ACoS, TACoS, and ROAS, Oh My!
Whether you’re a new Amazon seller or a seasoned Amazon vet, PPC is a key part of your business strategy on Amazon.
The reality is you’ll struggle to be successful without investing your time and money in Amazon pay-per-click (PPC) ads – especially at launch.
Today, we’re breaking down the meanings and uses of the ACoS, TACoS, and ROAS acronyms, and why we believe TACoS is the most important metric for your overall PPC strategy vs. ACoS alone (the metric that causes widespread tunnel vision among sellers).
What is Amazon ACoS?
ACoS is an Amazon acronym that stands for “Advertising Cost of Sales.” It tells you how much of your PPC revenue is actually being generated by your spend on advertising.
To calculate Amazon ACoS, it’s a simple formula:
Ad spend divided by sales from ads
For example, if for a given product your sales from PPC ads is $1,000 but you’ve spent $200 on PPC ads for that product, your ACoS is 20%. Not bad!
What is ROAS?
ROAS is commonly used across the ecommerce industry. As of this writing, Amazon introduced ROAS into the Advertising Console about two weeks ago.
ROAS stands for “Return On Ad Spend” – it divides ads sales by ad spend, basically showing you your ROI on how much you’re shelling out for advertising.
ACoS vs. ROAS – which one should I use?
ACoS and ROAS are essentially the inverse of each other. So you just need to decide which metric you want to track to gauge your success.
Because ROAS is the inverse of ACoS, a higher ROAS is good, a lower number is bad, and they’re inversely proportional to one another:
High ACoS = Low ROAS (boo)
Low ACoS = High ROAS (hurrah)
Again, ROAS is a common metric used everywhere else in ecommerce – we don’t know yet why Amazon introduced it here (ACoS is an Amazon-exclusive metric), but we suspect it’s to give you a more positive perspective on ad spend (since a high ROAS is good – and big numbers look better!).
TACoS: Why ACoS isn’t as important as you think
While your competitors are hyper-focused on ACoS, we advise you turn your attention to TACoS (that’s a fun acronym isn’t it?).
If you view PPC as your marketing budget for selling on Amazon, then it makes sense to look at all of your sales on Amazon, including organic. Since we also know that PPC can help you index for relevant keywords, which in turn helps you rank organically for those keywords, why wouldn’t you include your organic sales as you gauge performance?
ACoS only zeroes in on your ad spend measured against PPC sales made from those ads.
But TACoS gives you a holistic view of ALL your sales in relation to advertising spend.
TACoS stands for Total Advertising Cost of Sales. Yes, it’s ACoS with ‘total’ added to it, but that ‘total’ makes all the difference.
Think about it this way. ACoS tells you how much of your spend is being used towards sales that are made as a direct result of your PPC ads. In other words, ACoS is NOT taking into account your other sales made organically.
For example, out of $1000 in total sales, say only 10% were from PPC ads and 90% were made organically (as in someone searched, found your product and bought it from Amazon’s search results).
If your ACoS was a frightening 100%, it’d sound like you were making zero profits, because all of your sales revenue is also being spent on advertising!
But in this hypothetical scenario, since only 10% of all your sales are from paid ads, but 90% came from organic sales, your Total ACoS (TACoS) is really only 10%, which is quite nice!
$100 spend / $100 PPC sales = 100% ACoS
$100 spend / $100 PPC sales + $900 organic sales = 10% TACoS
TACoS is therefore a weighted average that, again, gives you a holistic view of your advertising spend in relation to all of your sales across the board.
And, lucky for you, Helium 10’s ADS (Automated Data Solution) includes this metric when you review your data.
Why a high ACoS is (painfully) necessary in the beginning
When you’re setting up your ad campaigns for a new product, PPC essentially becomes your cost of initial research.
Don’t fight it. Just accept the pain of high initial ACoS as the “protection money” you gotta shell out to do business on Amazon’s turf.
What we’re saying is: when you first start running PPC campaigns for a new product, you really don’t know what keywords will convert. Amazon will make guesses for you in Auto campaigns, but you’re basically taking a shot in the dark.
Or, you can look at it as casting a wide net into the ocean in the hopes of pulling up an abundance of fish instead of rocks and metal scrap.
Over time, you learn where the good fishing spots are, what weather conditions are best, and where to avoid fishing in the first place.
The reality is that Amazon likes sales. The more sales you make, the more they boost your listing ranking. It’s a snowball effect, but to get that snowball going you have to pay to get it on the top of the hill (aka, Top of Search).
PPC ads get eyeballs to your listing, and eventually get shoppers hitting ‘add to cart.’
This circles us back to another reason why TACoS is important: because it helps you understand how PPC boosts organic sales. While we might not be able to explicitly view the metrics on this, it stands that increased visibility (Ads) eventually leads to more searches for your specific product, which leads to organic sales. There’s more of that snowball effect.
While ACoS only explicitly measures the ad spend to sales of a given item, TACoS acknowledges that there’s a symbiotic relationship between paid sales and organic sales.
Now for a warning:
Setting too low of an ACoS goal in the beginning is also dangerous because it means you could prematurely prune out keywords too early that eventually may convert.
Basically, if your ACoS goal is too low as you begin your fishing/research, you may give up/eliminate potentially successful keywords from your PPC campaigns because they’re too expensive to bid on. Yet one more sale could mean the difference between a high to low ACoS keyword.
So again, just accept the fact that you have to start with a high or breakeven ACoS. You’ll have time to narrow down your keyword bids later once you have a better understanding of what does and doesn’t work. You can’t do that until you have enough data.
Tips for lowering your ACoS
If you’re looking for tips on how to lower your ACoS (after you’ve collected your initial data) we’ve got just the place for you!
Each week, I’ll be posting PPC tips on many subjects (including all of the above), but lowering your ACoS is always an end result.
Tip number one begins with a newer announcement on the ability to add ASIN’s as negative keywords to Auto campaigns. This is BIG news as sellers have only historically been able to target Keywords as negatives, leaving those pesky 10 digit ASIN’s behind to continue racking up spend.
Go here to view these tips and more!
Use Helium 10’s ADS tool to monitor and manage your ACoS and TACoS
To figure out your TACoS, you’d have to manually download individual reports from Seller Central’s Business Reports section AND the Advertising Console, and compare the data using your own custom spreadsheets or charts to generate TACoS data.
If that sounds like a headache, it’s because it is.
This is why ADS automatically generates your TACoS data for you, so you can monitor and adjust it yourself – all from inside the platform!
Saying TACoS so many times is like subliminal messaging, and now it’s time to hit up my favorite taco truck.
But in all seriousness, a major gap in PPC strategy for many sellers is the failure to look at TACoS as well as ACoS. Focusing only on the latter risks subjecting yourself to tunnel vision, which prevents you from seeing the big picture of your PPC campaign strategy.
So even if your eyes have already glazed over, we hope your takeaway here is that you should avoid ACoS tunnel vision and look at both your organic and paid sales in relation to ad spend, and also accept that a high ACoS in the beginning is just part of succeeding on Amazon.
Now go forth and advertise.