Resources - Blog
Amazon TACoS Defined: What Does the Metric Mean for Your Ad Strategy?
Stay on top of the latest e-commerce and marketplace trends.
This blog was originally published in 2019 and has been revised to include new and updated information.
Finding a healthy balance between organic sales and paid sales from ad campaigns is the optimal situation for any brand or retailer. If your paid sales outweigh your organic sales, you can run the risk of becoming overly reliant on ads to drive revenue. If your organic sales drastically outweigh your paid sales, you begin to question if your campaigns are optimized and effective to begin with.
To help you understand how effective a campaign is relative to your ad spend, you leverage the advertising cost of sales (ACoS) metric. To understand if you are making more than you are spending, the return on ad spend (RoAS) metric identifies the ratio of ad revenue and ad spend.
While both metrics provide valuable insights to help you analyze your ad spend and understand your return on investment, a new unique performance metric is gaining traction in the Amazon ecosystem — total advertising cost of sales (TACoS). We break down what exactly TACoS is in the next section.
Looking for one topic in particular? Use the table of contents below to navigate to the section of your choice, or continue scrolling to read the full guide.
Table of Contents
While ACoS and RoAS are both confined to strictly your advertising efforts, TACoS sheds light on your entire business performance. After all, the goal of your advertisements is not to solely drive sales through ads but to act as a catalyst to organic traffic and consumers searching for your product directly.
The metric measures your advertising spend relative to your total revenue generated, enabling you to understand how your campaigns directly impact your company’s overall revenue growth, including organic sales. You can measure TACoS in unison with ACoS, RoAS, revenue, and gross profit to more accurately depict business performance and your bottom line.
To calculate TACoS, divide your total ad spend by your total sales revenue and then multiply that by 100.
This information will contextualize your ad spend with a more big-picture view, clarify any rigid boundaries for your ad spend, and gauge how much your business utilizes advertising to drive sales.
What do different levels of TACoS indicate for your Amazon Advertising performance?
- Low TACoS: If your TACoS is decreasing or remains flat, this likely means that your advertised product is generating strong, or at least steady, sales. In turn, this means that your organic sales are becoming a more critical component of your total revenue, and your advertising program is playing a tangible role in the growth of your brand.
- High TACoS: If your TACoS is increasing, this generally indicates that your ads are not driving an uptick in organic sales. Your campaigns or product detail pages may be underperforming and need to be optimized as a result.
While your TACoS is going to vary by your industry and company makeup, there are different scenarios that TACoS can help you understand.
Generally, if your TaCoS is decreasing or remains flat, this indicates that your advertised product is producing strong, or at least steady, sales. Your organic sales, therefore, are becoming a more critical aspect of your total revenue, and your advertising program is playing a tangible role in the growth of your brand.
If your TACoS is increasing, this indicates that your ads are not driving an uptick in organic sales or placements, and your campaigns or product detail pages may be underperforming. You can take this information and perform listing optimization and enhance your Amazon SEO strategy.
When looking at your ACoS and TACoS simultaneously, remain alert for a decreasing ACoS and increasing TACoS. While in other circumstances, a lower ACoS is a positive sign, in this scenario, it signifies that your ad spend is increasingly influencing your total revenue, hinting at the antithesis: your organic sales are becoming a shrinking segment of your total revenue. Like the above scenario, if this happens, you should prioritize on-page optimization to ensure your listings are clear and compelling.
Leveraging TACoS will equip you with valuable details for evaluating your overall investment in ads on Amazon, budgeting effectively, and understanding to what extent your ads are actually working.
By knowing what percentage of total revenue your ad spend generates, you will be able to identify blind spots and areas with growth potential as well as understand if your ads are, in fact, fueling the flywheel and promoting organic growth.