Nobody understands the importance of tracking the right advertising metrics better than Amazon sellers.

Everybody wants to attract customers and increase sales without overshooting their PPC campaign budget. Unfortunately, most sellers miss the bigger picture by focusing solely on ACoS (Advertising Cost of Sales).

If you want to view the true impact of advertising on your bottom line, focus on TACoS, i.e., Total Advertising Cost of Sales.

Unaware of how to use TACoS for Amazon? In this blog, we will explore what it means, best use cases, optimization strategies, and more in detail.

Before that, if you want to optimize your Amazon PPC campaign results, schedule your free Amazon PPC audit with IG PPC today. Our experts will analyze your current TACoS, find room for improvement, and provide a plan of action that boosts your sales.

What is Amazon TACoS?

TACoS, an Amazon advertising metric commonly overlooked by sellers, is vital for understanding how your PPC campaigns are truly performing so far. It helps calculate how much to spend on marketing to earn each dollar in product sales.

Why shouldn’t sellers overlook this metric? For starters, it gives a clear picture of your total profitability. Besides, it helps you decide whether you should rely on PPC or if organic traffic is sufficient to drive more sales. We’ll discuss more reasons below.

ACoS vs. TACoS

Confused between the two? Here’s a brief tabular comparison between Amazon ACoS and Amazon TACoS:

Why is TACoS Important?

Focusing on TACoS for Amazon business growth is vital because:

• It provides a realistic idea of advertising-driven profit margins by factoring in all associated costs with immediate ad spend.
• It helps budget allocation by showing how much money should be spent on advertising to sustain your business.
• Tracking TACoS helps discover hidden expenses that harm your profit margins in the bigger picture.

In summary, TACoS strives to ensure that ad sales drive more organic sales, creating a positive sales cycle.

What is a Good TACoS?

Although there isn’t a one-size-fits-all metric for a good TACoS by Amazon. As a rule of thumb, anywhere between 5-15% is considered ideal. However, the lower it is, the better, as it signifies two things:

1. We are spending every dollar purposefully
2. We are spending the least amount possible to achieve our goals.

Note: If you’re above 20%, you’re spending too much on PPC and must revise your ad strategy.

How to Use TACoS for Amazon PPC

Unlike ROAS or ACoS, the Total Advertising Cost of Sales says much more about the business than how they should spend on ads, and it helps with informed decision-making.

That said, here’s a comprehensive guide on how to look at Amazon TACoS effectively to optimize your seller account’s performance:

1. Understand Your Amazon Sales Cycle Nature

Using TACoS metrics (along with ACoS) is highly useful in determining whether your business is witnessing a positive or negative sales cycle.

For example, if both metrics tend to show a download slope around a similar timeframe, take it as a good sign. If your ACoS is the same, but TACoS is going downward, that’s also great. This shows your Amazon merchant store is driving impressive organic sales leads and experiencing a positive sales cycle.

However, if both metrics (or just TACoS) show an increase, it’s a clear sign that your Amazon sales heavily depend on PPC ads. In such cases, sellers must create a plan of action to increase organic sales figures.

2. Calculate Your Net Profit Margin

Using TACoS for Amazon also helps determine how much profit your store is earning at the end of the day.

Here’s the formula:

Net profit margin = Gross profit margin – TACoS

Thus, earning a 25% gross profit margin on a sale with a 15% TACoS signifies your net profit margin is 10%.

3. Assess the Account’s Dependability on Ad Campaigns

On an individual level, your TACoS metrics help you understand if certain products are only selling because you’re promoting them with advertising money.

As we’ve learned earlier, higher Amazon TACoS isn’t usually a good sign. If that’s the case with any specific item/category in your Amazon store, you must focus on lowering the percentage through Amazon SEO and better listing efforts. However, lower TACoS means those products attract impressive organic traffic.

How to Improve Your TACoS

Improving your TACoS means increasing sales with less ad spend, maximizing your Amazon advertising profitability.

Here’s how:

1. Prioritize Relevant Keywords

Targeting the proper keywords is critical for getting the most qualified buyers. Review your search term reports regularly to identify high-performing keywords. Once you have the list, include them in your ad campaigns.

Just as importantly, focus on identifying negative keywords, i.e., terms that trigger your PPC ads but do not lead to sales. Negative keywords help you stop wasting your ad dollars on non-relevant searches.

2. Improve Listing Content Quality

High-quality listing content, i.e., captivating product descriptions and images, dramatically increases conversion rates.

Write titles and descriptions that are easy to understand, benefit-oriented, and showcase your product’s unique selling point. Use advanced brand content that visually shows your product’s benefits to entice high-intent buyers.

3. Raise the Average Order Value

Offer attractive discounts, free shipping, or product bundles to motivate buyers to fill their carts with more products. By raising the value of each purchase, these tried-and-tested upselling/cross-selling strategies help decrease your Amazon TACoS.

4. Optimize Titles and Page Content for Conversion Rates

If you didn’t know, product titles and content are perfect targets for keyword optimization. Always add the most valuable keywords prominently while writing the titles and descriptions; it helps attract relevant traffic.

Here are some copywriting tips: it should always be persuasive, compelling, and conversion-focused. Keep your sentences short, circle down on your product’s core benefits, and clarify why buyers need it.

Are you ready to start your journey towards PPC success? With in-depth analysis and personalized strategy planning, we can identify the key areas where your campaigns can improve, reducing your ACoS and maximizing ROI.

Schedule your no-cost, comprehensive PPC Audit now, and take the first step towards optimizing your ad spend with precision. Having someone oversee your Amazon PPC management is a massive step in the right direction.

