When evaluating the success of an Amazon advertising campaign, you may usually see ACOS. But is it okay to just rely on ACOS? There is no doubt that ACOS is a reliable metric, but over the past few months, TACOS has become a popular metric for evaluating sales and advertising conversions. Although ACOS is the primary metric of the success of a campaign, it only explains the overall situation.
We assume that you spend $10 on a sponsored product. After a while, 10 orders were received and sales worth $100 were generated directly from the ads. Therefore your ACOS will be 10%. But ad sales are not the only metric to consider. What about the natural sales and brand awareness generated by advertising?
The $10 you spend on a sponsored product also boosts your rankings. The more sales you get on your product, the higher your ranking. It doesn't matter whether sales come from natural traffic or sponsored advertising. Similarly, new customers who are satisfied with the product they bought will leave positive reviews. All these factors drive a natural ranking increase, so your customers can find your products more easily.
Hence, in this example, we assume that 10 orders raise your ranking by one position. And, as your natural ranking rises, so does your natural sales. It means that you are not only making $100 in sales. So what is your ACOS now? It is still 10%. While sales have increased, ACOS has not changed, and this is where ACOS has failed. It doesn't tell you the true value of your advertising spending.
TACoS (Total Advertising Cost of Sales) may help you measure the ratio of total advertising spending to total revenue. The basic formula of TACoS is: (advertising spending / total revenue) x 100. Although metrics such as ACOS and RoAS are only used to measure your advertising effectiveness, TACoS can help you understand the overall business performance. It can help you measure the effectiveness of advertising in long-term brand growth, and also show how dependent your business is on advertising.
Like ACOS, the lower the TACoS, the better. On the contrary, a higher TACoS means that your total sales are more affected by your advertising spending. Advertising spending has become an important factor in overall revenue, and this is not what you want. Look at the following cases to better understand TACoS:
1. TACoS is falling. It means that your ads are getting steady sales. It also indicates that the natural traffic and sales of the product are increasing, which means that your brand influence and customer coverage are also increasing. It is an ideal situation.
2. TACoS is rising. It means that you're spending more on advertising campaigns, but natural sales have not increased at the same rate. It is not the worst situation, but neither is it desirable.
3. Both TACoS and ACOS are increasing. It may not seem ideal, but sometimes it makes perfect sense. For example, when launching a new product, your only goal is to increase sales. If all goes well and on schedule, your TACoS and ACOS will eventually be reduced.
4. TACoS is rising, while ACOS is falling. This situation is somewhat deceptive. You may feel that your ACOS is decreasing, so everything is under control. But in fact, your natural sales are getting lower and lower. Natural sales account for a small proportion of total revenue, while advertising spending account for a large proportion. You rely more on advertising to generate sales, which is not a good sign. In the end, this situation deviates from your goal of improving natural rankings and brand awareness.
What is the ideal TACoS?
A good TACoS is related to the size of your brand and its goals. If you recently released a product, your TACoS may be higher, so if most products work well, your TACoS will be lower. However, your goal should be to minimize TACoS, ideally when both your ACOS and TACoS are falling at the same time.
How to reduce TACoS?
· Optimize product detail pages to improve conversion rates;
· Control your advertising spending and cap your advertising budget;
· Pause advertising for poorly performing products. Check your ads to see if the product you are promoting is profitable. Should we continue to advertise these ASINs?
· Add negative and exact matching keywords to reduce advertising spending;
· Try to attract customers to buy more products. Use promotions, coupons and combo to encourage customers to buy multiple products.
Not just ACOS, TACoS is also important.
Your Amazon product ads should have a snowball effect; Gradually, it should bring sales and brand awareness. TACoS can provide you with valuable information to evaluate the overall performance of the product. By knowing what percentage of your total revenue is spent on advertising, you can see if your ads are really driving your natural growth.