Besides Amazon ACoS, Amazon TACoS (Total Advertising Cost of Sale) is one of the KPIs that Amazon Sellers monitor most closely to track Amazon FBA performance. Here is why: TACoS shows you what your ad spend to total sales ratio is. This is a key measure of profitability. 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 Amazon TACoS (Total Advertising Cost of Sale)?
TACoS, as mentioned before stands for “total advertising cost of sale.” TACoS, like ACoS, measures ad spend over total revenue. The formula looks 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.
TACoS thus takes a broader approach. By including all sales in the calculation you can essentially determine if you are too reliant on ad driven sales.
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 is a good Amazon TACoS?
A good Amazon 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.
Lower TaCoS% and Increase Profits in 3 Steps
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.
A high ACoS on the other hand may be acceptable during a product launch phase where generating visibility is key and where ads are crucial to succeed. A high TACoS over time however can indicate that a product is not gaining enough organic traction. Regularly tracking both metrics, ACoS and TACoS, helps Amazon FBA business assess if their advertising efforts are truly driving long-term growth and help build brand, or if their ad campaigns are too tactical and do not really help build brand equity.
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 Optimum TACoS for Amazon Advertisers?
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!
Amazon TACoS Benchmarks by Product Category
Different product categories tend to have varying TACoS benchmarks. High-margin / High-Sales Price products often allow for a lower TACoS, as a small percentage of sales can cover ad costs effectively, while low-margin or low-sales price products may require a slightly higher TACoS to balance profitability with visibility.
High-margin / Expensive products: Products that have a high margin or sell at a high price should aim for a TACoS of around 5-10%, as high sales prices help increase ad efficiency.
Established Brands: Amazon Sellers that have managed to build strong brands can generally also aim for lower TACoS targets (also around 5-10%). The reason therefore is that brand search contributes a significant proportion of sales and also many product listings may rank well organically.
Low-margin or consumable products often require a TACoS of around 15-20%, given the need for consistent visibility and higher ad investment. In product categories where branding is less important and purchase decisions are mainly price driven, margins tend to be lower and TACoS is higher. Maximizing unit sales is this key to ensuring the overall profitability of your Amazon Seller business.
New product launches may see higher TACoS initially (up to 25% or more) as ad spend is used to generate awareness and drive early sales.
The Importance of 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 TACoSand 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.
How to Use TACoS to Measure Long-term Growth
TACoS is an excellent metric for evaluating the long-term effectiveness of an advertising strategy. As mentioned above, a decreasing TACoS percentage generally suggests that organic sales are growing in relation to ad spend. This indicates that your brand is building traction and that your reliance on ads is reducing. For example, if a seller’s TACoS drops from 20% to 10% over six months, it indicates that organic visibility is improving, likely due to a combination of well-optimized listings (if you need help with that enquire about our Amazon listing optimization services) and successful ad strategies (more about Amazon product ads management).
Strategies to Lower Amazon TACoS
Lowering TACoS requires a balanced approach to maximizing organic and increasing the cost efficiency of Amazon advertising. Here are some effective strategies:
Optimize Product Listings for SEO Improving your listing’s SEO increases organic sales, which in turn lowers TACoS. Focus on keyword-rich titles, add keywords to the backend of your product listings and write compelling bullet point copy that consider product benefits, features and also usage scenarios. While Amazon A+ content does not directly impact Amazon SEO performance, it can help improve conversion rates (which indirectly supports SEO efforts). Pay special attention to creating Amazon Premium A+ content as Amazon has lowered the criteria for these more engaging modules and most Amazon Sellers can now use them for free (whereas they used to paid only modules only available to national brands). If you need help creating best in class Amazon product listings we can help you out (Amazon SEO services).
Amazon PPC Campaign Bid Optimization Pay attention to your advertising spend. Are your CPCs optimized or are you bidding too high? Dynamic bid optimization is one of the most effective ways to getting the best ROI out of your PPC budget. wasting budget on clicks. This is why we have built a proprietary Amazon bid optimization software.
Leverage Negative Keywords Another PPC campaign optimization fundamental is constantly adding negative keywords. We cannot stress how important it is to weed out non-converting keywords.
Target High-Intent Search Queries with Exact Match Keywords Exact match targeting gives you a high degree of control: with appropriate bids in place you can ensure that your ads are served when Amazon shoppers search for keywords that you know will convert. This will improve ad spend efficiency and in hence lower your TACoS. If you are not familiar with keyword match types, check out our blog post on Amazon PPC Keyword Match Types.
Final Thoughts
All in all, TACoS is an important performance metric for Amazon PPC users, but not nearly enough Amazon Sellers analyze it. As this article outlines, it is really important to understand how your TACoS tracks over time as it is basically a great metric to measure the health of your brand, while also providing you insights as to whether your ad spend is at an appropriate level or not.
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!
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.
