Amazon Sellers selling on the Amazon marketplace usually utilize Amazon advertising without keeping a close eye on the TACoS metric.
TACoS, short for Total Advertising Cost of Sale, serves as a critical metric providing a transparent view of your Amazon business by aligning overall sales performance with the advertising budget invested.
In this blog post, we will discuss what Amazon TACoS is, how to calculate it, and how to optimize it to improve the profitability of your business.
What is Amazon TACoS?
TACoS, short for Total Advertising Cost of Sale, represents the correlation between your ad spend on advertising campaigns and the total sales revenue. This metric, expressed as a percentage, precisely quantifies the ratio of your advertising investment to the overall sales generated.
How to Calculate TACoS?
To calculate TACoS on Amazon, simply divide your total advertising spend by your total revenue and multiply the result by 100. This will give you a percentage that represents the portion of your sales revenue allocated to advertising costs, helping you assess the effectiveness and profitability of your advertising efforts on the platform.
What is a good TACoS on Amazon?
A good TACoS on Amazon depends on several factors, including your product category, competition, profit margin, and business goals. However, for matured products in established categories, a TACoS between 7-15% is considered ideal, while a 15-25% TACoS is acceptable for new products in competitive categories.
What is the difference between ACOS & TACoS?
ACoS (Advertising cost of sales) is a metric that tells you what percentage of ad revenue you are spending on ads. It is calculated by dividing the total amount spent on advertising by the total sales generated from those ads.
TACoS, on the other hand, is a metric that takes into account all sales of a product, not just those generated by PPC advertisements. It is calculated by dividing the total amount spent on advertising by the total sales of a product.
In summary, ACoS measures the effectiveness of your advertising campaign, while TACoS provides a more holistic view of how the product’s sales are doing overall with your advertising spending
What does it mean when TACoS decreases?
When TACoS decreases, it usually indicates one of two things: either advertising is becoming more cost-effective, meaning more sales for every advertising dollar spent, or there’s an increase in organic sales.
If your advertising becomes more efficient, generating more sales without increasing costs, this would naturally lead to an overall sales boost and a drop in TACoS.
On the other hand, if advertising efficiency remains the same, a declining TACoS might suggest that organic sales are growing, contributing to an overall sales increase and a reduction in TACoS.
What does it mean when TACoS increases?
An increasing TACoS can signify one of two scenarios: a decline in the effectiveness of advertising spend or a decline in organic sales.
If advertising efficiency decreases, implying that more money is spent to generate the same amount of ad sales, it will result in an increase in TACoS due to the higher cost of driving overall sales.
On the other hand, if advertising efficiency remains constant, a decreasing trend in TACoS may suggest a decline in organic sales, resulting in lower total sales and a higher TACoS.
What are the ways to improve TACoS?
To improve your TACoS on Amazon, you either increase the efficiency of your ad spend or increase organic sales or in the best case, both.
Here are some popular ways to improve both advertising efficiency and organic sales.
1. Keyword Optimization
Refine keyword targeting to focus on high-converting terms and negative keywords to reduce irrelevant clicks, thereby improving your ad strategy and boosting ad relevance.
2. Budget Allocation
Adjust ad spend allocation by prioritizing top-performing ad campaigns or products, and redistributing resources from underperforming ones, thus optimizing budget utilization.
3. Product Listing Enhancement
Improve product listings by optimizing titles, descriptions, and images to increase organic visibility, potentially reducing reliance on paid ads and improving TACoS.
4. Competitive Pricing
Keep a close eye on your own and your competitors’ product prices. The more competitive your product price is, the better conversion rate you can expect for organic and ads-driven sessions, and thus, a better TACoS.
5. Promotions and Deals
Leverage Amazon’s promotional features like Lightning Deals or Coupons to entice potential customers and improve the conversion rate.
In summary, Amazon TACoS isn’t merely a metric; it’s a powerful lens offering clarity into the genuine influence of your advertising efforts. It serves as your compass, illuminating the connection between ad spend and overall sales profitability. The goal is clear: continuously enhance this metric over time to drive greater profitability for your business on Amazon.
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