Amazon AcoS vs TACoS. What are they and are they important?
ACoS is an essential metric to an Amazon business, but focusing too much on ACoS can distract an Amazon seller from the ultimate purpose of advertising. ACoS is just one component of a larger picture, and it should be viewed as a method to gain visibility versus an avenue to overall profitability.
This article will outline the difference and importance of both the Amazon ACoS and TACoS metrics.
Calculating ACoS – ACoS stands for Advertising Cost of Sale
That is, what a user spends on advertising to the ratio of revenue generated from that advertising.
Calculating Acos is performed by dividing advertising spend by the total amount of sales.
Example: An advertising campaign that generates $400 of advertising sales where the ads cost $75.
ACoS = 75 / 400 x 100 = 18.75%
The ACoS of this campaign is 18.75%. 18.75% of sales were generated through ad spend.
What is breakeven ACoS?
Another metric that is important to Amazon sellers is breakeven ACoS.
The breakeven ACoS is the amount of ad spend before losing profit.
A Break-even AcoS metric may not represent a campaign’s success, but it helps sellers determine gains or losses.
Break-even ACoS takes the total cost of goods and the sale price and divides it by the total ad spend.
Example: A product costs $30 (landed goods cost), and the FBA fees are $5.
The breakeven ACoS is $35. $35 of ad spend to sell this product nets a zero balance.
What is the true purpose of advertising on Amazon?
The ultimate purpose of advertising encompasses several components aside from revenue and profit generation:
Build brand and product awareness
Create a desire in the market
Strengthen brand messaging
Influence buying decisions by convincing customers an offer is right for them
In the initial launch phase of a product, a higher ACoS could very well be a predetermined goal for stable ranking and visibility. This may mean that the launch phase campaigns can run extremely high and rock comfort levels for Amazon sellers. *An Amazon ACoC benchmark is relative to the user’s goals.
Don’t be so afraid to have higher ACoS percentages in certain phases of your PPC.
Why? While Amazon advertising is critical to gain revenue and visibility, over time, a seller’s organic sales should increase as their brand scales on and off the platform.
Organic sales are those that are not generated through Amazon advertising. Understanding that certain sales generation phases on Amazon may mean higher ACoS metrics can alleviate stress in seeing these numbers rise.
Think of it this way; a high ACoS is undoubtedly a higher spend; it also means more people view your catalog of offers.
What is TACoS on Amazon?
No, we aren’t talking about those delicious Mexican tortillas, but when you hear Amazon sellers talk about TACoS Tuesday, now you have a better idea of what they are referring to.
TACoS stands for Total Advertising Cost of Sales.
It measures advertising spend to total revenue generated. When you factor in TACoS into your complete metrics towards profitability, the numbers start to make more sense.
TACoS is calculated by dividing the Advertising Spend by the Total Revenue and multiply that figure by 100.
Example: $400 ad spend / $5000 revenue x 100 =
TACoS = Advertising Spend/Total Revenue x 100
This brand has an 8% TACoS. 8% of its total sales are from advertising.
Combining both TACoS and AcoS can better reflect profit margins and help sellers understand why higher ACoS numbers in certain phases of an Amazon business can be less concerned.
Falling TACoS is indicative of a higher volume of organic sales.
Rising TACos means that the number of organic sales is decreasing, while the ad spend is increasing.
Look at ACoS as an investment rather than a loss. So long as your TACoS is relatively low in comparison, the stress you may be apt to feel from higher ACoS numbers won’t be so much of a distraction from your goals. This isn’t to say, of course, that ACoS doesn’t matter; it certainly doe. With that in mind, ACoS is once again only one component to understanding profit margins.
The beauty of an automation tool as robust as Sellozo’s is that there is no need to add and remove complex rules continuously. The algorithm is designed to optimize on your behalf. You select a target ACoS and watch your campaigns optimize to this desired number.
Does Sellozo Suggest Targeting an Extremely Low ACoS?
The key in this question is looking at the tools within Sellozo as automation and optimization tools.
While an ideal result may be a lower ACoS, our algorithm automates and optimizes your campaigns as it sees fit.
What does the Sellozo Optimizer do?
The system makes bid adjustments by calculating an ideal bid to meet your ACoS targets.
Creates keywords or ASIN target transfers. The system takes what works well in one campaign and adds it to specified campaigns of your choice.
Negative keyword creation. When negative keyword types convert from an auto campaign to a manual campaign, the system negatively exacts the keyword from the originating campaign.
Having these tools accessible in your advertising toolbelt increases the ability to lower ACoS by not unnecessarily targeting keywords in multiple places and making appropriate bid adjustments with an extensive algorithm supporting those bids.
Targeting an extremely low ACoS when your existing ACoS is relatively high could potentially mean that our tools meet your targets, which may result in an achieved ACoS without sales velocity.
“It’s about allowing our software to truly do its job and having a little patience in the automation process.” – Dustin Kane
We suggest starting our optimization tools with relatively current ACoS targets to start. As the software adapts and learns strategy for your campaigns, it will become safer to lower the ACoS targets over time.
Amazon ACoS and TACoS are important metrics that help develop a strategy and also assess the overall profit margins of an Amazon business. It is best to view these two crucial components as a whole rather than one versus the other.
It’s also true that every brand, product, and niche will have different goals throughout their time on Amazon.
Understanding the purpose of your advertising goals can help you best determine appropriate plans of action. A new Amazon seller with a smaller product catalog or a unique product offer may have a very different advertising goal than a well-established empire with no online presence.
Suppose you’re finding yourself overwhelmed at understanding these crucial metrics and making sense of your ad campaigns’ purpose. In that case, we suggest hiring a reliable automation tool to not only make life easier but also hit those targets and properly manage your campaigns.