If you’re getting started in the world of Amazon marketing, you might have seen acronyms like TACoS and ACoS. But what do these terms mean, and when it comes to TACoS vs. ACoS, which is more important to your business?
The short answer is that they’re both important, and when you use them together, you can turbo-charge your pay-per-click ads to grow your online store.
Learn how to master ACoS and TACoS to create effective headline ads in Amazon and develop a marketing campaign that provides the best balance between cost and sales generation.
What Is TACoS?
The acronym TACoS stands for total advertising cost of sales and is an essential part of Amazon’s pay-per-click marketing metrics that reveal how much you’re spending on advertising costs.
TACoS measures your wider business performance by incorporating sales from all sources, rather than just sales from advertisements, and helps determine how aggressively you’re reinvesting your money into your business.
How To Calculate TACoS
You can calculate TACoS by dividing the total amount you spend on advertisements over a given period by the total sales generated within the same period and multiplying it by 100.
For example, if you spent $100 on advertising in the month of April and generated $300 in advertising sales and $200 in organic sales, your TACoS is 20%: ($100 ÷ ($300 + $200)) X 100 = 20% TACoS.
What Qualifies as Good TACoS on Amazon?
As a new seller, you should aim for a TACoS rating of around 20% to confirm you’re reinvesting enough money to grow your business and generate organic visibility. As you grow, you can consider a TACoS goal of around 10% more optimized, which shows you’re reaching customers outside your pay-per-click campaign.
What Is ACoS?
ACoS stands for advertising cost of sales and provides a narrower view of your business. You can use ACoS to determine the profit margin of your specific Amazon advertising campaigns rather than of your business as a whole.
How To Calculate ACoS
You calculate ACoS much in the same way as TACoS but only divide total ad spend by sales derived from pay-per-click advertisements.
Using the example above, a $100 advertising investment that created $300 in pay-per-click sales garners an ACoS rating of 33%: ($100 ÷ $300) X 100 = 33% ACoS.
You can also use the inverse function (termed ROAS for return on ad spend) to better determine your profit margin. Using our example, you’d divide your $300 of ad revenue by the $100 you spent to measure a 300% return on your investment.
What Is a Good ACoS on Amazon?
When you begin selling on Amazon, you’ll likely have an ACoS of around 35%. A score higher than that means you’re not receiving an adequate return on your investment and you’re spending too aggressively on your ad campaigns. Even in the long term, you can expect your ACoS score to hover between 20-30%.
Why Both Are Important
If you’re asking about TACoS vs. ACoS, you’re overlooking the importance both metrics play in growing a healthy business. While you should use both metrics, each one provides important information for different stages of your business.
When To Focus on ACoS
While your ACoS always remains an important indicator of your return on ad investment, you’ll focus on improving it earlier in your business. Before you’ve established methods of growing organic traffic, a good ACoS helps you generate enough income to invest in external growth. Consider optimizing these nine factors to boost your ACoS:
- Increasing ad impressions
- Improving total ad clicks
- Raising your click-through-rate
- Increasing product orders
- Improving your conversion rate
- Raising your average order value
- Balancing your cost-per-click
- Adjusting your ad spend
- Increasing your ad sales
By making these improvements, you can reduce your ACoS below 35% and beyond and increase the profit margin of your ad spends.
When To Focus on TACoS
Focus on improving your TACoS score after you’ve had time to grow your business and develop sales funnels that utilize organic traffic. The metric helps you analyze how quickly you’re growing your business and whether you’re effectively reinvesting your income. If you have a poor TACoS, improving it means you’re using your money with greater impact.
You can focus on improving your TACoS in two primary ways:
- Improve your ACoS, which directly affects your TACoS. ACoS is only half the equation, but following good ACoS practices can generate enough money to help you improve TACoS.
- Use relevant keywords and content optimization strategies to increase your page rankings on Amazon listings. The higher your product appears in the search results, the more visibility it garners, and the more likely customers are to click through and purchase the product without ever seeing an ad. To optimize your keyword usage, conduct accurate keyword research, optimize your product description, and use ACoS to drive initial sales and build reviews.
The Power of Combined Metrics
If you analyze ACoS vs. TACoS separately, you miss seeing the bigger picture concerning how your sales funnels are performing. By realizing that ACoS is a necessary factor in TACoS, but not the exclusive determiner of the metric, you can fine-tune your ad buy and create a balanced approach to generating sales.
What happens when you increase your profit margin through ACoS, TACoS, and ROAS? Not only do you have more money to scale your business, but you can grow your bottom line and pass on the extra earnings to your employees. With good TACoS and ACoS ratings, everyone wins.
Partner With Click Fluency for More Efficient Advertising Spending
Now you know you shouldn’t choose between TACoS vs. ACoS, but rather use both metrics in tandem to better assess your business’s performance. Whether you’re looking to balance your cost of Amazon sponsored ads or want to increase your organic traffic, Click Fluency can help you craft the most effective digital marketing strategy on Amazon.Do you want to learn more about what we can do for you? Schedule your free strategy session today and start your journey toward a more profitable Amazon business.