Data-Driven Amazon TACoS Insights ~ Amazon Selling Partner (SP-API)

Harnessing the Power of Your Amazon Data in TACoS Strategies

Total Advertising Cost of Sales (TACoS) is a key metric used in e-commerce and digital marketing, especially in platforms like Amazon, to assess the impact of advertising spend on overall sales revenue. To effectively utilize TACoS, tapping into data from Amazon Ads, Seller Central, and Vendor Central is a must.

This post details how an Amazon business (Amazon Seller or Vendor) can use data from these sources to analyze TACoS and other Key Performance Indicators (KPIs). This includes the interplay of ad campaigns and organic traffic so you can craft an effective data-driven strategy that optimizes advertising efforts, profit margin, and total ad spend.

TACoS and Organic Sales & Traffic

The relationship between organic ranking on Amazon (or other platforms) and Total Advertising Cost of Sales (TACoS) is often not well understood.

Generally speaking, advertising plays a pivotal role in boosting product visibility, which in turn can enhance organic rankings. This improvement is primarily due to increased sales velocity — a key factor for better organic rankings on platforms like Amazon. As products gain higher visibility through ads and achieve more sales, they naturally start to rank higher in organic search results.

Effective advertising (Sponsored Product, Sponsored Brand, Sponsored Display, Sponsored Video) can improve visibility in organic rankings.

As the organic rankings improve, there is a flip side. When a product’s organic ranking improves, its reliance on paid advertising can decrease. This shift is reflected in the TACoS metric: a lower TACoS indicates a higher proportion of organic sales in the total sales mix.

This means a successful organic ranking can reduce the need for proportional ad spending, leading to a more cost-effective sales strategy. This is why using TACoS as a KPI is important.

Direct vs. Indirect Impact: TACoS doesn’t directly measure organic sales or traffic, but it indirectly influences them. A well-executed advertising strategy (reflected in a balanced TACoS) can boost brand awareness and market presence, which in turn can lead to increased organic sales and traffic.
Catalyst for Organic Growth: Effective advertising can introduce new customers to the brand. Satisfied customers might return for repeat purchases organically, thereby reducing future dependence on paid advertising and potentially lowering the TACoS.
Long-Term Brand Building: A strategic approach to advertising, even with a temporarily high TACoS, can contribute to long-term brand building. As the brand becomes more recognized and trusted, organic sales and traffic are likely to increase.

The result is a beneficial feedback loop — increased organic sales can lead to reinvestment in targeted advertising, further enhancing visibility and sales, while a decrease in TACoS can indicate effective organic growth strategies.

ACoS vs ROAS vs TACoS Amazon Advertising

Return on Advertising Spend (ROAS), Advertising Cost of Sales (ACoS), and Total Advertising Cost of Sales (TACoS) are KPI metrics in analyzing the effectiveness of advertising campaigns, especially for Sellers and Vendors using Amazon Advertising.

Here’s a breakdown of each metric:

ROAS Calculation (Return on Advertising Spend):

Definition: ROAS measures the gross revenue generated for every dollar spent on advertising. It’s a metric used to understand advertising campaigns’ effectiveness in revenue generation.
Calculation: ROAS is calculated by dividing the revenue generated from advertising by the cost of the advertising.
Formula: ROAS=Revenue from AdsCost of AdsROAS=Cost of AdsRevenue from Ads
Interpretation: A higher ROAS indicates a more effective advertising campaign. It directly shows how much revenue is earned for each dollar spent.

ACoS Calculation (Advertising Cost of Sales):

Definition: ACoS is a metric used primarily on Amazon and similar e-commerce platforms. It measures the cost of advertising relative to the sales explicitly generated from those advertisements.
Calculation: ACoS is calculated by dividing the cost of advertising by the sales generated from advertising.
Formula: ACoS=Cost of AdsSales from Ads×100%ACoS=Sales from AdsCost of Ads×100%
Interpretation: A lower ACoS is typically desirable, as it indicates that the advertising is more efficient (i.e., less cost for more sales). It’s beneficial for understanding the direct profitability of advertising campaigns.

