Amazon is a pay-to-play platform. Brands simply cannot succeed without advertising. But how do you know if your campaigns are actually working? Two important metrics can help answer this question: Advertising Cost of Sale (ACoS) and Total Advertising Cost of Sale (TACoS).
These metrics are key to understanding how your ads perform, yet they measure different things. This blog breaks down what ACoS and TACoS are, why they matter, and when you should focus on each one.
What is ACoS?
Let’s start with ACoS. It’s one of the first metrics you should look at when running Amazon Ads. ACoS tells you how much you’re spending on ads to make a sale. It’s a simple percentage that shows the relationship between your ad spend and the sales that are directly attributed to those ads.
The formula is: > ACoS = (Ad Spend / Attributed Sales) x 100
For example, if you spend $100 on ads and make $500 in sales from those ads, your ACoS is 20% ($100 divided by $500, multiplied by 100).
Why is ACoS Important?
ACoS helps you understand how efficient your ad campaigns are. A lower ACoS means you’re spending less money on ads for each dollar of sales. This is good for profitability.
ACoS is particularly helpful when you’re trying to optimize individual campaigns. It tells you whether a specific ad is working well, or if you’re spending too much to get results.
For instance, if your ACoS is high (say 50%), that means you’re spending a lot on ads relative to the sales they generate. You might need to tweak your keywords, ad copy, or even your product page to improve performance and bring that number down.
In short, ACoS is a campaign-specific metric. It tells you whether the ads for a particular product or promotion are effective. You can use this number to adjust your ad spend, pause underperforming campaigns, or invest more in ones that are working well.
When Should You Focus on ACoS?
There are times when ACoS is the most important metric to focus on. Here’s when you should prioritize ACoS:
- Launching a New Product: When launching a new product, you’ll likely spend more on ads to build initial visibility. Monitoring ACoS closely helps you ensure that your ad spend is translating into sales and that you’re staying profitable.
- High-Competition Categories: In competitive categories, you need to watch ACoS carefully to avoid overspending. A low ACoS means you’re getting the most out of your ad budget, even when other sellers are bidding aggressively on the same keywords.
- Short-Term Promotions: If you’re running a limited-time promotion or trying to clear out inventory, ACoS helps you manage your ad spend to make sure you’re not losing money on each sale.
In these situations, ACoS helps you make quick adjustments to your ad campaigns. If your ACoS is too high, it might be time to pause a campaign, adjust your bids, or rework your ad copy to improve performance.
How to Determine Your Target ACoS
Figuring out your target ACoS will keep your Amazon ads effective and profitable. The first step is understanding your profit margins. Simply put, your ACoS should ideally stay below your profit margin to avoid losing money on ad-driven sales. For example, if your profit margin is 30%, your ACoS should aim to be lower than that for a profitable campaign.
However, your target ACoS also depends on your business goals. If your focus is on profitability, aim for a lower ACoS (20% or less) to maximize returns. But if you’re in a growth phase, such as launching a new product, you may accept a higher ACoS to drive visibility and boost sales – even if that means spending more on ads than you’re making in profits for a short period. Over time, as your organic rankings improve, your ACoS should decrease.
Finally, consider the lifecycle of your product. For new products, a higher ACoS might be acceptable, while more mature products with strong organic rankings should target a lower ACoS to improve profitability. Regularly monitor and adjust your ACoS to reflect changes in your business strategy and performance.
What is TACoS?
Now, let’s move on to TACoS. While ACoS looks at just the sales from your ads, TACoS considers all your sales – both from ads and organic traffic.
The formula for TACoS is: > TACoS = (Ad Spend / Total Sales) x 100
Here’swhere TACoS differs from ACoS: it gives you the big picture of your business performance. Instead of focusing only on the sales that came directly from ads, TACoS includes all sales, whether they’re ad-driven or organic (meaning they come from people finding your product naturally on Amazon).
For example, let’s say you spend $100 on ads, make $500 from ad sales, and $1,500 from organic sales. Your total sales are $2,000. Using the TACoS formula, your TACoS is 5% ($100 divided by $2,000, multiplied by 100).
Why is TACoS Important?
TACoS helps you see the long-term impact of your ads. It shows how advertising affects your total business growth, including organic sales.
