ACoS and TACoS – What are they and why should you trust TACoS?

Have you ever wondered how to accurately measure the effectiveness of your ads on Amazon? Finding the right approach can be a challenging task. In the ever-growing e-commerce market, where competition is fierce, it’s crucial to fully understand the tools provided by the platform, such as TACoS and ACoS. These metrics can be key to achieving sales success. It’s worth understanding what lies behind these mysterious acronyms.

ACoS

ACoS, or Advertising Cost of Sales, is a metric that shows the cost of advertising in relation to sales. It’s an essential part of marketing campaigns on Amazon. ACoS helps track the effectiveness of spending by simply calculating the ratio between the cost of advertising and the revenue it generates.

The formula is: ACoS = (Advertising Spend ÷ Advertising Revenue) ∗ 100.

Let’s take a simple example: If you spent 100 zł on PPC ads on Amazon, and the sales generated by those ads amounted to 1,000 zł, your ACoS would be 10%.

Why is ACoS important? It allows you to understand how profitable your advertising campaigns are. The lower the ACoS, the more effective the ads are, as you’re spending less money relative to the revenue. Therefore, ACoS is a key metric that helps you determine whether your ads on Amazon are generating a return on investment. It’s an essential element in analyzing the effectiveness of advertising efforts on this platform and can be a crucial factor in determining your brand’s success. However, despite its popularity, ACoS might not always provide a complete picture.

TACoS

TACoS, or Total Advertising Cost of Sales, goes a step further than ACoS, offering a more comprehensive view of campaign performance on Amazon. It takes into account not only the direct costs associated with advertising but also considers overall sales revenue, including organic revenue. As a result, TACoS provides a more holistic approach to assessing the effectiveness of advertising efforts.

The formula is: TACoS = (Advertising Spend ÷ Total Revenue) ∗ 100.

Why is TACoS so important? ACoS doesn’t consider the impact of ads on the organic visibility of products, which can lead to underestimating the true value of advertising campaigns. TACoS, on the other hand, offers a broader perspective, taking into account both paid and organic results, which enables a more accurate evaluation of ad performance and its impact on overall sales success on Amazon.

Advertising is not just a tool for acquiring customers but also an effective way to improve product ranking. When a buyer clicks on an ad and visits the product page, Amazon notices this activity and begins to view the product as more popular and desirable. As a result, the product may climb higher in search results directly on the platform. A higher ranking means greater visibility among potential future customers, which in turn leads to more clicks and, most importantly, sales.

One of the simplest uses of TACoS is to evaluate the effectiveness of ads. It provides a full picture of campaign results and checks whether ad investments translate into sales. A decrease in TACoS can indicate growing profitability, while an increase may signal the need for campaign optimization. Additionally, by subtracting advertising costs from the pre-advertising margin, you can calculate the post-advertising margin, which helps determine whether the product is profitable or not.

TACoS is an invaluable tool for new products, allowing you to track their lifecycle and effectively manage your advertising budget. A high TACoS might be normal at the beginning, but it’s essential to monitor changes and take appropriate optimization actions. While there is no definitive definition of a “correct” TACoS, both a decreasing and steady percentage in ads can indicate campaign profitability. However, achieving and maintaining a low rate requires continuous monitoring and optimization of advertising campaigns.

So how can you leverage TACoS for promotion on Amazon? Effective PPC ads play an important role in influencing this metric. Regularly monitoring ad campaigns, SEO, bids, and ad spending is key to achieving the desired results.
Additionally, keeping track of Amazon’s advertising policy updates and guidelines is essential to avoid potential penalties or issues related to regulatory violations. Adapting your strategy to the changing conditions on the platform can help maintain high ad performance and reduce TACoS. By investing time and effort in optimizing your listings on Amazon, you can expect an increase in both organic traffic and conversions.

Remember, TACoS is not just a metric but also a tool that enables the analysis and optimization of sales strategies. By using it correctly, sellers can better understand the effectiveness of their advertising efforts and more effectively achieve their business goals.

ACoS or TACoS – Which metric should you trust to run effective marketing campaigns?

ACoS (Advertising Cost of Sales) and TACoS (Total Advertising Cost of Sales) are key performance indicators for advertising effectiveness on the Amazon platform. ACoS focuses mainly on the cost efficiency of advertising campaigns, while TACoS considers both ad revenue and organic revenue, providing a more comprehensive picture.

We recommend using TACoS as the primary metric for Amazon sellers due to its versatility and more accurate reflection of advertising effectiveness. It allows sellers to gain a fuller understanding of the impact of ads on earnings, as well as optimize advertising strategy and better allocate the advertising budget. By utilizing TACoS, sellers can make more informed business decisions, aiming to increase the profitability of their advertising campaigns and achieve success on the e-commerce platform.