If you’re a third-party Amazon seller advertising on the marketplace then it’s essential that you measure how it performs. Sellers want to gain buyers’ attention affordably — so, if you’re spending a lot of money on advertising and not seeing much back in terms of extra sales, then you might want to stop or optimise it.
In a study by Econsultancy, 77% of marketers agreed that the success of advertising should drive the level of budget allocated to it.
There are many ways to measure the success of Amazon advertising. This post will examine Amazon TACoS which has started to gain traction recently as a key performance metric.
Before we dive in any further, let’s start with the basic question.
What Does Amazon TACoS Mean?
Amazon TACoS has nothing to do with Mexican food. Instead, it stands for the total advertising cost of sales. It measures your advertising spend relative to the total revenue generated.
The TACoS metric is growing in popularity across the ecommerce sector and gives you a snapshot of how your Amazon PPC ads are performing and directly affecting sales.
How to Calculate Your TACoS
To work out your TACoS, you divide your total advertising spend by your total sales revenue and then multiply it by 100.
TACoS = (Advertising Spend/Total Revenue) x 100
With this information, you can better decide how much your advertising is driving sales.
How to Identify If You Have a Good Amazon TACoS
Amazon sellers worry about how their Amazon ads are performing. If terms of TACoS, the lower the better,
- A low TACoS rate means your advertising is generating steady sales and your brand is growing.
- A high TACoS rate means your advertising is generally underperforming and need to be optimised (new bids, new products or new keywords).
Example scenarios:
- TACoS is flat or falling – Organic sales are increasing
- TACoS rising – Organic sales are decreasing. Ad costs are increasing.
- ACoS falling and TACoS rising – Organic sales are decreasing.
- ACoS and TACoS both rising – Acceptable for new product promotion.
Final Thoughts
Amazon TACoS is a key performance metric which assesses the impact of advertising relative to Amazon sales. Calculating TACoS is crucial for any Amazon seller advertising on the platform.
Monitoring TACoS will give you a more comprehensive view of your overall business performance than your ACoS. It will also help you decide the long-term strategies for your Amazon business.
Related: 11 Ways to Reduce Your Amazon ACoS