TACoS Calculation (Total Advertising Cost of Sales):

Definition: TACoS measures the advertising cost relative to the total sales, including organic and ad-driven sales. It offers a broader view of how advertising affects overall sales.
Calculation: TACoS is calculated by dividing the total advertising spend by the total sales (both organic and advertising-generated).
Formula: TACoS=Total Advertising SpendTotal Sales×100%TACoS=Total SalesTotal Advertising Spend×100%
Interpretation: TACoS helps in understanding the impact of advertising on the entire business. Unlike ACoS, which focuses solely on ad-generated sales, TACoS provides insight into how advertising influences overall sales, including organic sales.

Comparison:

ROAS is a general advertising metric applicable across different platforms and industries. It’s best for measuring the direct return on investment from ad campaigns.
ACoS is specific to e-commerce platforms like Amazon. It’s used to assess the efficiency of advertising in driving sales. It benefits sellers and marketers who need to understand the direct profit from their advertising on these platforms.
TACoS provides a more holistic view of advertising’s role in the overall sales strategy. It’s beneficial for long-term strategic planning, understanding the impact of advertising on total sales, and balancing advertising with other sales and marketing efforts.

Why use TACoS?

The advertiser should extend some of their focus (if you haven’t already) from ACoS and ROAS to TACoS. There are several reasons, but it is vital to understand ad investments’ overall effectiveness and impact on an e-commerce business. Here are key reasons why TACoS should be in the mix with ACoS and ROAS :

Holistic View of Business Performance: TACoS measures the impact of advertising spending against the total revenue of the business, not just the revenue generated from ads. This offers a broader perspective on how advertising influences overall sales, including organic sales.
Balancing Organic and Paid Sales: TACoS helps businesses understand the balance between organic and paid sales. A high ACoS might indicate effective ad-driven sales but could overshadow the status of organic sales. TACoS provides insight into how advertising contributes to overall business growth, including non-ad-driven sales.
Long-Term Growth Strategy: TACoS is more aligned with long-term growth strategies. It considers the business’s overall health, factoring in how advertising contributes to brand awareness and market penetration, which may not immediately translate into direct sales but are crucial for long-term success.
Efficient Resource Allocation: By focusing on TACoS, businesses can make more strategic decisions about allocating resources between advertising and other growth initiatives. It ensures that advertising budgets are being used effectively in the context of the business’s total sales performance.
Adjusting for Market Dynamics: TACoS is less sensitive to short-term market fluctuations than ACoS or ROAS. It provides a more stable metric for evaluating the effectiveness of advertising strategies over time, making it suitable for adjusting long-term business plans.
Branding and Market Presence: Investments in advertising to build brand recognition or capture market share might not yield immediate sales (thus potentially lowering ROAS or increasing ACoS). Still, they contribute to the overall market presence. TACoS accounts for these strategic investments.
Comprehensive Marketing Insights: TACoS gives a comprehensive picture of the marketing funnel. It accounts for all stages of the customer journey, not just the final conversion, offering insights into how advertising influences customer behavior from awareness to purchase.

While ACoS and ROAS are crucial for understanding advertising campaigns’ direct profitability and efficiency, including TACoS in your metrics toolkit, you gain a more inclusive view of how advertising expenditures affect the entire spectrum of business sales. TACoS reflects a metric to help provide insights into whether a business is on a sustainable growth path, has strong market positioning, and realizes long-term brand development goals.

Based on the company, its goals, industry norms, and growth stage, it is crucial to develop insights into what constitutes an effective TACoS, the implications of a high TACoS, and how TACoS affects ad sales, overall revenue, and organic sales.

What is a Good TACoS?

TACoS is not a one-size-fits-all metric. It is a KPI that will depend on a company’s products, goals, and market dynamics.

The key is to balance TACoS with overall business objectives, aiming for a level that supports sustainable growth, brand development, and a healthy mix of organic and paid sales.

Depends on Business Objectives: For a business focused on aggressive growth or market penetration, a higher TACoS may be acceptable as it implies reinvestment in advertising to capture market share. For more established businesses or those prioritizing profitability, a lower TACoS might be preferable.
Industry Benchmarks: It’s also important to compare TACoS with industry averages. What’s considered good in one industry might be high in another.

Let’s explore an example of a high and low TACoS in the context of selling Apple iPads and watches. For simplicity, we’ll use hypothetical numbers.

High TACoS Example

Suppose Apple Inc. retailer $20,000 on advertising Apple iPads in a month.

