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Every Amazon Seller who uses Amazon PPC has heard of Amazon ACoS, but recently, more and more people are talking about TACoS. TACoS is similar to ACoS in many ways, but actually has a few key differences. When interpreted correctly, TACoS is a very useful performance metric.
In this article, we will break down what exactly TACoS is, and how it can help you understand the health & performance of your PPC campaigns.
What is ACoS? What is TACoS?
ACoS is known as the “advertising cost of sale” and TACoS is “total advertising cost of sale.” However, TACoS is not so simple as the name suggests…
What is ACoS?
Firstly, if you don’t know what ACoS is, we’ll give you a brief definition. Quite simply, ACoS is the ratio of your total ad expenditure to your total sales revenue. You can see it clearly in the formula below.
Now, ACoS is a key performance metric for Amazon PPC campaigns, from an overarching campaign level ACoS to the ACoS of individual keywords. ACoS will tell you whether you’re spending more than you’re earning, or vice versa. This is why most sellers set a target ACoS to track their PPC performance with.
We won’t delve too deeply into the factors that affect your ACoS, in this article we will be focusing on TACoS. If you want to know more about ACoS, check out our article on finding your target ACoS.
What is TACoS?
TACoS, as mentioned before stands for “total advertising cost of sale.” TACoS, like ACoS, measures ad spend over total revenue. The formula looks something like this:
If you’ve been paying attention so far, you’ll already be asking yourself the next question…
How is TACoS different from ACoS?
You may be thinking – “Hold on! Isn’t that the exact same formula?!”
It’s true the formulas are essentially the same, but there’s one key difference… ACoS only looks at your ad spend measured against PPC sales revenue. TACoS looks at ad spend measured against ALL sales revenue, including organic.
It can be confusing when all the formulas for Amazon ACoS are essentially the same as TACoS, that’s why we’ve altered them slightly to show the differences. Now you can see that TACoS and ACoS are actually very different metrics, that provide different insights.
Why is TACoS an important metric?
So why is TACoS important? It’s simple, when you look at Amazon ACoS you’re looking at how many of your ads converted into sales. When you look at TACoS, you can get a more holistic view of your ad spend.
TACoS lets you see how your ad spend impacts your TOTAL sales. You can use it to measure the impact of your ads on your overall sales velocity. It also gives you a good idea of how much your ad spend might be reducing your profit margin.
That’s why calculating your TACoS is so vital to your PPC campaign performance. Analyzing TACoS on an account level allows you to sit down and formulate long-term strategies in way ACoS simply does not. If your ads aren’t generating enough extra sales to cover their cost, then your PPC campaigns are not going well. TACoS can tell you if this is happening with one simple formula.
What determines a good TACoS?
A good TACoS is not only determined by its value but also the trend of your TACoS over time. Both these things will tell you the overall health & performance of your ads.
Low TACoS vs. High TACoS
What is a good TACoS percentage? First, let’s find out what your TACoS percentage means…
- A low TACoS below 20% – your ads are generating a good amount of sales, and your overall sales are high
- A high TaCoS above 20% – your ads are not generating enough sales, bids and/or keyword optimization is needed
A low TACoS means that your ads are doing their job. What’s the point of using Amazon PPC at the end of the day? It’s to eventually rank your keyword high enough that the consistent ratings & reviews boost your ORGANIC rankings, leading to you receiving sales organically.
Remember, the point of using Amazon PPC is to eventually be able to use it less. This is where TACoS comes in, because it tells you if you’re reaching that point, or if you’re subsisting solely on your paid ads, and spending far too much on them.
What’s the ideal TACoS?
Generally speaking, a low TACoS between 6% – 10% is ideal for sellers. It’s impossible to reach 0%, because you’ll always be spending some on ads. Actually, if your TACoS is below 2% then you’re under-utilizing your Amazon PPC resources!
Even if your organic sales are high, don’t stop using Amazon PPC altogether!
Tracking your TACoS trend over time
It’s not enough to have a low TACoS alone, you also have to maintain it. There are some key trends that you have to look out for when it comes to your TACoS.
Increasing, Decreasing or Stagnant
- Increasing TACoS – an increasing TACoS means your ad spend is increasing but your organic sales are not increasing at the same rate
- Decreasing TACoS – a decreasing TACoS means you have high sales velocity, and your organic sales are improving too
- Stagnant TACoS – a flat TACoS means you have steady sales overall, and at the moment your account health is good
Trend Relationships between ACoS and TACoS
Naturally, since they are so similar, Amazon ACoS and TACoS have some joint trend relationships that sellers should look out for:
Increasing TACoS and increasing ACoS
Both your TACoS and ACoS increasing is a bad sign on the whole. Unless of course, you just launched a product, in which case a high initial ad spend & low organic sales are expected. If you didn’t just launch a product, it means your ad spend is cutting into your profit margin, which is a bad sign.
Decreasing ACoS and increasing TACoS
Your TACoS increasing while your ACoS decreases means that your organic sales are decreasing, or are becoming a smaller part of your total revenue. This is rare, but if it happens it means your sales are too dependent on your paid ads. That is also a bad sign~
Decreasing ACoS and decreasing TACoS
Both your TACoS and ACoS decreasing is a great sign, this means your organic sales are improving and overtaking the sales you get from your paid ads. However, this is also rare, because most sellers will always have a portion of sales that solely come from their ads.
*Note there is no trend for Decreasing TACoS and increasing ACoS. A high ACoS means increase in ad spend, which will directly impact your TACoS. This trend can’t feasibly exist, so you can discard it as a possibility.
All in all, TACoS is an important performance metric for Amazon PPC users, but not nearly enough Amazon Sellers analyze it. Over the years, an almost overexaggerated importance has been assigned to ACoS, and the analysis of the overarching TACoS of seller accounts has been overlooked.
We recommend sellers take a look at their TACoS and its trend over time. Having a holistic view of how well your campaigns are doing organically is just as important if not more important than knowing how well your paid ads are doing. Step 1 is always to identify the problem, step 2 is optimization. Thankfully, there are reliable Amazon PPC Management Tools that can do that for you!
If you have questions or insights to share, please feel free to post them via the comments section. Please also consider joining our Facebook Group where we discuss any questions you may have about running an Amazon business.
We are SellerMetrics, our Amazon PPC Software helps Amazon sellers, brands, KDP Authors and agencies navigate Amazon Advertising PPC via bid automation, bulk manual bid changes, and analytics.