The Amazon total advertising cost of sale (TACoS) can help you understand your business’s relationship with advertising. Sellers unfamiliar with the TACoS and how to interpret this important metric will benefit from learning how it can dramatically improve your advertising strategy.
In this article, we’re going to discuss how Amazon sellers can calculate their TACoS, what the TACoS reveals about your advertising strategy, and how you can make changes to your TACoS to improve both advertising sales and organic sales.
If you’re an Amazon seller, the TACoS will open up your advertising strategy to devote funds to where it matters. Continue reading to discover how the TACoS can improve your advertising spending and help you maximize your profits.
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What Is Amazon TACoS?
When you become an Amazon seller, you have to start implementing Amazon tools to ensure you maximize your profitability. Amazon TACoS is a ratio measuring your total ad spend versus your total sales and it can give you a good idea of how effective your advertising budget is.
The formula for calculating your TACoS is as follows:
Ad Spend Total Sales 100= TACoS
It is important to note that TACoS is completely different from Target ACoS.
What Is the Difference Between TACoS and ACoS?
ACoS stands for advertising cost of sale and you can calculate it by dividing your ad spend by your ad revenue, an effective tool for managing your advertising campaign.
TACoS accounts for your total revenue, not just your advertising revenue. Using TACoS can help you determine overall profitability, monitor your reliance on advertising for specific products, and analyze the effect on organic sales, as those from advertising campaigns.
While ACoS is effective at determining the direct correlation between your advertising budget and converted sales, ad sales drive organic sales as well, and it’s important to account for this when trying to devise an effective advertising plan. Doing so has a direct impact on your sales cycles.
You achieve a positive sales cycle when an increase in your ad spend leads to an increase in ad sales. If those sales improve your organic ranking and the number of reviews you can generate, it leads to an increase in organic sales.
A negative sales cycle is the opposite of a positive sales cycle and it occurs when reduced advertising dollars cause a drop in sales numbers.
Essentially, TACoS takes ACoS one step further. If you want the complete picture, you need to incorporate both of these valuable metrics.
How to Put the TACoS to Work for Your Business
There are many ways to put the TACoS to use in your business to achieve results. The first way a TACoS cna help your business is through monitoring your business’s profitability after an advertising campaign.
The TACoS can help you calculate your total net profit margin, which is an excellent way to determine whether your business model is profitable. For example, if your ad spend equals $5000 and your total sales is $50,000, you can divide the ad spend by the total sales and get a TACoS of 10%.
Once you have your TACoS, you can calculate your net profit margin by subtracting your TACoS from the organic profit margin. For the sake of this example, let’s assume your organic profit margin is 20%. That means you would subtract your TACoS (10%) from your organic profit margin (20%), equating to a 10% net profit margin, signifying an overall profitable business model.
Monitoring Your TACoS Over Time
You can gain a substantial amount of information just from monitoring your TACoS over time. If you notice a decreasing TACoS over time, it typically means an increase in advertising profitability. This trend can indicate one of the following scenarios:
- A total sales and ad spend increase, with the ad spend increase at a lower rate.
- Total sales increase with an unchanged advertising spend.
- Total sales are the same and ad spend is decreasing.
Increasing TACoS indicates a decrease in total ad profitability. The following scenarios are some potential causes to an increasing TACoS:
- An increase in ad spending without an increase in total sales.
- An increase in ad spend with a slower increase in total sales.
- No change in advertising spend with a decrease in total sales.
Increases in TACoS is not necessarily a negative for your business. If you invest substantially into a new product launch, it can take some time for the numbers to reflect the advertising campaign’s efficacy. You also need to account for the increaser in brand awareness that TACoS can provide.
That’s why it’s critical to monitor your TACoS over time. An increase in TACoS in the short-term doesn’t necessarily mean your advertising dollars have been wasted. However, a consistent increase in TACoS is something you’ll want to address.
Determining Individual Products’ Reliability On Ad Spend
The TACoS is an effective tool to determine products’ reliance on advertising dollars. A very high TACoS on Amazon = a high dependence on advertising. A very low TACoS = an underutilization of advertising dollars.
Analyzing TACoS numbers across your inventory can help you identify products that are too dependent on advertising dollars and not achieving enough profit. If a product has a higher TACoS, the product is more dependent on advertising dollars than the rest of your inventory.
By optimizing the product listing with better copy, images, videos, and reviews, you can increase the conversion rate and generate more organic sales. This increases the chances of boosting a positive sales cycle.
Conversely, a particularly low TACoS means that your ad spend and ad sales are lower than the other products in your inventory. This indicates your product could benefit from investing more advertising dollars. Because the product is strong in organic sales, it stands to reason that it could see increased sales from increased advertising dollars.
Using the TACoS to Determine Positive and Negative Sales Cycles
Analyzing the relationship between the Amazon ACoS and the TACoS gives you insight into positive and negative sales cycles. Positive sales cycles occurs when an increase in ad sales improves organic rankings and an increase in reviews. This increase in reviews should lead to more organic sales and in turn improve organic rankings and sales.
You invest in advertising to launch new products, boost seasonal campaigns, or spark an increase in overall sales. Your ad sales should drive more organic sales and to see if that happens, you can monitor your TACoS.
Increases in ad spend typically result in a short-term increase in both ACoS and TACoS. However, in the long-term, this increase should slow and you typically see a stabilization in ACoS and a slight decrease in TACoS. This data indicates a positive sales cycle that results in more organic sales.
Negative Sales Cycle
Brands reduce their ad spend to cut costs and optimize their ACoS over time. However, companies should still monitor TACoS when doing so to see if a negative sales cycle has begun. If a negative sales cycle starts, you should adapt your strategy.
Typically, a decrease in ad spend will result in a short-term decrease in ACoS and TACoS. After this period, the ACoS and TACoS should stabilize. If ACoS stabilizes and TACoS increases, it indicates a negative sales cycle.
Tips to Improve Your TACoS
There are a few proven measures you can use to improve your TACoS. The first is improving your ad efficiency. You can improve your Amazon ad efficiency by focusing on the following metrics:
Optimizing Ad Campaigns
- Improving your click-through-rate to drive more traffic to your product detail page
- Competing, but not overpaying for ads by monitoring your cost per click (CPC)
- Improving your conversion rate with more engaging content.
- Increasing your prices when you have adequate brand reputation and loyalty.
Boosting Organic Sales
To boost your organic sales, follow the following three tips:
- Keep your keywords relevant and updated.
- Optimize product content including images, titles, bullet points, and descriptions.
- Manage your product reviews and questions.
Conclusion- Amazon Total ACoS (TACoS)
Amazon TACoS is an ideal way to optimize your Amazon ad spending both in the short-term for individual products and over time to analyze your advertising efficacy. This metric accounts for your total revenue and encapsulates the impact of your total ad dollars.
You can also use the Amazon TACoS for the following types of data analysis:
- Determining net profit margin and tracking your advertising profitability.
- Analyzing individual product performance.
- Identifying positive and negative sales cycles.
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