As an Amazon seller, you're likely familiar with a plethora of metrics and acronyms. But there's one metric that stands out as particularly crucial for measuring the efficiency of your advertising efforts: TACOS. In this comprehensive guide, we'll dive deep into what TACOS is, why it matters, and how you can improve it to boost your Amazon business.
What is TACOS?
TACOS stands for Total Advertising Cost of Sale. It's a metric that measures the relationship between your advertising spend and your total sales on Amazon. Specifically, TACOS is calculated by dividing your total advertising spend by your total sales (including both organic and paid sales) and is expressed as a percentage.
The formula for TACOS is:
TACOS = (Total Ad Spend / Total Sales) x 100
For example, if you spent $1,000 on advertising and generated $10,000 in total sales (both from ads and organic traffic), your TACOS would be:
($1,000 / $10,000) x 100 = 10%
This means you're spending 10% of your total revenue on advertising.
Why is TACOS Important?
TACOS is a critical metric for several reasons, but its primary importance lies in its direct relationship to profitability:
Profitability Indicator: TACOS allows you to understand if you are profitable when considering your advertising costs. Here's how it works:
· If your profit margin is higher than your TACOS, you're profitable.
· If your profit margin equals your TACOS, you're breaking even.
· If your TACOS is higher than your profit margin, you're losing money.
For example:
· If your profit margin is 20% and your TACOS is 10%, you're profitable.
· If your profit margin is 20% and your TACOS is 20%, you're breaking even.
· If your profit margin is 20% and your TACOS is 30%, you're losing money.
Holistic View of Advertising Efficiency: Unlike ACoS (Advertising Cost of Sale), which only considers sales directly attributed to ads, TACOS takes into account your total sales. This provides a more comprehensive picture of how your advertising efforts are impacting your overall business.
Accounts for Organic Sales Lift: Advertising on Amazon can boost your organic rankings and visibility, leading to increased organic sales. TACOS captures this effect, giving you a better understanding of the true impact of your advertising spend.
Helps Optimize Ad Spend: By tracking TACOS, you can determine whether you're overspending or underspending on advertising relative to your total sales. This insight can help you adjust your ad budget more effectively to maintain profitability.
Takes into Account Organic Efforts and Cross-Selling: TACOS considers all sales, including those from organic traffic and cross-selling. This gives you a more accurate picture of your overall performance, recognizing that advertising can boost organic visibility and encourage customers to explore more of your product range.
By focusing on TACOS, you can ensure that your advertising efforts are contributing to your bottom line rather than eroding your profits. It provides a clear benchmark for adjusting your advertising strategy to maintain or improve profitability.
How to Improve Your TACOS
Improving your TACOS essentially means getting more bang for your advertising buck. Here are several strategies to consider:
Improve Conversion Rate
Your conversion rate is the percentage of people who buy your product after clicking on your ad. Improving this rate means you're getting more sales for the same ad spend, which will lower your TACOS. Here's how:
Optimize Your Product Listings: Ensure your titles, bullet points, and descriptions are clear, compelling, and keyword-rich.
Use High-Quality Images: Clear, professional photos can significantly boost conversions.
Leverage A+ Content: If you're brand registered, use A+ Content to showcase your product's features and benefits.
Gather and Respond to Reviews: Positive reviews build trust, while addressing negative ones shows you care about customer satisfaction.
Increase Average Order Value (AOV)
Increasing your AOV means you're generating more revenue per transaction, which can help lower your TACOS. Try these strategies:
Bundle Products: Offer complementary products together at a slight discount.
Upsell and Cross-sell: Use Amazon's "Frequently Bought Together" feature to your advantage.
Offer Quantity Discounts: Encourage customers to buy more by offering discounts on larger quantities.
Create a store so that customers can find other products you have to offer
Add a product comparison chart to your A+ content with other products that buyers might be interested in.
Optimize Your Advertising Campaigns
Fine-tuning your ad campaigns can help you spend your ad budget more efficiently:
Use Negative Keywords: Eliminate irrelevant clicks by adding negative keywords to your campaigns.
Adjust Bids Based on Performance: Increase bids on high-performing keywords and reduce them on underperforming ones.
Leverage Different Ad Types: Experiment with Sponsored Products, Sponsored Brands, and Sponsored Display ads to find the most effective mix for your products.
Improve Organic Rankings
Better organic rankings can lead to more organic sales, which will lower your TACOS:
Focus on Relevant Keywords: Use tools like Amazon's Search Terms Report to identify high-performing keywords.
Encourage Customer Reviews: More positive reviews can boost your organic rankings.
Maintain Healthy Inventory Levels: Stock-outs can negatively impact your rankings.
Refine Your Product Selection
Not all products will perform equally well on Amazon. Consider:
Focusing on High-Margin Products: These allow more room for advertising spend while maintaining profitability.
Discontinuing Poor Performers: Products with consistently high TACOS might be better removed from your catalog.
Consider Your Product's Lifecycle
Your TACOS strategy might change depending on where your product is in its lifecycle:
New Product Launch: You might accept a higher TACOS initially to gain visibility and reviews.
Mature Products: As your product becomes established, you can focus on lowering TACOS to maximize profitability.
Monitor and Adjust Regularly
TACOS isn't a "set it and forget it" metric. Regular monitoring and adjustment are key:
Set TACOS Targets: Establish target TACOS percentages for different product categories or lifecycle stages.
Regular Reviews: Set a schedule to review and adjust your advertising strategy based on TACOS performance.
Also, TACOS only makes sense if you don’t optimize pricing (because your profit margin decreases as you lower the price).
If you have different margins per product, you might want to look at TACOS per SKU.
Conclusion
TACOS is more than just another acronym in the Amazon seller's vocabulary. It's a powerful metric that provides crucial insights into the relationship between your advertising efforts and overall sales performance. By understanding and optimizing your TACOS, you can create a more efficient, profitable, and sustainable Amazon business.
Remember, there's no one-size-fits-all TACOS percentage. The right TACOS for your business will depend on factors like your profit margins, competition, and business goals. Some businesses might aim for a TACOS of 5-10%, while others might find 15-20% more appropriate for their strategy and based on their margin.
By focusing on improving conversion rates, increasing average order value, optimizing ad campaigns, and leveraging Amazon's tools and features, you can work towards a TACOS that supports both profitability and growth for your Amazon business.
In the dynamic world of e-commerce, staying on top of key metrics like TACOS can give you the edge you need to succeed. So, start digging into your TACOS today, and take your Amazon business to the next level!