Utilizing pay-per-click (PPC) advertising on Amazon is usually essential to enjoying success on the platform. While there are ways to build organic sales on your products, Amazon’s marketplace is so competitive with rival sellers that your best tool for driving views to your product listings is often PPC advertising. Whether you decide you automate your Amazon PPC campaigns or to build and maintain them yourself, you are going to want to have a way to measure how effective and profitable these campaigns are. This is where metrics like AcoS, ROAS and TACoS come in.
What do these metrics measure? And which one is the most useful one to focus on? In this blog post, I’ll cover what AcoS, ROAS and TACoS are and how they can best be utilized in optimizing your Amazon PPC campaigns.
What is ACoS?
ACoS is an acronym created by Amazon that stands for “Advertising Cost of Sales”. You can solve for AcoS by taking the total amount you are spending on advertising and dividing it by sales from those ads.
For example, say that you have spent a total of $250 on PPC ads for a product, and the clicks you received from those advertisements generated $500 in sales. $250 (ad spend) divided by $500 (sales from ads) = 0.50, or 50%. Your ACoS on this particular product is 50%.
While there are instances in which it is okay to have a high ACoS (I’ll discuss those in the final section of this post), most Amazon sellers strive to keep their ACoS as low as possible. After all, if that same $250 on ad spend was generating $2500 in sales instead, that would create an ACoS of 10% ($250 divided by $2500 = .10), which would represent a higher return on investment on your ad spending and more profit for you.
What is ROAS?
ACoS is essentially the Amazon-exclusive version or ROAS, which is a more common acronym across the ecommerce industry that stands for “Return On Ad Spend”. To solve for ROAS, you divide total amount spent on advertising by the revenue generated from those ads. In other words, it’s the exact inverse of ACoS.
So looking at the examples above, $500 in total sales divided by $250 = 2, or a 200% ROAS. The more profitable $2500 example generates a ROAS of 1000% ($2500 divided by $250 = 10.0).
When you are measuring ROAS, the higher the number is, the better.
What is TACoS?
TACoS stands for “Total Advertising Cost of Sales” and is similar to ACoS, but with an added twist. Instead of solving for only the sales generated directly from PPC ads on a specific product like ACoS does, TACoS measures all of the total sales generated on that product in correlation with the amount spent on ads.
So on the example product discussed above that had an ACoS of 50% ($500 in sales from PPC ads divided by $250 in total ad spend), say that product also had $500 in organic sales over the same time period being measured. The $500 in organic sales added to the $500 in sales from PPC ads would = $1000 in total sales. Dividing $250 in ad spend by $1000 in total sales on the product = .25, or 25% TACoS on this product.
The TACoS metric gives you a more big-picture look at how the sales on a product you are advertising for are doing.
Which metric should you focus on?
All three of these metrics are valuable in their own ways. Here are a few factors to consider when using ACoS, ROAS and TACoS to monitor your Amazon PPC campaigns.
1. ACoS and ROAS are measuring the same thing
ACoS and ROAS are both measuring the return on investment that you are getting from the money you spend on PPC advertisements on Amazon. You can use which ever of these metrics you prefer to measure this, though it may not be a bad idea to get into the habit of using ACoS as it will be easier for you to compare to your TACoS measurements.
2. TACoS must be factored into advertising decisions
Impressions and clicks leading directly to sales is the goal for every PPC campaign. With that said, even if an impression or click doesn’t lead directly to a sale, perhaps it will make a customer aware of your brand or product which leads them to a purchase in the future. Or maybe the sales generated by your advertising campaign generate more product reviews and lead to more organic sales through search results.
Those types of sales aren’t indicated in your ACoS scores, but they are in your TACoS. There are instances where ACoS is the more useful metric, such as when dealing with a product that you already organically rank highly in or drive a lot of traffic to through other advertising campaigns or social media campaigns. In those instances, you will need ACoS to cut through the other sources of traffic and sales.
But generally speaking, your TACoS will be heavily affected by your advertising campaigns, so it’s a great metric to use in addition to ACoS to get a more complete picture of how things are going.
3. It’s okay to have a high ACoS in certain situations
Over the long run, you’ll want to make sure that your ACoS and/or TACoS are low enough to justify keeping a PPC advertising campaign running. It’s a good idea to always be monitoring the success of your campaigns and looking for ways to optimize your product listings. But there are instances where a high (and even unprofitable) ACoS is acceptable and just the price of doing business on Amazon.
The most obvious instance of this is when you are starting a new campaign or launching a new product. It takes time to gauge whether or not advertising a certain product in a certain keyword is going to be worth the money it takes to compete in that keyword’s advertising pool. Consider high initial ACoS as an investment that will yield valuable information and data that you will be able to use to fine-tune your overall advertising strategy.
Another case of a high ACoS being tolerable is on a product that you think will drive major profit in the long run. Whether it’s a product that will increase brand recognition or boost customer lifetime value on Amazon, perhaps breaking even or running a campaign at a loss is worth it. As long as you have a good strategy in place and keep good records on your investments, you should be able to figure out what works best for you and your business. ACoS, ROAS and TACoS metrics will be a useful tool in your toolbox.