February 19, 2020
In order to be successful on Amazon, it’s necessary to invest in advertising—and the trick is to ensure your ad spend is contributing to both conversions and the organic growth of your business.
Are you profitable? Are you measuring your organic growth? Do you pause campaigns with a high ACoS out of fear of wasting money? What does ACoS mean to you and how much should you focus on it?
These are all questions that can be answered when you have an understanding of how to effectively employ key metrics to evaluate the success of your business on Amazon. Of course, no single measurement can speak to every aspect of your business. But if you’re looking for meaningful (and actionable) insight into the overall health of your brand, you need TACoS.
TACoS stands for Total Advertising Cost of Sale, and is not to be confused with ACoS (Advertising Cost of Sale). The word “total” is what makes this metric so distinctive. Let me explain why:
ACoS is used to calculate the ROI from your paid Amazon advertising. By dividing total ad spend by ad revenue and multiplying by 100, you can see the direct impact of your advertising spend on the revenue it generates. This is very important to give an overall health reading of a specific campaign, but it’s not everything.
TACoS allows you to see a larger piece of the picture by evaluating your ad spend in relation to your total revenue. Why do you need this? Because in the Amazon world where your competitors are all bidding on the same keywords, it can become difficult to expect positive or profitable return on ad spend for non-branded campaigns.
Amazon’s algorithm is set up to deliver search results based on the best sellers against specific keywords, so while the metrics attributed to your ad campaign run at a high ACoS, the sales velocity from the campaign increases its organic ranking and therefore drive organic sales to your product. This synergy is an important component of the Amazon flywheel effect, but that’s another post for another day.
ACoS is a key metric to give a high-level assessment of a campaign’s efficacy, but it doesn’t paint the whole picture. TACoS is an indicator of the impact of your overall Amazon advertising efforts and the long-term health of your brand and should be considered when optimizing campaigns.
So, What Does my TACoS Tell Me?
TACoS offers valuable insight into the success of your Amazon marketing efforts, and can be of even more value when viewed in relation to ACoS:
- Decreasing TACoS: This is good! When your TACoS decreases over time, it means that your organic sales are bringing in a higher portion of your total revenue than your sales from advertising. This speaks to a successful product and a well-established brand identity.
- High or Increasing TACoS: If your TACoS is high, it could mean a few things. A high TACoS is expected when a new product or brand is introduced and the main goal is to increase sales. If this is the case, you’ll be looking for a gradual decrease in TACoS, as organic sales can be expected to gain momentum when brand identity and product knowledge increase. If you aren’t advertising a new product, a high or increasing TACoS shows that your sales from paid advertising are outpacing your organic sales
- Increasing TACoS and Decreasing ACoS: This is not ideal at all, because it means that your revenue is increasingly dependent on ad spend and moving your business in the opposite direction from your goal, which is to increase organic sales. It’s time to take a look at your ads and your Amazon product display pages to make sure they’re up-to-date and fully optimized.
TACoS Example - See it in Action
Here’s a real-world example of a case where a high ACoS would be alarming if it weren’t viewed in relation to the TACoS for the same product. Let’s search Amazon for “cauliflower pizza crust."
As expected, we see cauliflower pizza crust products served in the search results. One product, however, is not like the others: Keto Pancake & Waffle Mix.
So, how has this pancake mix made it to the first page of results when we searched “cauliflower pizza crust?” It’s highly unlikely that this placement is organic, which means that this first-page placement is the result of ad spend. Specifically, the seller of this product has bid on the keyword “cauliflower pizza crust.”
Now, because keto pancake mix is not relevant to a search for “cauliflower pizza crust,” we can assume that click through and conversion for this particular product when it’s found on this page is low. This means the seller’s choice to advertise against this keyword resulted in a high ACoS. Why would the seller choose to do this? They did it for the TACoS.
Cauliflower pizza crust appeals to consumers who are interested in gluten-free and/or ketogenic (“keto”) diets or lifestyles. The Keto Pancake & Waffle mix appeals to those same consumers, so this product is actually tangentially relevant to a search for “cauliflower pizza crust.” Thus, the seller’s strategic investment in this keyword, while it may not lead to clicks or conversions initially, is working to boost the organic ranking and organic sales of the pancake mix. In this case, a high ACoS is paying off with a lower TACoS.
Here are the numbers:
Let’s say that this seller spent $1,000 to target the keyword “cauliflower pizza crust,” and that this investment only drove $1,000 in attributed ad sales. This leads to an ACoS of 100%, which is not profitable or sustainable at first glance. BUT this ad spend has made it possible for the Keto Pancake & Waffle Mix to appear on the first page of search results and this organic visibility has driven $3,000 in organic sales—leading to a TACoS of 25%. I’m betting the Amazon seller likes those numbers.
Listen to Your TACoS
When it comes to analyzing the success of your business on Amazon, no metric can stand alone to illuminate the whole picture—it’s necessary to look to multiple markers that, when combined, bring your Amazon marketing landscape into sharper relief. TACoS is one tool that you simply can’t do without, as it can shed light on how your ad spend is contributing to the sustainable, long-term growth of your brand. Armed with this invaluable information, you can evaluate the overall health of your Amazon business and make educated decisions about the next right step.