Amazon ACoS vs TACoS: Key Differences for PPC Success

When it comes to Amazon PPC Advertising, ACoS is the most familiar, tracked, and optimized metric. However, TACoS has recently gained popularity because of its real-time trackability. In this blog post, we will delve deep into ACoS TACoS and provide you with a complete guide to why, how, and when to use these metrics.

We will discuss the following:

• What is TACoS vs ACoS?

• Importance of ACoS and TACoS in the Amazon PPC world

• Why is TACoS an important metric?

• What is a good TACoS?

• Things to consider before using ACoS vs TACoS

  
  

What is the Difference between ACoS and TACoS?

Understanding the nuances of ACoS and TACoS is essential for optimising Amazon PPC campaigns. This section explains these metrics, their differences, and their significance in evaluating advertising efficiency and overall sales performance.

ACoS

ACoS (Advertising Cost of Sales) measures the percentage of ad spend in relation to ad revenue. It is calculated by dividing total ad spend by total ad revenue. 

ACoS = (Total Ad Spend / Total Ad Revenue) ✕ 100

A lower ACoS typically indicates a more cost-effective campaign, while a higher ACoS suggests that ads are consuming a larger portion of revenue. For example, an ACoS of more than 100% shows that you spend more than you earn. ACoS is thus a valuable metric for evaluating advertising efficiency and determining the profitability of individual PPC ads.

TACoS

TACoS (Total Advertising Cost of Sales) considers ad spend in comparison to total sales revenue from both organic and Amazon advertising. TACoS provides a more comprehensive view of business performance and helps sellers monitor overall profitability and reliance on advertising.

TACoS = (Total Advertising / Cost Total Sales) ✕ 100

Let’s compare them side by side to see their key difference:

Understanding the differences between ACoS and TACoS is crucial for optimizing Amazon PPC campaigns. By interpreting TACoS vs ACoS data, sellers can gain important insights into the effectiveness of their advertising strategies and make informed decisions to improve their advertising efficiency and overall Amazon sales performance.

Why is TACoS the Better Metric to Measure for Ad Performance?

Previously, ACoS was the sole and most important metric to measure the effectiveness of ads. However, it limits the understanding of the impact of ads on total sales, which is a disadvantage because the ultimate goal of ads is to drive sales.

Measuring and optimizing for TACoS, on the other hand, has three significant advantages:

1. TACoS is more real-time: ACoS attributes sales over a 14-day window. But TACoS, which depends on total sales, can be attributed daily.

2. Ultimate measure of ASIN-wise performance: When you measure ACoS on an ASIN basis, you may be taking into account the sales of other ASINs as a result of advertising that ASIN during the same period:

ACoS (ASIN) = Ad spend on advertised ASIN / Ad sale from the advertised ASIN

Ad sales on advertised ASINs can be attributed to the same ASIN or any other ASIN.

TACoS (ASIN) = Ad spend on advertised ASIN/ Total sale of advertised ASIN

3. Direct plug and play into PnL: TACoS offers a more direct way to track advertising costs in your Profit and Loss (PnL) statement, as it measures ad spend as a percentage of total revenue for an ASIN or your entire account. In contrast, ACoS provides a percentage ad spend of the overall account for a specific period, making it less reflective of overall profitability. Since TACoS accounts for both organic and paid sales, it provides a normalized view of advertising costs, making it appropriate for use in your PnL.

   
   

Good TACoS vs. Bad TACoS

A good or bad TACoS is a relative term. It depends on:

1. The lifespan of your brand: Newer brands have high TACoS, because most sales depend on advertising. But over time, TACoS should start decreasing.

2. AOV of products sold: Low AOV (Average Order Value) products have a higher TACoS, and high AOV products have a lower TACoS. However, low AOV products also have a higher conversion, making them more fast-moving.

3. Campaign effectiveness: An optimized account provides low Amazon TACoS, while ineffective bid management increases TACoS.

A 15% or less TACoS is usually considered good. But it’s good to find your target TACoS based on your profit margins rather than the rule of thumb.

Lowering your TACoS by increasing organic sales and optimizing PPC is good practice. However, a TACoS of less than 3% means you might be underutilizing your PPC. Here is why:

1. Stifling experimentation: If you over-optimize on KWs instead of experimenting with new KWs and bids, then you might be losing out on sales through ads.

2. Not spending on enough ASINs: If you don’t spend enough on the top-selling ASINs, you’re not using ads to their full potential. Additionally, you should keep experimenting with creating new hero products. Learn more about using targeted ASINs to boost sales and take your Amazon business to the next level. 

3. Not bidding high enough to get impressions: Are you losing most impressions, to keep TACoS low? That might be a wrong strategy, and a TACoS lower than 3% signals you to improve advertising aggressiveness.

