Simply put, TACoS is a way to investigate how your actions impact your business goals. Mainly, businesses on Amazon use advertisements to gain brand awareness.
Besides pushing products to potential customers, businesses promote their brands, hoping they will attract long-term customers who could improve the business’s total revenue.
On Amazon advertising, TACoS is an abbreviation for Total Advertising Cost of Sales. Monitoring TACoS is extremely important.
In fact, it’s a performance metric that helps Amazon business owners understand how advertising connects to business performance.
The TACoS formula calculates the percentage of advertisement spending to total sales.
However, before getting down to what the formula entails, you must understand that how you interpret the formula’s results entirely depends on your advertising budget.
For some sellers, an increase in sales does not necessarily mean they stop advertising. On the other hand, some Amazon firms invest heavily in advertisement to gain a competitive advantage.
You can calculate TACoS on Amazon using the following formula:
TACoS = (AD SPEND/ TOTAL SALES) x 100
Hence, if you spend $60 on advertising a product and acquire $600 as total sales of the same commodity, the TACoS from the product will be:
TACoS = ($60/$600) x 100 = 10%
Notably, the above percentage is revenue collected through other sources, such as organic sales.
The total advertising spend divided by the total sales revenue multiplied by a hundred gives the percentage TACoS. TACoS is not to be mistaken for Target ACoS, an entirely different concept in digital promotion.
A seller needs to utilize the TACoS metric tool for several reasons. First, TACoS helps you understand sources of profits. Second, increasing TACoS assures you that your advertising strategy works for the business.
Like TACoS and ACoS, ROAs is a performance metric tool. The abbreviation stands for Return on Ad Investment. Hence, ROAs show you your brand’s total revenue from an advertisement campaign.
The equation for ROAs is:
ROAs = (Ad sales/ Ad Spend) x 100
Hence, if you sell $600 worth of commodities and spend $60 on an advertisement, your ROAs Will be:
($600/60) x 100 = 100%
ACoS on Amazon stands for Advertising Costs of Sale. Much like TACoS, the performance metric informs you how your spendings on advertisements translate in terms of sales.
The equation to compute ACoS is done by dividing ad spend by total revenue generated from ads, as shown below:
ACoS = Advertising Spend / Sales from Ads) x 100
If you spend $80 on ad campaigns, for instance, and generate $200 revenue from the advertisement alone, the ACoS will be:
ACoS = ($200/ $80) X 100
ACoS of a product or service shows the proceeds earned as an outcome of advertisement. At the same time, TACoS reveals how product sales are faring entirely and how the metrics connect to the investment in ad sales.
The TACoS metric shows you the connection between organic and ad sales. Both variables have negative and positive effects on the sales cycles in an organization.
A negative sales cycle occurs when a reduced advertisement spend triggers decreasing TACoS in advertisement sales. Consequently, the reduced advertisement sales lead to lower organic sales.
A favorable sales cycle takes a familiar path as the negative sales cycle, only that it is marked by increased advertising spending. Subsequently, there are increased organic sales in the positive sales cycle.
Hence, using the above analogy in your Amazon advertising could help accelerate growth against your competitors.
A Good TACoS is subjective to the nature of a brand and the marketing objectives. Similarly, increasing TACoS quality depends on the commodity in question and the anticipated total revenue.
High TACoS is standard for new products introduced to a market, while decreasing TACoS is common for products that have previously existed in the market and are performing well in organic sales.
A 6% to 10% TACoS is most preferred since it insinuates that the brand is not overspending on an the amazon PPC ads.
Thus, if your Amazon TACoS margin nears 18%, you might consider changing your total ad spend so that it does not negatively impact your organic sales and revenue.
Note that the commodity’s life cycle entirely affects its TACoS performance.
- TACoS rising – shows a increase in ad spend, but the investment is not translating to increased organic sales. The ad performs poorly and needs keywords or product listing optimization.
- ACoS falling and TACoS rising – shows that organic sales are continually reducing or becoming a small segment of your total ad spend.
- TACoS in flat or falling indicate strong or steady sales, representing increase brand awareness for your business.
- ACoS and TACoS are rising – when promoting a new commodity or service. As a result, there’s an increase in the profit margin. But after time, the TACoS reduces while the organic search for the commodity increases.
Under normal circumstances, a negative short-term cycle initializes when you reduce the advertising cost of sale. However, the TACoS stabilize with time.
Previous advertising efforts trigger more organic sales if your TACoS on Amazon decreases as the ACoS reduces.
There are three instances when your Amazon TACoS can drop:
- First, total sales remain the same even after reducing ad spend.
- Second, once total sales increase and the ad spend remain constant.
- Third, when the ad spend increases and translates to a noticeable profit margin.
Hence, to improve your Amazon TACoS, you ought to enhance the efficiency of your advertisements so that they can increase sales velocity, which in turn will improve the organic rankings, which on its own will increase organic sales.
Otherwise, if TACoS is stable, the connection between your total revenue and ad spending is fixed, indicating that your brand is growing.
If the Amazon TACoS calculations are low, it indicates that the advertising campaign is inefficient, and you should rethink the investment.
A low TACoS is typically below 2%. In addition, Amazon has massive promotional offers that your brand could utilize to increase its organic sales velocity.
Ad efficiency primarily determines whether decreasing ad spending will harm total sales. Cutting down on ad spend works when you optimize Amazon ads.
Optimizing Amazon ads works by refining metrics like:
- Cost per click (CPC): before posting your bids, ensure they are competitive, so you don’t pay excessively for ads.
- Click-through rate: ensure that engagement traffic on your product detail page improves from the advertisement.
- Average sales price: you are likely to profit more if your average sales price is high.
- Conversion rate: ads are more profitable if they yield a higher conversion rate.
Advertising is not the only alternative to attract reputable organic sales. You could utilize product listing to complement your long-term advertisement strategy.
When listing your commodity or service, ensure you:
- Enhance your product content by adding videos, titles, and points to describe your product or service.
- Ensure that pricing is up to date and relevant to the search terms on your product details page.
- Offer feedback to questions about the products aired by potential consumers on time.
You can use Amazon keyword tools to point out the most common keywords you could embed on your product listing.
In addition, keywords provide Search Engine Optimization features (SEO) that enhance your brand’s presence on Amazon.
No. Amazon’s promotion tools ensure you improve your TACoS by steering your brand to make more organic sales.
For example, instead of entirely abandoning advertisement, you could calculate how to reduce advertising spending while maintaining organic sales through other avenues.
Grasping the key takeaways above significantly impacts your advertising cost of sale.
You can implement a long-term strategy depending on your intended organic sales objectives and thus avoid either overspending or underspending.
TACoS helps you to comprehend your ad metrics such as total ad profitability, understand how particular commodities are impacted by advertisement, and differentiate between positive and negative sales cycles.