellers and advertisers can gain valuable insights into their spending habits and adjust their strategies accordingly.
With the ability to identify which campaigns are performing well and which ones need improvement, sellers can make more informed, data-driven decisions that lead to better outcomes.
Ultimately, by practicing rational decision-making and utilizing TACoS as a guide, Amazon sellers and advertisers can maximize their ROI and achieve their business goals.
Wondering if your Amazon PPC provider is spending your ad-dollars wisely?
Contact me today for a free account audit that will uncover a lot of things advertising related including spend allocation, concentration, organic sales, TACoS, category insights and rankings…etc. and so much more.
Before you bounce, feel free to check out this guide about virtual bundes on amazon and the difference between hiring an Amazon agency or a software.
And check out our free Amazon TACoS calculator to measure your TACoS with a click of a button.
Lastly, if this guide added value to you as an Amazon seller or digital marketer, feel free to say let me know in the comment section so I can keep more golden gems like this coming in every week.
Cheers & keep scaling!