   
   

TACoS Trends

TACoS trends tell you how your TACoS changes over time:

1. Decreasing TACoS: What more do you want? Decreasing TACoS over time means your reliance on ads is reducing and more sales are coming in organically. It also means your Ads are optimized. However, ensure it does not decrease beyond 3%.

2. Increasing TACoS: An increasing TACoS indicates your sales are becoming more reliant on ads. This is not always a bad thing. It could also mean that you are launching new products regularly. You can also expect a small increment in TACoS with rising CPCs on Amazon ads.

3. Stagnant TACoS: This means your TACoS is neither increasing nor decreasing. Your reliance on ads is constant.

   
   

How to Reduce TACoS?

It is essential to know that controlling TACoS goes well beyond advertising. Here are a few things that impact TACoS and ACoS and can help you improve these metrics while optimizing ad campaigns:

Refine keywords and adjust ad spend

To optimize Amazon PPC campaigns based on ACoS and TACoS metrics, it's imperative to refine keyword research and adjust ad spend in alignment with the performance indicated by these metrics. This strategy enables advertisers to maximize the impact of their ad spend, improve advertising efficiency, and ultimately enhance their sales performance on Amazon.

Increase external traffic to Amazon

By increasing external traffic to Amazon products, you can reduce reliance on ads and instead boost your organic rankings. You can divert Meta or Google traffic to ads.

Incorporate keywords into ad copy strategically

One of the most effective ways to improve ACoS and TACoS is by incorporating the most relevant keywords in the subheadings and content. This way, advertisers can ensure that their Amazon PPC campaigns are strategically aligned with the insights derived from ACoS and TACoS metrics. This approach facilitates the creation of targeted and effective campaigns, optimized to deliver the best possible results in advertising efficiency and sales performance.

For a deeper dive into strategies to reduce ACoS, check out our guide.

Implement Amazon PPC automation tools

Sellers can use a variety of tools to calculate and control ACoS and TACoS. For example, atom11 provides a complete tracking module for both metrics. It also provides recommendations for low ACoS and TACoS through bid management. 

The TACoS Trap

Yes, TACoS is important, but it is always lower than ACoS. It is easy to fall into the trap of thinking that ads are performing great while, actually, you have a higher ACoS. That is why we suggest tracking both ACoS and TACoS over time to understand the trends.

• If the difference between ACoS and TACoS is low (i.e., ACoS/TACoS < 1.2), then a larger proportion of your sales is coming from ads. It doesn’t matter if both of them are low individually.

• If you see a decreasing ACoS but an increasing TACoS, you might be cannibalizing PPC. In this case, look for Amazon PPC automation software like atom11 that can help you reduce PPC cannibalization.

• If you have decreasing ACoS and TACoS, it might be a good thing. This means that (a) ad effectiveness is improving and (b) the reliance on total ad sales is decreasing.

• If you have increasing ACoS and TACoS, it might not be a good sign. It means (a) ad effectiveness is reducing, (b) reliance on total sales on ads is increasing. It can also happen if you have just launched new products or increased prices. If not, then you should consider optimizing ads.

How does a PPC Software like atom11 Help Optimize ACoS and TACoS?

Ad automation software, such as atom11, is designed to simplify and optimize your advertising strategy, ensuring that both ACoS and TACoS are balanced. Here’s how atom11 helps:

1. Real-Time Data Integration for Smarter Decisions

atom11 integrates with Amazon ads and your retail signals, such as inventory, pricing, and digital shelf metrics. This enables you to comprehensively understand how your ads perform and affect your ACoS and TACoS.  With real-time insights, you can:

• Understand sales trends of Ad spend vs total sales, TACoS data at ASIN level, AOV vs. total sales, Ad spend vs. BSR vs. total sales.

• Compare two different time periods and analyze the root cause of sales fluctuations by ASIN.

Using these real-time insights, you ensure that your ACoS remains within your profitability target and you don’t overspend on campaigns that aren’t driving sales.

2. Automated Dayparting for ACoS and TACoS Optimization

atom11’s automated dayparting feature allows you to schedule ads to run during peak performance times when conversions are higher and CPC is lower. By focusing your ad budget on the most effective times, you can:

• Lower your ACoS by reducing unnecessary ad spend during non-peak hours.

• Improve your TACoS by ensuring your overall advertising spend is directly contributing to sales growth without overshooting on costs.

  
  

3. Holistic Campaign Management and Optimization

atom11 provides holistic campaign management where you can easily manage multiple campaigns in one dashboard. atom11 helps you set clear targets for ACoS. It also helps you measure TACoS at the ASIN level. You can: 

• Set and adjust performance targets for ACoS, ensuring you stay on track with your profitability goals. 

