Welcome, Amazon sellers and e-commerce professionals! Whether you're a solo entrepreneur or part of a larger team, understanding and leveraging TACOS (Total Advertising Cost of Sales) can significantly enhance your Amazon advertising strategy and, ultimately, your profitability. This metric provides valuable insights into the effectiveness of your ad spend in relation to your overall sales, helping you achieve a more balanced and profitable approach.
In this blog, we'll break down what TACOS is, how to calculate it, and how you can use it to drive your Amazon business towards greater profitability. Let’s dive in.
TACOS stands for Total Advertising Cost of Sales. Unlike ACOS (Advertising Cost of Sales), which only considers the sales generated from your advertising efforts, TACOS gives a more comprehensive view by factoring in your total sales, including organic sales.
The formula for calculating TACOS is straightforward:
In other words, you divide your total advertising spend by your total revenue and then multiply by 100 to get a percentage. This percentage represents the portion of your total sales that is being used to fund your advertising. Understanding this helps you gauge how much of your revenue is being eaten up by advertising costs, a crucial aspect of maintaining and increasing profitability.
TACOS provides a broader perspective on your advertising efficiency. A lower TACOS indicates that a smaller percentage of your total sales is being spent on ads, suggesting a healthy mix of organic and paid sales, which directly correlates to higher profitability. Conversely, a higher TACOS might indicate over-reliance on advertising to drive sales, potentially signalling the need for strategy adjustments to safeguard your profits.
Now that we’ve established what TACOS is and why it matters, let’s explore how you can use this metric to optimise your Amazon advertising strategy and enhance your profitability.
Regularly monitoring your TACOS can help you keep your advertising spend in check, directly impacting your profitability. If you notice your TACOS increasing, it might be time to reassess your ad campaigns. Consider reallocating your budget to more effective ads or exploring other marketing channels to maintain a balanced ad spend relative to your total sales. Efficient ad spend management ensures you’re not overspending and cutting into your profits.
Decreasing your TACOS over time should be a key objective, as it indicates a growing proportion of organic sales, which are more profitable since they don’t incur advertising costs. Achieve this by improving your product listings, gathering positive reviews, and ensuring your products are well-optimised for relevant keywords. Enhancing your organic presence can lead to sustainable growth with higher profitability due to reduced dependency on paid advertising.
Sales and advertising performance can vary with seasonal trends. During peak seasons, it’s natural for your TACOS to rise as you increase ad spending to capture higher demand. However, balancing this with efforts to boost organic sales during off-peak periods is essential for maintaining overall efficiency and profitability. Understanding and adapting to these trends ensure that your increased spending during high-demand periods is offset by lower spending during quieter times, maintaining your profit margins.
In the competitive landscape of Amazon, keeping an eye on your TACOS helps you understand how your ad spend compares to your total sales, directly affecting your profitability. If competitors are outspending you, it might be necessary to adjust your advertising strategy or find innovative ways to differentiate your products without excessively increasing your ad budget. Staying competitive while managing costs effectively ensures you remain profitable even in a crowded marketplace.
Experimentation is crucial for discovering what works best for your business, ultimately boosting profitability. Test different types of ads (Sponsored Products, Sponsored Brands, Sponsored Display) and analyse their impact on your TACOS. Continuous learning and adaptation will help you refine your strategy and improve overall performance. Effective experiments that lead to lower TACOS mean more of your revenue is retained as profit.
In the dynamic world of Amazon selling, leveraging TACOS can be a powerful tool for balancing your advertising spend with your total sales, directly impacting your profitability. By monitoring and adjusting your strategy based on this metric, you can achieve a more efficient and profitable approach to Amazon advertising.
Remember, TACOS provides a comprehensive view of your ad spend in relation to your overall sales, helping you make informed decisions that drive sustainable growth. Use it to optimise your ad spend, boost organic growth, and stay competitive in the ever-evolving Amazon marketplace.
Are you ready to optimise your Amazon advertising strategy for maximum profitability? Our Amazon PPC specialists are here to help you navigate the complexities of TACOS and achieve your business goals. We use many tools at our disposal such as:
Our recent success with Swedish Nutra showed how we maintained a healthy TACOS (Total Advertising Cost of Sales) with lower ad spending and higher overall sales. You can read up on the finer details about this here!
Contact us today to learn how we can support your journey to greater success on Amazon.
Happy selling, and here's to your profitability on Amazon!
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