TACoS, also known as Total Advertising Cost of Sale is the biggest topic in conversations related to sales and, of course, it plays an important role in Amazon Advertising.
Amazon is undoubtedly the biggest online marketplace right now, and being able to do business on it entails tons of revenue for your online retail business. Small and big businesses from all over the world that sell their products in Amazon often consult their analytics to view whether marketing efforts are paying off.
Among all of the metrics on Amazon, TACoS has been getting the most amount of buzz in recent months. The acronym may look like it refers to a food item, but TACoS is a serious business on Amazon.
If you’re selling products on Amazon and putting money into advertising in hopes that it’ll help your business grow, then you should be aware of what TACoS is.
Here are a few basic things you need to know about TACoS for Amazon advertising, like what it means, how it relates to sales, and how it can help you track your brand’s growth.
What is TACoS in Amazon Advertising?
The end goal for any advertising campaign on Amazon is to earn enough and build enough brand or product awareness that you won’t have to spend on ads anymore to market it.
TACoS recently became popular in the Amazon advertising space because it’s a metric that can easily tell whether or not your ad campaign is doing well. This key performance indicator (KPI) measures how much you’re spending on paid advertising in relation to how much revenue you’re earning.
It’s not a be-all-end-all metric, but it’s good for providing better insight into the growth of a brand in the long run. For what it’s meant to do, TACoS does it pretty well.
Most sellers are more familiar with ACoS, or “Advertising Cost of Sale,” which is basically TACoS, but only for single products that you run an Amazon Sponsored Products ad for. Looking at TACoS and ACoS together can help you understand how ad spending on a new product you’ve just started selling on Amazon is affecting the bigger picture.
Calculating TACoS (and ACoS)
TACoS has a fairly simple formula since it’s just measuring how much you’re spending on an ad in total as opposed to how much you’re earning in return. The resulting number can tell you if your ads are actually helping you get more sales, including organic sales.
TACoS = (Ad Spend / Total Revenue) / 100
The result is a percentage of how much you’ve spent on an ad in relation to your total revenue. The higher the number, the more money you’re taking out of your revenue to spend on the ad.
To calculate your ACoS, you just change one thing in the formula.
ACoS = (Ad Spend / Ad Revenue) / 100
The only difference between the formulas of TACoS and ACoS is you calculate your total revenue with the former and ad revenue for a single product in the latter.
Having these two KPIs helps you understand how a product is performing and if your ad spend has been worth it.
This KPI is all about how much ad spend is actually producing in terms of sales. That ad spend can take away from total revenue if the ad doesn’t bring in the expected additional revenue that covers the ad cost by volume of sales.
When monitored along with ACoS, you can get a good sense of how your business is growing on Amazon. The following are what happens when those numbers shift:
You’re spending more on the advertisement, but your organic sales are not increasing at the same rate. This is bad.
Decreasing or Low, Flat TACoS:
The advertised product is getting more sales or a good, steady volume of sales. Organic sales may also be improving in conjunction due to an increase in brand awareness from the ads. This is good.
Increasing TACoS and ACoS:
This tends to happen whenever you start selling a new product and initiate an ad campaign for it. The ad spending will understandably increase, which increases both TACoS and ACoS for the time being. This is not ideal, but it’s still acceptable as you’re promoting a new product.
During the launch of a new product, your main goal should be to spend the appropriate amount on advertising to increase sales. As you go on, TACoS should decrease as your brand and/or product gets more organic search traffic.
Decreasing ACoS and Increasing TACoS:
Your organic sales are either decreasing or becoming a smaller chunk of your revenue. This can be bad as it’s a sign that either you have to depend on paid advertising to drive sales over the long term or it’s starting to lose its magic altogether.
It’s vital for sellers to be on top of these numbers as it lets them know if they’re spending too much on advertising without getting the expected boost in sales. Also, it makes them wary of being too dependent on ads for their sales. It should always be the end goal to earn from organic sales as much as possible.
Aside from providing good products that people actually want at good prices, the main thing you can do on Amazon to boost your sales is to have your products show up high in the search results, and often.
Search engine optimization within Amazon, or Amazon product listing optimization, is crucial to bringing up your organic sales. Advertising your product can only bring in so many new customers, and you won’t be able to lean entirely on it since you have to spend in order to get those sales.
But with organic search on and off Amazon, you’ll get way more customers who search with related keywords. It’s like invisible advertising in a way, letting you reach customers you would not likely come across if you never paid attention to optimizing your product pages.
The A9 Algorithm
You must understand how Amazon’s A9 algorithm works. Just like Google’s search algorithm, the A9 algorithm determines which products show up first when users type in relevant keywords. While its inner workings are mostly kept secret, certain aspects of it are well-known and play a major factor in optimization.
The A9 algorithm seems to favor product listings that have text match relevancy and good sales velocity, are aptly priced and always in stock. That ranking then gets boosted further if the product listing is Fulfilled By Amazon and is advertised as well.
If your product is advertised on Amazon, it’s favored in search results. Therefore, ad spending does, even more, to make your product visible to Amazon customers through organic search results.
Ultimately, however, what seals the deal for that product listing being more attractive to customers is good product reviews. Amazon is well known for having the best customer review system in all of eCommerce. They know that customers want to see how good a product really is before they buy it. Positive customer reviews, therefore, add to the appeal of your product and to A9’s choice of listing to show first.
Of course, you should fulfill all the standard stuff like proper listing titles, posting high-quality images of the product, filling out the description with concise yet comprehensive product information, and so on. All of them are crucial to the SEO of the product listing.
Amazon’s premium content feature, A+ Content (formerly Enhanced Brand Content) can result in a sales boost of 5% because your listings look nicer. It’s worth setting up for Professional sellers.
These are a limited-time way that you can boost your product listing. Promotions should be used sparingly since it’s basically providing a discount to make the product offer look more attractive to customers. It’s a trade-off of earning less for each sale in the hopes of getting better sales velocity, so it’s a short-term tactic to gain exposure.
All of these factors are considered by the Amazon A9 algorithm for ranking your product listing in search results. After all, advertising a product isn’t useful if it doesn’t show up organically in the search results — it’s just spending money for minimal results, or bad TACoS.
Advertising your products on Amazon is quite effective. It’s estimated that Amazon advertising revenue reached $14.1 billion, which is 39% higher than in 2018. That’s remarkable, considering that more than half (54%) of products sold on Amazon are from third-party merchants.
TACoS for Amazon advertising provides a bird’s eye view of the business and can help sellers figure out what they should be doing to improve on their long-term strategy. Sellers should always look for their TACoS along with their revenue if they want to sustain a successful business on Amazon.
Of course, this is not the only metric you should pay attention to. Obsessing over it without looking at everything else will only serve to create tunnel vision, which you can ill afford. Understanding how TACoS can affect everything else in your Amazon performance is key.