Amazon is the world’s largest online marketplace, with millions of sellers competing for the attention of billions of customers. With so much competition, it can be challenging for sellers to stand out and generate sales. That’s where Amazon advertising comes in. Their advertising platform helps sellers reach potential customers more effectively and increase their sales revenue. However, simply advertising on Amazon is not enough to guarantee success. To be profitable, sellers need to track and analyze the effectiveness of their advertising campaigns. That’s where TACoS comes in. TACoS, which stands for Total Advertising Cost of Sales, is a metric that measures the effectiveness of advertising campaigns on Amazon.
How to Calculate TACoS
TACoS is calculated by dividing the total advertising spend by total sales revenue:
For example, if a seller spends $100 on advertising and generates $1000 in sales, their TACoS would be 10% – so for every dollar spent on advertising, they generated $10 in sales revenue.
Evaluate the Effectiveness of Your Advertising Campaigns
TACoS is a crucial metric for Amazon sellers for several reasons. One of the benefits of tracking by TACoS is that it helps sellers evaluate the profitability of their advertising campaigns and allows them to determine whether the campaigns are generating a positive or negative return on investment. If TACoS is too high, it means that advertising costs are eating into profits, and the campaign may need to be adjusted or discontinued. On the other hand, if TACoS is too low, it may be an indication that the seller is not investing enough in advertising to generate optimal sales revenue.
Optimize Your Advertising Strategies
It also helps sellers optimize their advertising campaigns by helping them identify which advertising campaigns are generating the most sales revenue. For example, if a seller notices that their TACoS is lower for one advertising campaign compared to another, they may decide to shift more of their advertising budget to the more profitable campaign.
Make Data-Driven Decisions
By comparing TACoS for different products, sellers can determine which products are the most effective and are generating the most sales revenue. In other words, if a seller notices that TACoS is lower for one product compared to another, they may decide to focus more on advertising that product to generate more sales revenue.
Generate A Profitable ROI
TACoS can also be used to optimize advertising budgets and helps sellers determine how much they should be spending on advertising to generate a profitable return on investment. If you were to calculate that your optimal TACoS is 10%, it helps you identify that you should adjust your advertising budget to ensure that you are not overspending or underspending on advertising.
Ultimately, Amazon sellers have the same goal of maximizing their sales and profitability. TACoS is becoming a crucial metric for achieving that goal through helping evaluate the effectiveness of your advertising campaigns, identifying when to optimize advertising strategies, and allowing you to make data-driven decisions to increase your ROI. The best practice to keep TACoS under control is ensuring you are focusing on targeting high-converting keywords, optimizing product listings, and using negative keywords to avoid wasteful spending. By following these, you are on the right track to reducing TACoS and increasing profitability.