• Set alerts on ASIN-level TACoS.

• Automate bid adjustments based on performance signals like clicks, impressions, and conversions, helping you dynamically optimize each campaign for better cost efficiency.

• Identify high-performing keywords and ad placements to allocate the budget effectively.

• Detect underperforming campaigns or products and re-allocate ad spend instantly.

  
  

4. Inventory and Pricing Insights

A unique advantage of atom11 is its ability to factor in inventory levels and pricing in real time. For example, if a product is low in stock, atom11 can automatically scale down your ad spend to prevent unnecessary advertising costs that would drive up your ACoS. Similarly, if a price change impacts product profitability, the system will adjust your campaigns to ensure your TACoS is optimized.

5. Custom Reporting for ACoS and TACoS

atom11 offers custom reporting features, allowing you to track ACoS and TACoS metrics across campaigns. These reports include:

• Granular breakdowns of advertising costs at both the product and campaign levels.

• Visual insights into how ad spend impacts overall sales, helping you make informed decisions about where to scale up or reduce your ad efforts.

  
  

Conclusion

ACoS and TACoS are essential metrics for optimizing Amazon PPC campaigns. While ACoS measures ad spend in relation to ad revenue, TACoS considers ad spend in comparison to all sales revenue from both organic and paid advertising. 

Both metrics are valuable and can be used to analyze the effectiveness of PPC campaigns. It is important to understand the difference between ACoS and TACoS while using both in tandem for comprehensive Amazon PPC optimization.

By implementing strategies based on ACoS vs TACoS insights, sellers can improve their advertising efficiency and overall sales performance. Refining keywords, adjusting ad spend, and monitoring organic versus paid sales performance are some of the strategies that can be used to optimize Amazon PPC campaigns based on these metrics. It is also recommended that sellers calculate and control TACoS to enhance Amazon PPC campaign effectiveness.

So, to maximize your Amazon sales performance, follow the best practices and incorporate relevant keywords and phrases to optimize your Amazon PPC campaigns. Also ensure that you consider metrics beyond ACoS to gain the optimal understanding of your sales.

Get in touch with us to discover how you can use atom11 to optimize ACoS and TACoS for your Amazon PPC campaigns to drive ad spend while boosting sales performance.

FAQs

What are ACoS and TACoS?

ACoS (Advertising Cost of Sales) is a metric to measure ad spend with respect to ad revenue. It helps evaluate the efficiency of campaigns. TACoS (Total Advertising Cost of Sales), on the other hand, considers total sales (including ad sales and organic sales) to measure the efficiency of advertising efforts.

What is ACoS, and why is it important for Amazon sellers?

ACoS, or Advertising Cost of Sales, is a metric used by Amazon sellers to measure the efficiency of their advertising campaigns. It is calculated by dividing the total spend on a specific ad campaign by the revenue generated from that campaign. ACoS is expressed as a percentage and helps sellers understand how much they are spending on advertising for every dollar of revenue generated. It's crucial for optimizing advertising spend and ensuring profitability. The lower the ACoS, the better the campaign, because it means you’re earning more than you’re spending.

How is TACoS different from ACoS, and what does it indicate?

TACoS, or Total Advertising Cost of Sales, is a broader metric than ACoS. It measures the impact of advertising spend on total sales, not just the sales directly attributed to advertising. TACoS is calculated by dividing total advertising spend by total revenue (including both advertised and non-advertised products). This metric helps sellers understand the overall impact of their advertising efforts on their entire Amazon business, indicating how advertising influences organic sales.

How can sellers improve their ACoS?

Improving ACoS involves optimizing advertising campaigns to achieve higher sales with lower advertising spend. Strategies include refining target keywords, improving product listings (images, titles, descriptions), using negative keywords to prevent irrelevant ad placements, and adjusting bids based on performance. Monitoring and adjusting campaigns continuously based on data analytics is key to reducing ACoS over time.

Why should sellers track both ACoS and TACoS?

Tracking both ACoS and TACoS provides a comprehensive view of advertising efficiency and its impact on overall business performance. While ACoS focuses on the direct profitability of advertising campaigns, TACoS shows how advertising contributes to total sales and market presence. Understanding both metrics allows sellers to balance short-term advertising goals with long-term business growth objectives.

Can a high ACoS be justified, and under what circumstances?

Yes, a high ACoS can sometimes be justified, especially when the goal is to gain market share, launch new products, or increase visibility in a competitive category. In these cases, sellers might prioritize visibility and customer acquisition over immediate profitability. Additionally, a high ACoS in the short term can lead to increased organic sales and customer lifetime value, offsetting the initial high advertising costs.