Still measuring the success of your Amazon advertising campaigns with cost as your sole metric?
Don’t worry. You’re not alone.
Cost is a common — and often helpful metric — to evaluate. But it only shows one part of the larger picture.
Total advertising cost of sales, or TACoS, on the other hand, measures advertising spend relative to total revenue. It also happens to be a key indicator for setting long-term strategies for your Amazon business.
What is TACoS? And how do you measure it? Let’s take a look.
By measuring total ad spend in relation to your total revenue, TACoS (also called “advertising cost of total sales”) can act as a North Star for your marketing and advertising planning.
And compared to other advertising metrics, it’s pretty simple to calculate. Here’s the formula:
% TACoS = (Advertising Spend/Total Revenue) x 100
Put another way, you can calculate your TACoS percentage by dividing your pay-per-click (PPC) cost — or advertising spend — by your total product revenue, which is the total amount from ads and organic sales.
What’s a good range?
It’s commonly agreed that a good or healthy TACoS is between 7% and 15%. The lower, the better.
High revenue and low advertising spend will create better organic results. TACoS includes all sales sources — both those from ads and those from organic searches — giving you the perfect gauge of how your advertising efforts are performing.
Which makes TACoS a direct indicator of your success.
When it comes to tacos, few people actually ask for extra lettuce when there are other, more delicious elements to the dish. But here we’re talking lettuce as in cash or, to be more specific, profit. And everyone wants more of that.
Since TACoS is calculated against your total revenue, lowering it means more profit in your account.
That’s why it’s critical to make TACoS one of your key performance indicators (KPIs) for monitoring the overall health of your business. Be sure to closely assess these other KPIs, as well:
Advertising is central to the success of any retail business amid today’s competitive ecommerce landscape. Knowing how to effectively manage it — and turn the dials on profit as much as possible — has become one of the top requirements for running a successful Amazon enterprise.
As a gauge of how your business is utilizing advertising to drive sales, TACoS is a must-watch metric for any Amazon business.
Lower your TACoS as much as possible. If you’re reducing your TACoS, you’re keeping more money for every advertising dollar spent.
Getting your TACoS down to zero isn’t likely — or even possible — but hitting that 7-15% range is certainly achievable.
A low TACoS means that your organic sales are becoming a more important driver of your total revenue, which is a good indication that your overall advertising program is playing a strong role in the growth of your brand.
You want your advertising to be good and memorable enough that people are hearing about and searching for your products. A strong advertising program can lead to word-of-mouth traction and repeat visitors to your product listings. If you’re getting more sales for your spend on advertising, you’re doing something right.
TACoS is the highest-level indicator of the profitability of your Amazon advertising. When it shows trouble, it’s time to look deeper.
A rising TACoS percentage is generally a sign that your ads aren’t driving an increase in organic sales. Again, good advertising will create an uptrend in natural searches and product discovery.
TACoS going up may also be an indication that you need to optimize your product detail pages or that your campaigns are underperforming. Take a look at other advertising metrics for related campaigns, such as cost per click or conversions, to make adjustments and raise the effectiveness of each campaign.
Leveraging TACoS gives you valuable insight you can use to evaluate your strategic advertising picture on Amazon. More than cost or any other measure, this valuable metric can enable you to understand the extent to which your ads are actually working.
Tools like ManageByStats by Carbon6 give you the ability to go even further.
With this tool, you can drill down to the Amazon standard identification number (ASIN) level to understand your TACoS (and all other advertising metrics) for individual products, thereby evaluating the effectiveness of your ad campaigns across your entire store.
Another tool in the Carbon6 arsenal, PPC Entourage helps you maximize ad revenue and improve profit margins with resources like customizable bulk templates and multi-campaign deployment.
However you reinforce your advertising game, focus on balancing your paid and organic results to increase your profitability. Your business — and your wallet — will thank you.