Total Sales Revenue: In the same month, the total sales revenue (including both organic and ad-driven sales) for Apple iPads is $80,000.

TACoS Calculation:

TACoS=$20,000/$80,000×100%=25%

A TACoS of 25% is relatively high. This implies that a significant portion of the total sales revenue is being consumed by advertising costs.

Low TACoS Example

In a different situation, let’s say the Apple spends $5,000 on advertising Apple watches.

Total Sales Revenue: The total sales revenue for the month is $100,000.

TACoS Calculation:

TACoS=$5,000/$100,000×100%=5%

A TACoS of 5% is relatively low. This suggests that the Apple’s total sales are less reliant on advertising spend for the watch, indicating a strong organic sales performance, a highly efficient advertising strategy, or both!

Regular analysis and adjustment of advertising strategies based on TACoS can help businesses optimize their marketing efforts and grow more effectively.

Benefits Of Data-driven TACoS Insights

To harness the opportunity, Amazon Sellers and Vendors need to continuously monitor, analyze, and adjust their advertising strategies to stay informed about market trends and Amazon platform changes.

Overcoming the challenges of achieving a reasonable Advertising Cost of Sale (ACoS) on Amazon involves a strategic approach that leverages technology and data analytics. Here are some recommendations focusing on the use of Amazon Ads API, analytics tools, and integrating cloud data warehouses or data lakes:

Utilizing Amazon Ads API for Automation and Efficiency

Automate Bid Adjustments: Use the Amazon Ads API to understand trends and behaviors based on performance data. This can help optimize your campaigns based on data-driven insights, ensuring competitive bids without overspending.
Custom Reporting and Analysis: Develop custom reporting tools using the API to gather more granular data than what is available through Amazon’s default reporting. This can help identify specific areas for improvement.
Bulk Operations: Leverage the API for bulk operations to unify Sponsored Brands, Sponsored Products, and campaign data, saving time and ensuring a more holistic approach to campaign insights.
Performance Tracking: Employ analytics tools like Looker Studio, Tableau, Microsoft Power BI, Amazon QuickSight, SAP, Alteryx, dbt, Azure Data Factory, Qlik Sense, and many others to create insights that highlight key performance indicators (KPIs) such as TACoS, ROAS, ACoS, click-through rates (CTR), conversion rates, overall sales, and many more. This will help your team in understanding the effectiveness of your ads.
Testing: Use these tools to perform testing on different aspects of your ads (like keywords, ad copy, or images) to see what resonates best with your audience.
Customer Insights: Analyze customer behavior and preferences. Understanding your target audience can help you tailor your ads more effectively.

Integrating Cloud Data Warehouses or Data Lakes

Unified Data Repository: Use industry-leading data lake, data lakehouse, or cloud warehouses like Databricks, Amazon Redshift, Amazon Redshift Spectrum, Google BigQuery, Snowflake, Azure Data Lake, Ahana, and Amazon Athena. Consolidate data from various sources (Amazon sales data, advertising data, external market trends) for a holistic view.
Historical Data Analysis: Unified data that you control means you can efficiently analyze historical data, even when that data is no longer available from Amazon, to identify patterns and trends. This can inform your strategy for inventory management, budget allocation, and bidding strategies.
Scalability and Flexibility: Cloud solutions offer scalability and flexibility in handling large volumes of data, essential for comprehensive analysis and businesses with fluctuating data loads.
Advanced Analytics and Machine Learning: Implement advanced analytics and machine learning models to predict market trends, optimize pricing strategies, and forecast demand, which can directly impact ACoS.

Decision Making

Segmentation and Targeting: Utilize data to segment customers and target your ads more precisely. This can improve conversion rates and reduce wasted ad spend.
Real-Time Data Processing: Use real-time data processing to adapt quickly to market changes. This agility can be crucial for maintaining optimal ACoS in a dynamic marketplace.

Regular Review and Optimization

Continuous Monitoring: Regularly monitor campaign performance and adjust as needed. Stay agile and responsive to data insights.
Learning from Successes and Failures: Analyze successful and unsuccessful campaigns to understand what works and doesn’t.

Get Started

No more manual file downloads to calculate TACoS, ROAS, ACoS, and other Amazon KPIs.

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