A lower TACoS can mean your ads are helping to build brand awareness, which drives more organic sales over time. If your TACoS is high, it may suggest you’re relying too much on ads to generate sales. This could hurt your profitability in the long run.
TACoS is a useful metric for measuring overall brand health. As your organic sales grow, you should see your TACoS decrease. This is a sign that your ads are driving immediate sales and improving your organic rankings and visibility on Amazon.
When Should You Focus on TACoS?
TACoS is important when you’re looking at your long-term strategy. Here’s when you should pay attention to TACoS:
- Brand Growth and Organic Reach: If you’re working to increase your brand’s visibility on Amazon, TACoS can help you see how your ads are impacting organic growth. As your brand becomes more recognized, your organic sales should increase, and your TACoS should decrease.
- Long-Term Strategy: TACoS is particularly useful for measuring the overall success of your advertising efforts. A higher TACoS in the short term might be acceptable if it leads to long-term organic growth. For example, during a product launch, your TACoS might be high, but as organic sales grow, that number should drop.
- Established Brands: If you already have a solid presence on Amazon, you can use TACoS to make sure your ad spend is still supporting overall business growth. A low TACoS means that your ads are helping drive total sales, not just paid sales.
TACoS gives you the big picture view of how well your ads are supporting your overall business growth. If you’re focused on building a sustainable business on Amazon, TACoS is the metric that shows how advertising impacts your long-term brand success.
How to Determine Your Target TACoS
The definition of a “good” TACoS can vary depending on your business goals, the lifecycle of your product, and the level of competition in your category. However, here are some general guidelines to help you understand what a healthy TACoS looks like:
- For New Products: When launching a new product, it’s normal to have a higher TACoS because you’re investing heavily in ads to build initial visibility. During this stage, a TACoS of 15-20% or higher is okay since you’re focused on driving both ad-attributed and organic sales.
- For Growth Phase Products: As your product gains traction, your TACoS should start to decrease. At this stage, a TACoS between 10-15% indicates that your advertising is still helping drive sales, but your organic sales are beginning to play a bigger role in your overall revenue.
- For Established Products: For products with strong organic rankings and a good customer base, your TACoS should be lower. A TACoS of 5-10% suggests that your organic sales are making up a larger portion of your total sales, and you’re less reliant on paid ads.
- For Profit-Driven Brands: If your focus is on maintaining profitability rather than aggressive growth, you’ll want to aim for a TACoS below 10%. This indicates organic sales are a significant part of your revenue, and your ad spend is well-balanced with your long-term profitability goals.
In general, a lower TACoS over time signals your advertising is working to drive organic sales and your business is becoming less reliant on paid traffic for growth.
How to Use ACoS and TACoS Together
While ACoS and TACoS are different, they work together holistically to give you a full picture of your Amazon Ads performance.
For example, during a product launch, you might focus on ACoS to make sure your ad spend is efficient. But over time, you’ll also want to look at TACoS to see how those ads are driving organic growth. If your ACoS is low but your TACoS is staying high, it could mean your ads are profitable in the short term but aren’t helping your product gain organic visibility.
In a perfect world, both your ACoS and TACoS should improve over time. Your ACoS should get lower as your campaigns become more efficient, and your TACoS should decrease as organic sales grow.
Here’s a quick example:
- Let’s say you spend $500 on ads in a given month and make $2,000 in ad sales. Your ACoS is 25% (500/2000 x 100). That’s a pretty good number! But what if your TACoS is still high because your organic sales are low? You may want to rethink your overall strategy to focus on driving more organic traffic.
Ultimately, both metrics are valuable for different reasons. Use ACoS to optimize your ads in the short term and TACoS to gauge long-term success.
Channel Key Takeaway: ACoS vs. TACoS
In the world of Amazon Ads, ACoS and TACoS are two essential metrics that give you a deeper understanding of how your advertising is performing. ACoS helps you measure the efficiency of individual campaigns, while TACoS shows you the bigger picture of how ads contribute to overall sales and business growth.
As a brand, it’s important to track both ACoS and TACoS to make sure your ad spend is driving both immediate sales and long-term organic growth. By balancing these two metrics, you can make better decisions about how to manage your ad budget, optimize your campaigns, and grow your brand on Amazon.
