Amazon TACoS: Understanding And Optimizing Your Ad Strategy

Amazon TACoS is a crucial metric for evaluating the effectiveness of your advertising efforts. In this article, Megaficus will explain its significance and share strategies to optimize it, helping you make smarter decisions for your Amazon PPC campaigns and improve profitability.

Amazon TACoS (Total Advertising Cost of Sale) is a metric used to measure advertising spend in relation to total sales, including both ad-driven and organic sales. By tracking TACoS, you can evaluate the effectiveness of your Amazon ads from a broader perspective.  

Why Is Amazon TACoS Important?

TACoS is a crucial metric because it provides a more comprehensive understanding of your ad spend. While Amazon ACoS shows how many of your ads converted into sales, TACoS goes a step further by revealing the impact of your ad spend on your total sales.

By calculating TACoS, you can measure how much your ads contribute to your overall sales velocity and how they might be affecting your profit margins. Unlike ACoS, which focuses solely on ad efficiency, TACoS lets you evaluate the bigger picture of your business growth and ad performance.

For your PPC campaigns, monitoring TACoS at an account level is essential. If your ads aren’t generating enough sales to justify their cost, TACoS will highlight this, giving you the data you need to adjust your strategy and improve campaign performance. In short, TACoS helps you make informed decisions for long-term success.

How To Calculate Amazon TACoS

To calculate Amazon TACoS, you need to use the following formula:

TACoS = (Advertising Spend / Total Revenue) x 100

To clarify further, let Megaficus break down the key components of this formula:

• Advertising Spend: This includes all costs related to running ad campaigns, such as click costs, clicks on sponsored products, fees for sponsored brands, and display ads.
• Total Revenue: This combines both Ad-driven sales and organic sales (those influenced by the ads).

Example:

If you spent $1,950.60 on ads and generated $9,240 in organic sales and $2,800.20 in ad-driven sales, the calculation would be:

TACoS= (1,950.60(9,240+2,800.20)) x 100 = 16,2%

Try calculating your TACoS here:

What Is A Good TACoS On Amazon?

A good TACoS typically ranges between 5% and 15%, with most experts recommending 6% to 10% as the ideal target for the majority of sellers. Below is a breakdown of what different TACoS ranges indicate:

• Lower TACoS (5%-10%): This means ads are effectively driving organic sales. Your advertising efforts are boosting visibility and generating sales without overspending.
• TACoS between 10%-20%: This is a moderate ad investment, which may be suitable for newer products or businesses in early stages. However, there’s room for improvement in ad efficiency.
• TACoS above 20%: This indicates heavy reliance on paid ads, with a large portion of revenue going toward advertising. It’s a sign that you need to focus more on improving organic sales and optimizing your ad strategy.

For example, if last quarter your TACoS was 23% but this quarter it dropped to 16%, this would indicate improvement and could be considered a positive change for your business. However, if the average TACoS for your product category is 12%, there is still room for improvement.

In conclusion, you should align your TACoS with your profit margins. For example, if your product has a 30% profit margin, you should aim to keep your TACoS below 30% in the long run. If TACoS exceeds this threshold, it indicates that your ad campaigns are not profitable. 

Factors That Affect Amazon TACoS

In this part, Megaficus will show you some factors affecting your Amazon TACoS that you can consider below:

• Product age and listing history: New products need higher ad spend to gain visibility, which leads to higher TACoS.
• Ad type and targeting strategy: Different ad types, such as Sponsored Products and Sponsored Brands, come with varying costs and effectiveness in driving conversions. On the other hand, less precise targeting often increases ad spend relative to sales, which drives TACoS higher.
• Organic sales performance: Strong organic sales help lower TACoS because ads contribute to improved organic rankings over time. When organic sales are weak, you may become too reliant on paid ads, which can cause TACoS to rise. 
• Keyword selection and optimization: Selecting high-converting keywords that align closely with customer search intent, you can improve ad performance, attract more relevant traffic, and reduce costs. On the other hand, poor keyword selection leads to wasted ad spend and results in a higher TACoS.
• Seasonality and demand: During high-demand periods, such as holidays, your ads are likely to perform better, resulting in more sales and potentially lower TACoS. However, increased competition during these times can drive up ad costs, making it important to manage your ad spend carefully.

Approaches To Improving Amazon TACoS

To help you optimize your Amazon advertising strategy, in this part, Megaficus highlights several approaches that can effectively improve your TACoS.

Enhance Product Listings For Better Organic Reach

When listings are well-optimized, organic sales increase, reducing reliance on advertising spend and gradually lowering TACoS. To achieve this, sellers should make sure product titles, descriptions, and bullet points are clear, relevant, and include high-converting keywords that match customer search intent. In addition, high-quality images and positive reviews can improve conversion rates, supporting both organic growth and ad efficiency.

To illustrate, selling a stainless steel water bottle can benefit from an optimized title such as “Leak-Proof Stainless Steel Water Bottle – 750ml, BPA-Free, Insulated”. Adding bullet points that highlight benefits such as “keeps drinks cold for 24 hours” and including lifestyle images with customer reviews can increase conversions.

Boost Average Order Value (AOV)

When the value of each sale increases, the cost of advertising becomes a smaller portion of the total sale, which helps lower your TACoS. You can raise AOV by offering product bundles, running promotions, or upselling higher-value items. 

For example, if you sell skincare products, you can bundle a facial cleanser with a moisturizer instead of selling them separately. Customers are likely to spend more per order, which not only increases revenue but also reduces the percentage of ad costs in relation to sales, resulting in a lower TACoS.

Target Long-Tail Keywords In Your Ads

Long-tail keywords are more specific, less competitive, and often lead to higher conversion rates because they attract users with a clear intent to purchase. Although they may bring in less traffic than broader keywords, they deliver more qualified leads at a lower cost, which makes your ads more efficient and ultimately lowers your TACoS.

Instead of targeting a broad keyword like “shoes”, you can use a long-tail keyword such as “women’s running shoes for flat feet”. While the search volume may be lower, the customers who search for this term are more likely to buy, which increases conversion rates and lowers your overall TACoS.

Capitalize On Seasonal And Promotional Offers

During peak shopping periods like holidays or major sales events, demand increases, leading to more sales at a lower cost per click (CPC). This results in improved conversion rates and a reduction in TACoS.

For example, if you sell home décor, you can run discounts and bundle offers during the Christmas season when shoppers are actively looking for decorations. This not only boosts sales but also reduces the relative share of ad costs, allowing you to lower TACoS while maximizing revenue.

Implement Ongoing A/B Testing And Campaign Refinements

A/B testing helps you compare different ad creatives, landing pages, and bidding strategies to see which generates the best results. 

For example, you can test two versions of an ad, one with a discount offer and one highlighting product features, to determine which attracts more clicks. Similarly, you can compare two landing pages, one with customer reviews and one with a product video, to see which drives more conversions.

Amazon TACoS vs ACoS: Key Differences

When mentioning Amazon metrics, some may confuse TACoS and ACoS since both measure ad performance, but TACoS provides a broader view by including organic sales. The comparison table below from Megaficus breaks down their differences in detail:

Frequently Asked Questions (FAQs) About Amazon TACoS