Whilst we all love a Mexican taco from time to time, this is unfortunately not the topic of this week’s blog (we will reconsider if Amazon takes over Taco Bell).
Instead, we are talking about the golden nugget that keeps the advertising world spinning: metrics. Where we can measure success, we can make success.
What is Amazon TACoS?
TACoS stands for ‘Total Advertising Cost of Sales’ and principally is a percentage that displays the correlation between advertising spend relative to total sales revenue.
It’s a metric that as a specialist Amazon advertising agency we use extensively.
You may have never heard of TACoS as an advertising sales measurement and this is likely due to its uniqueness to Amazon.
Dissimilarly to many other ecommerce platforms, which may just utilize ACoS (a proportion of advertising spend against sales gained as a consequence of these ads only), Amazon sellers can use TACoS as a KPI.
Why just Amazon? This is a consequence of spending on Amazon Advertising having the profound ability to impact organic sales, as well as sponsored sales.
Hence it is negligent to discard organic sales when evaluating the success of your advertising campaigns. Therefore, we must look at the TOTAL sales.
Whilst it has never been explicitly stated by Amazon that advertising can impact organic sales, it is very well known in the community and is widely accepted by most sellers.
Calculating TACoS
To calculate TACoS you implement this equation:
Amazon TACoS = (Advertising spend/Total Revenue generated on Amazon) x 100
In this calculation, both the advertising spend and total revenue that are inputted have to be from the same time frame.
For example, you can work out the Amazon TACoS for January using January data or for last week using last week’s data.
In addition, you can evaluate the TACoS of just one product, using the advertising spend on that product and revenue earned on that product in the given time period.
Alternatively, you can review your entire product range’s TACoS by using your total advertising spend (found in your campaign manager dashboard on seller central) and total sales for the month (located in the business reports section of seller central)
Why measure TACoS?
With competition on Amazon growing exponentially every day, it has become increasingly important to not just sell to customers but to increase brand awareness and recognition.
By growing your brand, it helps to build trust and loyalty with your consumers. Hence, for every advertising engagement you have with a customer, you are growing your brand recognition which has a long-standing effect on your target audience.
Consequently, advertising campaigns increase the likelihood of brand-halo conversions, repeat purchases and referrals, all contributing to the overall sales, but not necessarily attributed as ad sales.
Therefore, shifting your focus from ACoS to TACoS will provide a more comprehensive overview of how your advertising actions are influencing your overall business growth.
Whilst ACoS (Advertising Cost of Sales) and, inversely, RoAS (Return on Ad Spend) are imperative KPI metrics indirectly correlating how much money has been made from ads in relation to how much was spent, they don’t account for how advertising has impacted overall sales.
Although TACoS does deliver a more complete measure of brand growth, it can not singularly reflect every aspect of your business.
However, tracking TACoS over time can reflect how well your brand is growing.
With more and more people meeting your brand on Amazon over time, you should see (in an ideal world) your TACoS steadily decreasing. This is because even if your advertising budget stays the same, you should generate more organic sales from brand-loyal customers.
What does your TACoS mean?
As a rule of thumb, a low TACoS is happy days and, much like ACoS, the lower, the better.
There are some exceptions to this, for example, if you are massively trying to scale your business by being aggressive with your budgets and bids in campaigns, you may compromise a low TACoS for higher sales.
In addition, when launching new products, you may see an initial high TACoS while the product is becoming comfortable in the market. However, generally speaking here are the rules on what your TACoS means:
- Low TACoS: A low TACoS rate generally shows that you have a large proportion of sales coming in organically compared to from your advertising. This indicates you have successfully increased your brand awareness or you provide such an impressive product to a point that you don’t have to rely on ads as much to provide a good ad revenue. Hence you should feel a bit more stability with sales.
- If you have a low ACoS, congratulations, as it is not always easy. If you are looking to improve your business further, a low TACoS can sometimes give you the opportunity to increase product visibility. This can be done with sponsored ads by increasing budget allocations and targeting your relevant keywords at an appropriate CPC.
- High TACoS: If you have a consistently high TACoS, it is important to review your advertising campaigns. This includes checking the keywords you are targeting are all relevant, they have bids at or below the average CPC and that your products’ listings are optimized effectively. Much like was mentioned earlier in regards to a high TACoS being expected on product launch, it is hence important to monitor trends in TACoS to see how you are progressing.
How to optimize for a lower Amazon TACoS
If you are experiencing a consistently high TACoS, there are two ways to attempt to bring it down:
Decrease advertising spend:
This can be done in a number of ways:
- Decreasing your advertising campaign budgets, especially on those with a high ACoS that are notoriously high spenders.
- Decreasing the bids on your most unprofitable targets, that being those who have spent a lot with little sales or those that are high spenders and aren’t highly relevant.
- Pausing campaigns/targets with a high ACoS or that have a tendency to spend with no sales generated.
You can use one, a combination or all of these tactics to bring down the TACoS. However, with a reduced TACoS, it is likely you may run into a decrease in sales as well. This can be rectified with a slow increase in the bids, budgets, etc of best performing campaigns and targets over time.
Increase the number of organic sales you’re turning over:
This can be done by:
- Improving your product listing, this can be done by ensuring they are optimized. To check the strength of your product listings, you can use Helium 10’s ‘Listing Analyzer’ tool, which provides insights into how to improve your listing.
- Some key factors of listing health include: 7 images, high reviews and ratings, keyword optimized product descriptions, competitive price and availability.
- Focusing your ad spend on ranking and top of search (TOS) campaigns. These can be a great way to increase your products ranking in a category, which will inevitably increase its sponsored and organic rank. You can do this by creating campaigns with your best keywords, giving them a very low CPC and a very high top of search placement bid, up to 900%.
- Building Sponsored Brands campaigns. While this is more of a long term fix and may not provide you with the best ACoS, Sponsored Brand campaigns are known for their ability to increase brand awareness and recognition. This should see a steady increase in organic sales over time and can lead to higher brand loyalty, more repeat purchases and brand halo conversions.
Using a crew of KPIs
Although we have covered extensively the importance of TACoS in Amazon Advertising, it does not mean it should be used alone.
By utilizing an array of KPIs, eg ACoS, CVR, sales, spend, impressions etc, you can get a holistic overview of how well your advertising is benefiting you, in a multitude of ways.
Nonetheless, when you are reviewing progress, make sure to acknowledge TACoS and remember what it means about your brand.
For help with your Amazon TACos please get in touch.
