The complete guide to Amazon ACOS and TACOS

When it comes to Amazon Advertising, ACOS is the most familiar, tracked and optimized metric. TACOS is gaining popularity in the recent past because of the real-time trackability. In this blog post, I will delve deep into the two metrics and provide you a complete guide of why, how and when to use these metrics.

We will discuss the following:

- What are ACOS and TACOS

- Importance of ACOS and TACOS in Amazon PPC world

- Why is TACOS an important metric

- What is a good TACOS

- Things to consider before using either ACOS vs. TACOS

What is the difference between ACOS and TACOS:

To optimize Amazon PPC campaigns, it is essential to understand the nuances of the ACOS and TACOS metrics. This section provides a detailed explanation of these metrics, their differences, and their significance in evaluating advertising efficiency and overall sales performance.

Definitions:

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. In simple words, it tells you if you are earning more than you are spending. An ACOS of more than 100% shows that you are spending more than you are earning. ACOS is a valuable metric for evaluating advertising efficiency and determining the profitability of individual campaigns.

TACOS (Total Advertising Cost of Sales), on the other hand, 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 can help sellers monitor overall profitability and reliance on advertising.

If you do not pay attention, ACOS and TACOS will sound similar to you. Let’s look at them side by side:

ACOS = PPC Spend/ PPC Sales

TACOS = PPC Spend/ Total Sales

Total Sales includes PPC sales and Organic Sales

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

Why is TACOS the better metric to measure for Ad performance

Previously, ACOS was the solely used metric to measure the effectiveness of ads. But ACOS comes with a limitation. It limits the understanding of impact of ads on total sales. It is indeed limiting because the ultimate goal of ads is to increase sales.

Measuring and optimizing for TACOS, on the other hand, has 3 major advantages:

(a)   TACOS is more real time. ACOS keeps attributing sales over a time period of 14 days. But TACOS, which depends on total sales, can be attributed almost on a daily basis.

(b)  Ultimate measure of ASIN wise performance: When you measure ACOS on ASIN basis, you may be taking into account the sales of other ASINs that happen by advertising that ASIN:

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

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

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

(c)   Direct plug and play into PnL: TACOS provides a % ad spend per ASIN or overall account, while ACOS only provides a % ad spend of overall account calculated for a certain sale. TACOS is a more normalized version of ACOS that can be used in PnL directly.

Good TACOS vs. Bad TACOS

A good/ bad TACOS is a relative term. It depends on:

(a)   The lifespan of your brand: Newer brands have high TACOS. This happens because most sales are dependent on advertising. But over time TACOS should start decreasing

(b)  AOV of products sold: Low AOV products have higher TACOS vs. high AOV products that have a lower TACOS. However low AOV products have a higher conversion, hence they are more fast moving.

(c)   Effectiveness of campaigns: A well optimized account will provide a low TACOS while ineffective bid management will lead to high TACOS

A 15% or less TACOS is usually considered good. But it is good to find your ideal TACOS based on your profit margins rather than rule of thumbs.

It is good practice to lower your TACOS by increasing organic sales and optimizing PPC. But a TACOS of less than 3% means you might be under-utilizing your PPC. Here is why:

(a)   Stifling experimentation: If you are over-optimizing on KWs and not experimenting on new KWs and bids, then you might be losing out on sales through ads.

(b)  Not spending on enough ASINs: If you are not spending enough on top selling ASINs, then you might not be using Ads to its full potential. In addition, you should also keep experimenting on creating new hero products.

(c)   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% will give you the signal to improve advertising aggressiveness.

TACOS trends:

TACOS trends tells you how your TACOS is moving over time:

(a)   Decreasing TACOS: What more do you want? Decreasing TACOS over time means that your reliance on ads is reducing and more sales are coming in organically. Also, decreasing TACOS means that your Ads are optimized well. But do ensure that TACOS does not decrease to below 3%.

(b)  Increasing TACOS: If TACOS is increasing over time, it means that reliance on ads is increasing. It is not necessarily a bad thing always. It could also mean that you are launching new products regularly. Also, with increasing CPC’s on amazon ads, a small increment in TACOS is expected.

(c)   Stagnant TACOS: This means that your TACOS is neither increasing nor decreasing. And your reliance on ads is constant.

How to reduce TACOS:

We have written a detailed blog post on reducing TACOS and ACOS for campaigns. You can read it here: 4 Strategies to reduce ACOS

It is important to know that controlling TACOS goes well beyond advertising. A few things that impact ACOS and TACOS:

(a)   To optimize Amazon PPC campaigns based on ACOS and TACOS metrics, it's imperative to refine keywords and adjust ad spend in alignment with the performance indicated by these metrics. This strategic approach enables advertisers to maximize the impact of their ad spend, improve advertising efficiency, and ultimately enhance their sales performance on the Amazon platform.

(b)  Increasing 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.

(c)   By incorporating the most relevant keywords in the subheadings and content, 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 that are optimized to deliver the best possible results in terms of advertising efficiency and sales performance.

(d)  To calculate and control TACOS, sellers can use a variety of tools. For ex. Atom11 provides a complete tracking module for TACOS. And provides recommendations to reduce ACOS and TACOS through bid management. To know more, book a demo call here.

The TACOS trap

Yes, TACOS is important, but TACOS is always a lower number than ACOS. It is easy to fall in the trap of thinking that ads are performing great, while actual ACOS is high.

That is why, we suggest you track both ACOS and TACOS over time and understand the trends.

1.     If the difference between ACOS and TACOS is low (i.e. ACOS/TACOS < 1.2) then all your sales are coming from ads. It doesn’t matter if both of them are low individually.

2.     If ACOS is decreasing, but TACOS is increasing: It means that you might be doing PPC cannibalization. Look for Amazon PPC automation softwares like Atom11 that can help you reduce PPC cannibalization.

3.     If ACOS is decreasing and TACOS is decreasing: If both ACOS and TACOS are decreasing, it might be a good thing. It means (a) ad effectiveness is improving and (b) reliance of total sales on ads is decreasing.

4.     If ACOS and TACOS are increasing: If both ACOS and TACOS are increasing, it might not be a good sign. It means (a) ad effectiveness is reducing, (b) reliance of 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 look at optimizing ads.

Conclusion:

In conclusion, the ACOS and TACOS metrics are essential for optimizing Amazon PPC campaigns. ACOS measures ad spend in relation to ad revenue, while TACOS considers ad spend in comparison to all sales revenue from both organic and Amazon advertising. Both metrics are valuable and can be used to analyze the effectiveness of PPC campaigns. It is important to understand the differences between ACOS and TACOS and use both metrics in tandem for comprehensive Amazon PPC optimization.

By implementing strategies based on insights from ACOS and TACOS, 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.

In summary, understanding and utilizing ACOS and TACOS metrics is crucial for achieving advertising efficiency and maximizing sales performance on the Amazon platform. By following best practices and incorporating relevant keywords and phrases, sellers can optimize their Amazon PPC campaigns and achieve greater success on the platform.

FAQs

Q1: 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.

Q2: 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.

Q3: 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. Continuously monitoring and adjusting campaigns based on data analytics is key to reducing ACOS over time.

Q4: 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.

Q5: Can a high ACOS be justified, and under what circumstances?

Yes, a high ACOS can sometimes be justified, especially in scenarios where 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.