In the world of Amazon Pay-Per-Click (PPC) advertising, understanding your performance metrics is crucial for success. Two key metrics that often confuse sellers are ACoS (Advertising Cost of Sale) and TACoS (Total Advertising Cost of Sale). While they may sound similar, these metrics provide different insights into your advertising effectiveness and overall business performance. Let’s break down the differences and explore why both are important for your Amazon business.
What is ACoS?
ACoS, or Advertising Cost of Sale, is a metric that measures the efficiency of your Amazon PPC campaigns. It’s calculated by dividing your total ad spend by the sales generated from those ads, expressed as a percentage:
For example, if you spend $100 on ads and generate $1,000 in ad-attributed sales, your ACoS would be 10%.
Key Points about ACoS:
- Focuses solely on ad-attributed sales
- Helps evaluate the direct performance of your PPC campaigns
- Lower ACoS generally indicates more efficient ad spend
What is TACoS?
TACoS, or Total Advertising Cost of Sale, takes a broader view of your advertising impact. It considers your ad spend in relation to your total sales, including both ad-attributed and organic sales:
For instance, if you spend $100 on ads, generate $1,000 in ad-attributed sales, and an additional $1,000 in organic sales, your TACoS would be 5% ($100 / $2,000).
Key Points about TACoS:
- Includes both ad-attributed and organic sales
- Provides insight into the overall impact of advertising on your business
- Helps gauge the “halo effect” of advertising on organic sales
The Crucial Differences
| Aspect | ACoS | TACoS |
|---|---|---|
| Scope of Sales Considered | Only considers sales directly attributed to ads | Considers all sales, including organic |
| Insight Provided | Indicates the efficiency of your ad campaigns | Shows the broader impact of advertising on your entire business |
| Fluctuation Sensitivity | Can fluctuate more dramatically based on short-term ad performance | Tends to be more stable as it accounts for total sales |
| Goal Setting | Useful for setting campaign-specific targets | Helpful for setting overall business growth and advertising strategy |
Pros and Cons of ACoS
Pros of ACoS:
- Direct campaign performance indicator: ACoS provides a clear measure of how efficiently your ad spend is converting into sales for specific campaigns 1.
- Useful for short-term optimization: It allows for quick, tactical decisions about individual campaigns.
- Easy to calculate and understand: The formula is straightforward, making it accessible for sellers of all experience levels.
- Comparable across products: It’s easier to set benchmarks for ACoS within specific product categories.
Cons of ACoS:
- Limited scope: ACoS only considers ad-attributed sales, ignoring the broader impact of advertising on organic sales.
- Can encourage short-term thinking: Focusing solely on ACoS might lead to missed opportunities for long-term growth.
- Doesn’t account for profit margins: A low ACoS doesn’t necessarily mean high profitability if product margins are slim.
- More volatile: ACoS can fluctuate dramatically based on short-term ad performance.
Pros and Cons of TACoS
Pros of TACoS:
- Holistic view: TACoS provides insight into the overall impact of advertising on your entire business, including organic sales.
- Reveals the “halo effect”: It helps identify how advertising boosts organic sales.
- More stable metric: TACoS tends to be less volatile as it accounts for total sales
- Aids long-term strategy: It’s helpful for setting overall business growth and advertising strategies
Cons of TACoS:
- Less specific: TACoS doesn’t provide detailed insights into the performance of individual campaigns.
- Can mask poor campaign performance: A good overall TACoS might hide underperforming campaigns that need optimization.
- More complex to calculate: It requires data on total sales, which might not be as readily available as ad-attributed sales. More often than not you will need to calculate TACoS manually by combining Amazon PPC data and product sales data. ACoS is easily calculated from Amazon supplied PPC data alone.
- Harder to benchmark: TACoS can vary widely between businesses, making it challenging to set industry standards.
Why Both Metrics Matter
- Complementary Insights: ACoS and TACoS work together to give you a comprehensive view of your advertising performance. While ACoS helps optimize individual campaigns, TACoS shows how those campaigns contribute to overall business growth.
- Balancing Short-term and Long-term Strategy: ACoS is great for making quick, tactical decisions about your campaigns. TACoS, on the other hand, helps inform long-term strategy by showing how advertising contributes to your brand’s overall presence on Amazon.
- Identifying the “Halo Effect”: By comparing ACoS and TACoS, you can identify the “halo effect” of your advertising – how your PPC efforts boost organic sales. A significant difference between the two metrics might indicate strong organic growth driven by ads.
- Budget Allocation: Understanding both metrics helps you allocate your advertising budget more effectively. You might be willing to accept a higher ACoS if your TACoS shows that advertising is driving substantial overall growth.
- Performance Benchmarking: While ACoS benchmarks can vary widely between products and categories, TACoS can provide a more consistent benchmark for overall advertising efficiency across your entire catalog.
Both ACoS and TACoS can be useful metrics in Amazon PPC advertising. ACoS helps you optimize the efficiency of individual campaigns, while TACoS provides a broader perspective on how your advertising efforts contribute to overall business performance. By understanding and utilizing both metrics, you can make more informed decisions about your advertising strategy, budget allocation, and long-term growth plans on Amazon.
Both ACoS & TACoS Are Metrics… Not Your Primary Goal
Remember, the goal isn’t always to have the lowest possible ACoS or TACoS. Instead, focus on finding the right balance that drives profitability and sustainable growth for your Amazon business. Regularly analyze both metrics, and don’t be afraid to adjust your strategy as you learn more about how advertising impacts your overall performance on the platform.
Your aim, generally, is to ensure all of your ads are profitable… or at least break-even. Because if they are then you will want to run them as hard and as long as you can, regardless of the effect on either your ACoS or TACoS.