When it comes to measuring the success of your Amazon advertising campaigns, you look at the ACOS. But is it okay to just rely on ACOS? No doubt it is the most trustworthy metric, but from the past few months, TACOS is the “buzz” metric in sales and advertising conversions. Despite being a major metric in measuring the success of your campaigns, ACOS does not show the real picture, the larger picture.
Let us say we invest $10 in our Sponsored Product campaign. In some time, we get 10 orders and generate $100 worth of sales directly attributable to advertising. So our ACOS will be 10%. But advertising sales isn’t the only metric which should be considered. What about the organic sales and brand awareness generated? Surprised?
Don’t be. The $10 you spent on Sponsored Product campaigns also helped your rank higher organically. The more sales you get on a product, the higher you rank. It doesn’t matter if that sale was achieved organically or because of Sponsored Ads. Also, these new customers were pleased with their purchase and left glowing reviews. All of these factors led to an increase in organic ranking and your customers are now easily able to find your product.
So in this example, let us say that the 10 orders raised our rank by 1 position. And as you rank higher organically, your organic sales also increased. This means that you have not just made sales of $100 but much more than that. What’s your ACOS now? Still 10%. Despite the increase in organic sales, there is no change in the ACOS. This is where ACOS fails. It does not tell the true value of your ad spend.
Total Advertising Cost of Sales or TACoS (not Tacos, the delicious Mexican delicacy) can help you measure your total ad spend relative to the total revenue generated. The basic formula for TACoS is – (Advertising Spend / Total Revenue) x 100. While metrics like ACOS and RoAS are confined to measuring your advertising efforts, TACoS sheds light on your overall business performance. It helps you measure the effectiveness of advertising in the long term growth of your brand and also shows how much your business is relying on advertising.
Interpreting TACoS Made Simple:
Just like ACOS, the lower your TACoS is, the better. Conversely, a higher TACoS means your total sales are becoming more and more influenced by your advertising spend. Your ad spend is becoming a significant factor in your overall revenue, which is not what you want. Take a look at the below scenarios to understand TACoS better:
|What Does It Mean?
|TACoS is flat
|Organic sales are increasing
|TACoS is falling ↓
|Organic sales are increasing
|TACoS is rising ↑ and ACOS is falling ↓
|Organic sales are reducing
|TACoS is rising ↑ and ACOS is rising ↑
|Organic sales are reducing
|ACOS and TACoS both are rising ↑
|Acceptable if your product is new
Let us take a closer look at each of these scenarios:
#1: TACoS Is Flat Or Decreasing – This means that your advertising efforts are generating steady sales. It also indicates that the organic traffic and sales on that product are increasing, which means that your brand presence and customer reach is growing too! This is an ideal situation.
#2: TACoS Is Increasing – It means that you are spending more on your advertising campaigns, but your organic sales are not increasing at the same rate. This is not the worst scenario, but it is not desirable either.
#3: TACoS & ACOS Are Both Increasing – This situation may not look very ideal, but sometimes, it would make total sense. For example, while product launch on Amazon. While launching a new product, your only objective is to increase sales. If everything goes well and as planned, your TACoS, as well as ACOS, will decrease eventually.
#4: TACoS Is Increasing & ACOS Is Decreasing – This scenario is somewhat deceptive. You may be under the impression that your ACOS is decreasing, so everything is under control. But in reality, your organic sales are sinking lower and lower. organic sales are contributing a smaller portion in your total revenue while your ad spend is generating a larger portion. You are more dependent on advertising for generating sales, which is not a good sign. Ultimately this situation is shifting you away from your goal of boosting organic ranking and brand awareness.
What Should Be The Ideal TACoS?
‘Good’ TACoS is relative to your brand size and its objective. If you have recently launched a product, you might have high TACoS and consequently, if most of the products are performing well then, your TACoS will be low. However, your goal should be to decrease your TACoS as much as possible. The ideal situation would be when your ACOS and TACoS are both decreasing simultaneously.
How Can You Decrease Your TACoS?
- Optimize your product detail page to increase conversion rates
- Control your ad spend and add a cap on your ad budget
- Pause advertising campaigns on underperforming products. Scan your ad campaigns and see what products you are advertising that are not very profitable. Think again if you should continue to invest in advertising for these ASINs?
- Add negative and narrow match keywords to cut down on ad spend
- Try increasing your customer’s cart size. Use promotions, coupons and bundles to encourage customers to buy multiple units
Not Just ACOS, TACoS Is Equally Important:
Your Amazon product ads should have a snowball effect; gradually, it should lead to organic sales and brand awareness. And TACoS can help you get on that track. It can equip your brand with valuable information to evaluate the overall performance of your product. By knowing the percentage of total revenue your ad spend generates, you can identify the blind spots and understand if your ads are actually fueling your organic growth or not? If you want to learn more about how TACoS can improve your long term business strategy, contact our Amazon PPC expert.