As we have already seen in previous posts, Amazon is the largest online marketplace at the moment, since doing business in it implies a huge amount of income for the online retail business. For this reason, it is important to consult sales analytics to see if your marketing efforts are paying off or not.
Amazon offers quite a few metrics, and TACOS is one of them, which is essential if we want to know if our marketing techniques and advertising campaigns are on the right track.
Both ACOS and TACOS are metrics that help Amazon sellers do their job efficiently. Specifically, ACOS refers to advertising cost of sale, and TACOS to total advertising cost of sale. Throughout the blog, we list the differences and relationships of both metrics.
What is Acos?
It is a metric that tells us the relationship between the expenses and the income of our campaigns in the Marketplace, therefore, we can say that it reflects the profitability of the ads on Amazon. That said, the way to calculate profitability is represented by the following formula:
ACOS = (ad spend / sales generated by advertising) x 100
Thus, when the expenses are less than the stipulated profit margin, the campaign will be profitable.
Let’s put a practical example to understand it. In the case that we have invested €50 in an advertising campaign that has generated €500, if we apply the formula we obtain the following:
ACOS = (50/500) x 100 = 10%
In other words, for every euro that has been generated, 10 cents have been spent.
However, to find out if the published advertisement is profitable, or not, you can also look at the ACoS together with other metrics (Impressions, Total Clicks, Total investment in the campaign, General sales…) to have a general picture of the situation. .
What is TACOS?
In this case, the TACOS shows us the general total sales, therefore, it shows us a more complete picture than the previous metric. In this way, if we monitor our business over time through TAcos, we can see how our advertising investment helps increase organic sales. The formula that will allow us to know the profitability is the following:
TACoS = (advertising expenses / total revenue) x 100
However, there is no ideal percentage, this is subjective, since it depends on what we are trying to do. But, in general terms, we must know that the smaller the TACOS, the better, this means that, for a mature product, the percentage must be between 10% and 15% if we want to consider it healthy.
If we want to decrease this metric, there are two ways to achieve it, but we must take into account that the inverse of these actions will increase.
Path 1. Reduce ACOS by spending less on advertising, or doing it more effectively.
Path 2. Increase the percentage of organic sales of the products.
Even so, having a low TACOS is not enough, since we must maintain it. Here are some key trends to watch out for:
Increase of TACOS. Ad spend is increasing, but organic product sales are not increasing at the same rate.
Decrease of TACOS. There is a high velocity of sales, in addition, organic sales are improving.
STACKED TACOS. Sales are steady across the board, so the account status is good at this time.
What is the difference between ACOS and TACOS?
Although the formulas used for both metrics are similar, there is a difference to note: ACoS looks at ad spend against PPC sales revenue and TACoS looks at ad spend against all sales revenue, including the organic ones.
Increase in TACOS and ACOS
This case tells us that something is wrong, unless the product has just been launched on the market. In other words, it means that the advertising investment made is reducing the profit margin.
Decrease ACOS and increase TACOS
Alert! Organic sales are declining, or becoming a smaller part of your total revenue. In this case, maybe sales are too dependent on your paid ads.
Decrease in ACOS and TACOS
Good! Organic sales are improving and outpacing the sales you get from your paid ads.
We must keep in mind that the ultimate goal of any ad campaign on Amazon is to earn enough and build awareness of the brand or product that you don’t have to spend on ads to be able to market it. For this reason, TACoS became popular, since it is a metric that tells us if the campaign in question is being effective quickly. As we mentioned earlier, this KPI measures how much you spend on paid advertising in relation to the revenue earned. This is important because ad spend can reduce total revenue if the ad doesn’t generate the expected revenue, so the revenue doesn’t cover the cost of the ad in sales volume.
How to increase your sales thanks to marketplaces and RRSS?
From Década Studio we implement a comprehensive digital strategy, where we help you to position and sell your products in the reference marketplace such as Amazon.
Currently, 79% of users buy online and 96% of online buyers have used marketplaces at some time, so why not take advantage of this opportunity to grow your business?
For all this, we help you implement your digital strategy to start increasing your sales.