There are many ways to measure Amazon advertising's success, and one of the most important ones is, you guessed it, ACoS and TACoS. Sellers are usually divided into "supporters" of ACoS or TACoS to know if they are gaining or losing profitability. One thing is for sure, both are important. In the beginning, let us explain what exactly ACoS and TACoS are and how they can help you measure the performance of your campaigns.
What is ACoS?
ACoS (Advertising Cost of Sale) measures Ad spend divided to the Ad revenue and then multiplied by 100 :
Let’s say your ad spend is $20 and ad revenue is $100. In this case, your ACoS will be 20%. The lower your ACoS, the lower your ratio of ad cost to sales revenue. Ideally, you want as high sales revenue as possible with as low an ACoS as possible.
How to know what your ACoS target is?
Usually, the ACoS percentage should be close to your profit margin percentage. Your target margin is whatever your final gross margin should be. When you’ve determined your target margin, you will have your ACoS target - on ASIN level or overall. For example, if your gross margin is 40% and your target margin is 10%, your ACoS target should be at or below 30%.
When is it ok to have higher ACoS?
In some situations, you need to allow ACoS going higher to achieve:
- Higher ranking
- Launching a new product
- Raising brand awareness
- Clear your inventory as fast as possible
When you are making campaigns with these goals, always keep in mind that it will pay off after the first 2-4 weeks. The campaign’s performance is delayed for at least 2 weeks, so it takes time to get your data collected. Your ACoS needs some time too. Bids and placements should be higher in the first period as you want to push sales, get a better ranking, or raise brand awareness. Your ACoS will increase, so make sure to prepare more budget as it will pay off in the end. ACoS is one of the most important metrics for evaluating your campaigns on Amazon, and you need to be patient with it.
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What is TACoS?
TACoS (Total Advertising Cost of Sale) measures Ad spend divided by the total revenue generated and then multiplied by 100:
When your TACoS is flat or decreasing, it means that your organic sales metric is increasing. If you have a TACoS increase, that can mean a few things :
- Organic sales decreasing with Ad spend increasing.
- Organic sales decreasing with ACoS decrease as well.
- ACoS and TACoS both increasing - an acceptable situation when we want to push sales, rank higher, launch a product, etc.
Can PPC help TACoS decrease?
Yes and no. Of course, advertising has an impact on organic sales. However still, you need to have in mind that the product itself needs to be attractive to buyers with good quality pictures, good descriptions and keywords included, good reviews, and other things that can impact the overall organic and PPC sales. So if your product has many bad reviews, for example, then for sure your sales will decrease along with TACoS. But if you have a product that is attractive enough with good reviews, then sales will go much easier, and with a little push in PPC, your TACoS will be much, much lower.
By looking at TACoS, you will get a more comprehensive view of your overall business performance than ACoS. It will also help you decide the long-term strategies for your Amazon business.
With advertising, you will increase the sales velocity for a particular ASIN and impact organic sales. Therefore, investing in advertising can help grow organic sales in addition to ad sales. By monitoring TACoS and ACoS metrics, you get a more holistic view of how your ad spend affects overall sales.
So if you are focused only on advertising, then ACoS is your first go-to metric. But if you pay close attention to advertising and organic metrics, you should focus more on TACoS instead. Ultimately, TACoS provides a big picture of your campaigns. Keep in mind that both metrics are equally important for all the sellers with organic and PPC sales!
About the author
Tamara Zeravljev is a Senior PPC Specialist at Sellers Alley. She has been in the PPC business for two and a half years and has experience in Amazon and Google Ads. Worked with various clients, from small businesses to 7-figure sellers. Google and Amazon Advertising certified. Learning and sharing her knowledge with other colleagues is a favorite part of her job.