When it comes to Amazon Ads, two of the most important metrics you need to be aware of are TACoS and ACoS. But what exactly do these metrics mean and how can you use them to improve or measure profit margin and increase sales revenue?
TACoS stands for "Total Advertising Cost of Sales" and is a measurement of your reinvestment into Amazon Ads.
ACoS, on the other hand, stands for "Advertising Cost of Sale" and is a more specific measurement of how your ads are performing without considering total Amazon sales or profit margins.
So, which metric should you be using to measure your Amazon Advertising efficiency? Let's take a closer look at both TACoS and ACoS to find out.
TACoS vs ACoS: What is Total Advertising cost of sales and Advertising Cost of Sales?
First, let's look at the formulas to see how we calculate TACoS and calculate ACoS.
TACoS is your ad spend divided by your total sales (Ad Spend/Total Sales). And the ACoS definition is your ad spend divided by ad sales (Ad Spend/Ad Sales). Even at first glance, we can see how TACoS is a more holistic metric for measuring the success of your ad campaigns since it takes into account your total sales where as ACoS is only looking at ad sales.
If you want to know how your ad spend is impacting your account as a whole and increasing your profit margin, TACoS is the metric to use. But if you want more granularity into how ad campaigns are performing within your Amazon advertising, ACoS can help you get more specific.
We like to think of TACoS as a total level of reinvestment into your account. The lower your TACoS the less aggressive you are reinvesting into your business. AcoS, on the other hand, shows strictly how efficiently your ads are running. The lower your target ACoS the more efficient you are running.
Why look at TACoS? Total Advertising Cost of Sales as a level of reinvestment
If you want to know how efficient your ad campaigns are, why would you look at total sales revenue?
The answer here is a bit complex, but understanding the Amazon Flywheel helps. The Amazon Flywheel is basically Amazon's version of a marketing funnel.
The general principle is that:
- the more ad campaigns that you run
- the more ad revenue you get
- that ad revenue leads to more sales volume
- which leads to more review
- which leads to higher organic rank
- which leads to more Amazon sales
- which leads to more reviews
- which reduces the cost of Amazon PPC ads
- which leads to cheaper Amazon Advertising cost
- which leads to more advertising sales
- which leads to and leads to and leads to
- and then repeat over and over and over again!
The easiest and best way to interfere with the Amazon Flywheel, is to use an ad campaign or two or twenty to stimulate the growth of your overall business. An effective marketing strategy for your Amazon advertising campaigns will impact your organic sales by stimulating your item level and account level relevance, improving your organic rank.
Why Look at ACoS? Ad Spend and Sales for Maximizing Efficiency
Now that we know how advertising campaigns can impact your overall account, why look at your Amazon ACoS?
When you set up an Amazon PPC campaign you want to know how that advertising campaign performs. We need to remember that a low ACoS is indicative of a healthy ad campaign structure. If your average ACoS is below 35% your ad strategy is almost certainly helping your overall business. If your average ACoS is above 35% you might be running such an aggressive ad campaign structure that you are actually hurting your relevance.
Looking at ad cost in a more siloed perspective allows for more granular optimizations even if your organic sales are volatile. A good Amazon ACoS will help your organic sales stabilize.
What is a good TACoS? How Profit Margin Impacts Goals
A good TACoS really depends on your business. Amazon is a very competitive marketplace and the amount you need to reinvest into Amazon Advertising to stay relevant can vary greatly depending on what you are selling, how many SKUs you have, your average order value, your margin, and how established your brand is.
But as discussed TACoS can also be thought of as your level of reinvestment. This means that profit margin plays a big part in deciding the right TACoS for you. It also means that the smaller the TACoS number, the more efficient your ads are.
While these factors don't go directly into the calculation for TACoS it is good to consider things like Amazon fees, gross profit goals, pre ad profit, and an the ideal ACoS for your industry to benchmark against.
We typically see a TACoS of around 10% being the right place for preserving profit margin while still being aggressive enough to spend toward growth. But if you already have issues with your profit margin, you don't want a TACoS that leave you losing money.
What is a Good ACoS?
A good target Amazon ACoS can be a bit more universal because we are no longer looking at the total sales of your account, but rather how efficiently your advertising cost is producing ad sales.
Beauty benchmark for Amazon ACoS is around 30%.
But remember that the Amazon ACoS calculation is only taking ad sales into account. When you calculate ACoS you want to be sure that you aren't pushing your ad spend so far that you are negatively impacting TACoS to the point of damaging your profit margin.
As with TACoS the Amazon ACoS equation (ad spend/ad sales) means that the lower your ACoS the more efficient your ads.
How to Improve TACoS?
Remember the equation for TACoS (ad spend/total sales). So increasing overall sales or decreasing ad spend will both improve TACoS.
Because TACoS is examining how your advertising costs are rolled into your total Amazon sales revenue figure, the easiest way to improve TACoS is to examine and reevaluate your budgets. But this is only a short term solution.
A more long term fix would be to reorient your ad spend toward lower-funnel, branded campaigns. In the short term this won't grow your ad sales, but it will improve your relevance and help to grow your organic sales at a reduced advertising spend.
You can also utilize Amazon PPC tools like negative keywords, an ad group structure that focuses on efficiency, or making sure that you are only advertising items with high sales potential.
How to Improve ACoS toward a good ACoS?
Let's look at that Amazon ACoS formula one more time before discussing a target ACoS. ACoS measures advertising cost divided by ad sales (ad spend/ad sales). So as low an ACoS as you can get the better. And a high ACoS may need fixing.
Reducing wasted spend with negative keywords can improve performance toward your target ACoS. Shifting your targeting from competitive keywords toward category and branded keywords can also help reduce a high ACoS percentage.
Which Metric Fits My Business?
Whether you are more concerned with profit margin or just raw ad revenue, both TACoS and ACoS are important metrics to consider.
TACoS is important to tracking profit margins and considering your total level of reinvestment. ACoS can be used to define more strict granular control over your account.
Amazon TACoS versus Amazon ACoS: Frequently Asked Questions
What is ACoS vs ROAS?
ACoS, or Advertising Cost of Sales, and ROAS, or Return on Ad Spend, are inverse calculations to each other. ACoS=Ad Spend/Ad Sales and ROAS=Ad Sales/Ad Spend. If your ACoS goes down, your ROAS will go up.
What is Total ACoS?
Total ACoS or TACoS can be thought of as your total level of reinvestment back into your Amazon account. It is an important metric to use if profit margin is a factor in choosing goals for your business.
What is a good Advertising Cost of Sales Percentage?
Amazon Beauty benchmark for ACoS is roughly 30% but your target ACoS will depend on your business and goals.
How is Advertising Cost of Sales calculated?
Ad Spend/Ad Sales. This is a measure of how efficiently your ads are running and can be optimized through targeting and bidding optimizations.
How Can beBOLD Help?
Need and ACoS calculator to help get to a low ACoS? Need to know how many sales you need to justify a 12% TACoS? Want to know how to stimulate targeted sales at the ad group level to compete with the million sellers competing in your space?
beBold's team of experts can set up Amazon campaigns to get your ACoS and TACoS back in order!