Your advertising strategy on Amazon will depend on your brand’s goals for the platform. The first step in setting TACOS on Amazon is identifying whether your main objective is to improve your profitability or gain more market share.
What is TACOS? How is it different than ACOS?
ACOS and TACOS are both metrics you can use to analyze how effective your PPC campaigns are on Amazon.
Calculating ACOS
ACOS on Amazon stands for “Advertising Cost of Sales”. This metric tells you how much PPC revenue you are generating from the money you are spending on PPC ads. A lower ACOS indicates that you are getting a better return on investment on your PPC advertising dollars.
ACOS is calculated as “Ad Spend” divided by “Sales From Ads”.
Example: Let’s say you spent $500 on PPC ads for a product and generated $2000 in sales from those PPC ads.
ACOS for the product is $500 / $2000 = 25%.
Calculating TACOS
TACOS on Amazon stands for “Total Advertising Cost of Sales”. The key difference in ACOS and TACOS is the word “total”. “Total” indicates that you are accounting for all sales of a product as opposed to just those generated by PPC advertisements.
TACOS is calculated as “Ad Spend” divided by “Total Sales”.
Example: Let’s say you spent $250 on PPC ads for a product and generated $2000 in total sales for that product, including sales from PPC ads as well as organic sales and other avenues.
TACOS for the product is $250 / $2000 = 12.5%.
The ACoS of a product specifically reveals how much revenue you are earning in sales directly from the PPC ad in question. The TACoS gives you a broader picture of how the product’s sales are doing overall in relation to your PPC investment.
Analyzing Profitability by Product
Establishing your ideal ACOS is essential before deciding how much to spend on product advertising. An ad campaign with a low ACOS is more likely to be profitable. Determining your ACOS allows you to determine how much advertising you can spend and still meet profitability goals.
For example, if your product retails for $100 on Amazon, and your COGs and other fees add up to $70, that means your profit is $30 and your profit margin is 30%. To continue making a profit on that product, your ACOS should not be over 30%. Consider what ACOS is realistic for your profitability goals.
Use a tool like myHorizons to analyze your profitability by ASIN. See the myHorizons profitability tool below…
Determine Your Objective on Amazon
Your advertising strategy on Amazon will depend on your brand’s goals for the platform. The first step in determining your ideal TACOS is identifying whether your main objective is to improve your profitability or gain more market share.
Setting TACOS on Amazon Based on Profitability
For a more mature business with an established consumer base and high search volume, the ideal objective for Amazon may be to increase profitability and grow the bottom line. A younger bootstrapped business may need to focus first on profitability and building organic growth. Whatever the reason, a good practice is to focus not just on overall profitability, but also on your profitability down to product level. From there, you can adjust your advertising strategy. Mature products with low profit margins should be in maintenance mode, whereas newer products or products with high profit margins should be given a larger advertising budget.
Setting TACOS on Amazon Based on Product Stage
New products need the most attention and advertising spend. Being retail ready is essential, and implementing an aggressive advertising strategy can get your product off the ground. The Amazon “honeymoon period” is the rumored first six months that are key in getting traction on the platform. Of those 6 months, the first 30 days are essential in showing momentum to prevent your product from getting lost in the shuffle.
For more mature products, your strategy will depend on your objective for your brand and the specific product. If your goal is to increase profitability, then your focus should be on implementing strategies to either lower your ACOS or increase impressions while maintaining ACOS. If your goal is to gain market share, then you should invest more into your advertising budget and your focus should be on testing strategies to see what is most successful.
If you are interested in increasing profit margin on a product, you may also consider focusing on improving Amazon reviews. If you have a product with below a 4-star rating, you should expect to see a higher ACOS.
Conclusion
Managing Amazon advertising and implementing strategies to increase profitability can be overwhelming for any seller. For sellers looking for additional support, Envision Horizons offers a solution. myHorizons is making selling on Amazon less stressful and more profitable by automating Amazon brand management. Find more information on if myHorizons is right for you. Or schedule your own personal demo here.
