ACOS Vs TACOS: Which Metric Gives You a Better Picture?

Selling on Amazon is all about understanding data analytics and strategizing accordingly.

Every Amazon seller has to deal with a lot of sales metrics.

The evergreen question is, which KPI metric is more important than the other? Among those metric battles, ACOS vs TACOS tops the list. But what do ACoS and TACoS actually mean? And which one should you be paying more attention to?

Let’s explore these questions in detail. Understanding these two terms ACos & TACoS is crucial. They offer vital insights into the overall profitability and health of your Amazon venture.

What is ACOS on Amazon?

ACOS stands for “Advertising Cost of Sales”.

It’s a metric that tells how much you’re spending on advertising for every dollar of revenue you’re making.

For example, if your ACOS is 25%, that means you’re spending 25 cents on advertising for every $1 in sales.

It’s a handy little number that gives you a quick snapshot of how your advertising campaigns are performing. Here’s the catch – ACOS only takes into account the sales generated from your sponsored ad campaigns i-e PPC.

It doesn’t factor in any sales you might be getting organically or from other marketing channels. So, while a low ACOS is always desired, but it doesn’t give you the full picture of your business’s profitability.

What is TACOS on Amazon?

TACOS, or “Total Advertising Cost of Sales” takes a broader view. TACOS takes into account your total advertising spend across all campaigns and product lines and divides it by your total sales revenue.

In other words, TACOS shows you how much you’re spending on advertising across the board, not just for specific sponsored ad campaigns.

Let’s say your ACOS is a lean 20%, but your TACOS is a whopping 40%.

That’s a red flag. You might be overspending on advertising overall (even if some individual campaigns are performing well). This also indicates that your business is not as profitable as it looks.

ACOS vs TACOS: Key Differences

Focus:

ACOS: Measures the efficiency of converting ad clicks into sales.

TACOS: Measures the overall impact of advertising on total sales.

Calculation:

ACOS: Accounts only for sales generated directly from ads.

TACOS: Accounts for all sales, including those influenced by ads but not directly driven by clicks.

This simple example will give you a better understanding of how ACOS and TACOS represent your business figures. :

Assume you are running a bakery. ACOS tells you how much flour you use to bake each loaf of bread you sell from advertising (direct sales).

TACOS, on the other hand, considers the total bread sales (including walk-in customers) and calculates the overall flour usage per loaf sold.

3. ACOS vs TACOS: Which One Matters More?

Here’s the lowdown – both ACOS and TACOS are important metrics, but they serve different purposes.

ACOS is great for:

Evaluating the performance of specific ad campaigns
Identifying high-performing keywords and products
Making adjustments to your bidding strategy and ad copy

TACOS is better for:

Getting a big-picture view of your overall advertising efficiency
Understanding your true profit margins after advertising costs
Making strategic decisions about your advertising budget and product mix

How to Calculate ACOS and TACOS

Okay, let’s do some number crunching to get the exact idea. To calculate ACOS, you divide your ad spend by your ad revenue:

ACOS = (Ad Spend / Ad Revenue) x 100

For TACOS, you divide your total ad spend by your total revenue (from all sources):

TACOS = (Total Ad Spend / Total Revenue) x 100

Here’s an example:

Your ad spend for the month was $1,000
Your ad revenue (sales from sponsored ads) was $5,000
Your total revenue (from all sources) was $10,000

Your ACOS would be:

ACOS = ($1,000 / $5,000) x 100 = 20%

And your TACOS would be:

TACOS = ($1,000 / $10,000) x 100 = 10%.

In this case, your ACOS is higher than your TACOS, which could mean that your non-advertising efforts are driving a significant portion of your sales.

Why a Lower TACoS is Better for Profitability

While a low ACOS is beneficial for individual ad campaigns, ultimately, it’s a low TACoS that can increase your profitability as an Amazon seller.

Here’s why:

A lower TACoS means you’re spending less on advertising as a percentage of your total revenue. That translates directly into higher profit margins and more money in your pocket at the end of the day.

For example, if your TACOS is 25%, that means a quarter of your total sales are going towards advertising costs. But if you can get that TACOS down to 15% through optimization and efficiency, you’ve instantly boosted your profit margins by 10%.

You can reinvest that extra profit into scaling your business through

inventory expansion,
new product launches, or
exploring additional marketing channels.

Compounded over time, even small reductions in your TACOS can yield exponential growth.

Moreover, a lower TACOS provides a buffer during periods of increased competition, supply chain disruptions, or economic downturns. With advertising making up a smaller portion of your costs, you’ll be better able to save yourself from external shocks.

What are Good ACOS and TACOS on Amazon?

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There’s no one-size-fits-all answer here. “Good” ACOS and TACOS targets will vary depending on your

product category
profit margins
overall business strategy.

However, here are some general guidelines:

For most product categories, an ACOS below 30% is considered good.
TACOS targets tend to be lower, with many sellers aiming for 10-15% or less.
For low-margin products, you’ll want to keep both ACOS and TACOS as low as possible (maybe 10-20%) to maintain profitability.
For high-margin products, you may be able to tolerate a higher ACOS or TACOS as long as it’s still lower than your profit margin.

How to Improve Your ACOS and TACOS

Now that you understand the difference between ACOS and TACOS, let’s talk about how to keep them in a healthy range.

For ACOS:

Refine your keyword targeting: Regularly review your search term reports and pause or negative-match underperforming keywords.
Optimize your product listings: Compelling titles, bullet points, and images can improve your click-through and conversion rates, lowering your ACOS.
Test different ad types: Experiment with Sponsored Products, Sponsored Brands, and Sponsored Display ads to find the right mix.
Implement dynamic bidding strategies: Amazon’s automated bidding can help you bid more efficiently based on the likelihood of converting.

For TACOS:

Diversify your marketing mix: Rely less on pure advertising and explore other channels like email, social media, and influencer marketing.
Focus on high-margin products: Prioritize products with higher profit margins, as they can absorb higher advertising costs.
Optimize your pricing strategy: Regularly review and adjust your pricing to maintain healthy profit margins.
Reduce operational costs: Look for ways to streamline your supply chain, fulfillment, and other overhead costs.

By optimizing these metrics, you can ensure that your advertising efforts are driving real, sustainable growth for your Amazon business.

ACOS vs TACOS – Final Verdict

Remember, ACOS vs TACOS is a battle of numbers. The ideal scenario is to have a low ACOS and a low TACOS. But if you have to choose, TACOS is the metric that’ll give you a better sense of your overall profitability and long-term sustainability.

7. ACOS vs TACOS: The Bottom Line

Both ACOS and TACOS are valuable metrics, Each has its own significance. ACOS gives you a granular view of your ad campaign performance, while TACOS provides a higher-level perspective on your overall advertising efficiency and profitability. The key is to strike the right balance.

So keep those numbers in check, keep optimizing, and keep growing your business one click (and sale) at a time.

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