How to Calculate TACoS

To calculate TACoS, you’ll need the following data:

• Your total advertising spend for a certain time
• Your total sales revenue (ad-driven sales and organic sales) for the same period

Once you’ve gathered all the data, divide your total advertising cost by your total sales revenue. Then, multiply the value by 100 to get a percentage.

TACoS Formula

Use this formula to calculate your Amazon TACoS:

TACoS = (Total advertising spend ÷ total sales revenue) x 100

Limitations of Amazon TACoS

Although Amazon TACoS is a helpful metric for figuring out how your advertising spend relates to sales, it’s essential to be aware of its limitations, which are as follows:

1. Doesn’t Consider External Conditions

TACoS focuses solely on the expenses and returns of Amazon’s advertising ecosystem.

It ignores external conditions that can (and usually do) influence sales, such as product seasonality, ad promotions/campaigns run by competitors, current market situation, and organic search visibility. Even if your TACoS looks stable, these factors can majorly affect your sales performance.

2. Restricted to Amazon Ads Metrics

TACoS simply monitors how well or poorly your Amazon PPC ads are performing.

Other marketing channels (social media, email, or influencer marketing) will not be factored into the TACoS calculation. This makes calculating your marketing spend’s overall return on investment more difficult.

3. Fluctuates Due to Multiple Factors

Some factors affect your TACoS, including product pricing, bid methods, keyword targeting, ad text, and product listing optimization.

Changes in either of these areas can trigger fluctuations in your TACoS, which makes it further difficult to pinpoint the source of any changes in the metric.

4. Discourages Brand Awareness Campaigns

Putting too much emphasis on TACoS can negatively impact your investment in brand awareness once you start seeing higher metrics.

Do not forget that although brand awareness campaigns may have a higher TACoS initially, they are critical to boosting future organic sales and client loyalty in the long run.

Frequently Asked Questions (FAQs) 

Before we wrap up, let’s look at some of your most frequently asked questions on the web about TACoS on Amazon:

One of the most frequently asked questions from clients and potential clients is: What is a healthy Amazon Tacos?

You’ll usually get a generic answer between 5-15%.

But the true answer is that a healthy Tacos means we are spending the least possible to accomplish our goals, and every dollar is purposely spent.

I like to use a supermarket as an analogy. Someone is opening a supermarket, and they come to a marketing company asking how much they should spend on marketing.

The first thing the marketing company will do is ask questions.

• Where are you opening the supermarket?
• How much competition do you have in the area?
• Will your supermarket stand out in any way, or it’s just another store?
• What are your revenue goals for year one?
• How much money do you have in the bank?

The same is with Amazon.

Let’s say you have a product with almost no competition (doesn’t happen too often, I know 🙂 then even a Tacos of 2% might be too high.

Or if you are in a super competitive category and in order to maintain your market share, you need to have a 20% Tacos, and you are still profitable at the end of the day, then 20% is the right Tacos for you.

The job of a PPC manager is to spend purposefully to accomplish the goal of the account and not spend an extra unnecessary $1.

What Factors Influence TACoS in Advertising Campaigns?

Several factors can directly or indirectly influence your TACoS, such as follows:

• Keyword relevancy: You must select highly relevant keywords for your products. If your ads target less relevant phrases, you could experience lower click-through rates and higher costs, lowering your TACoS.
• Bidding prices: Your TACoS is directly affected by how much you bid on keywords. In general, higher bids will increase your advertising expenses, which could raise your TACoS.
• Product pricing: Like bid prices, your product’s pricing also affects Amazon TACoS. When considering profitability, higher-priced products frequently have a higher TACoS threshold than lower-priced ones.
• Conversion rate: Your conversion rate can also be low if your ads aren’t captivating enough or if your product listings aren’t optimized. If you spend more on ads but get less sales, your TACoS goes up.

Learn how IG PPC’s strategic bidding techniques can place you ahead by booking a free audit with us (without breaking the bank).

How Often Should Amazon Sellers Review Their TACoS?

It’s recommended that you check your TACoS regularly to keep track of your ad performance.

Here’s how frequently Amazon sellers should review these metrics and when:

• Every day: Tracking your TACoS daily helps you make prompt budget allocation and adjustment decisions during a campaign’s initial launch or optimization stages.
• Every week: A weekly assessment is required to analyze performance patterns, identify potential issues, and make ongoing improvements.
• Every month: Examining your TACoS once a month gives you a more comprehensive picture of long-term patterns and helps assess how well your advertising plan is performing as a whole.

Basically, Amazon merchants should constantly monitor their TACoS.

Can TACoS be Used to Measure Overall Business Health on Amazon?

Yes, it’s undeniably true that TACoS can provide significant insights into the effectiveness of your advertising. However, should it be the sole metric used to assess Amazon’s overall business health? We don’t think so.

Look at other important factors, including profit margins, inventory turnover, and organic sales. The best way is to analyze your TACoS with other critical metrics to get a complete picture of how well your business is doing on the platform.

For example, TACoS directly indicates whether your advertising efforts are yielding a positive ROI. When you combine this with your net profit margin, you can better grasp the true impact of ad-driven sales on your total profitability.

Conclusion

TACoS puts things into context by helping determine whether your Amazon PPC campaigns are truly profitable or simply cannibalizing your potential organic sales revenue.

Tracking your TACoS regularly (along with other KPIs) will help you make informed decisions regarding your Amazon PPC budgets and bid strategies.

At IG PPC, our specialists conduct an in-depth analysis of your current campaigns to help you identify areas for improvement and give actionable recommendations to increase ROI.

Schedule your free PPC audit today and optimize your Amazon advertising spend for long-term, sustainable growth. Our Amazon PPC agency has managed over $2 billion in ad spend and have dozens of case studies to showcase.