TACOS is Your Key to Unlocking Amazon Success
by Brad Hunt • April 15, 2024
I’m not talking about taco stand tacos…
In a previous article, I discussed the necessity of understanding your COGS inside and out if you plan to sell on Amazon.
Today, I’m going to explore one of the reasons for that and a very common mistake I see a lot of sellers and advertisers make as they try to navigate growth and profitability on Amazon.
What is ACOS?
Most advertisers (and even businesses) in the e-commerce industry heavily emphasize ROAS (return on ad spend). However, in Amazon, ACOS (advertising cost of sales) is typically used instead. The formula is simple enough:
Total ad spend/total ad sales = ACOS
ACOS is displayed as a percentage.
The ACOS percentage determines how much of our product’s margin is eaten up by ad spend. If your ACOS % is lower than your margin left over after your COGS, shipping, and Amazon fees, then your advertising is profitable, and you can scale.
This isn’t a terrible way to think about scaling your Amazon business. The problem is that eventually, you get to a point where either your ads are no longer profitable or you’ve exhausted the select keywords that are profitable for you.
What is TACOS?
This challenge is why TACOS (total advertising cost of sales) is generally a better way to consider how many dollars you should use and where. The formula is:
Total ad spend/total revenue = TACOS
The TACOS formula factors in all the sellers’ revenue, including organic sales revenue, so we can determine what percentage of our profit margin goes toward ad spend.
You’re probably asking yourself, “Why would I want to count my organic sales revenue with my ad spend?”
If you’re pushing a sound ad strategy then your ads will have a positive impact on your organic sales and rankings. The more sales you generate from a specific keyword, and the higher you convert that traffic, the more Amazon will want to reward your product listings by ranking them higher on the search results pages.
When we think about it in this way, you can start to strategically decide how much of the budget you should spend towards high-volume keywords that convert well, even if they aren’t necessarily profitable from an ad standpoint. This is because you’ll have the confidence that the sales you generate from those keywords will have a positive lift in your organic rankings and overall sales.
We can scale your business in many different ways if we look at the ad dollars spent as a percentage of our margins because we understand how much we can invest in advertising and maintain profitability.
Identifying all your costs is crucial when determining your TACOS. We go through this a lot with different sellers and are happy to audit your business as well to help you determine what makes the most sense for you.
Talk With Amazon Advertising Pros to Grow Your Store
If you’re an Amazon Seller (or want to be) and are looking to grow your revenue over the next 90 days without having to figure it out on your own, reach out to our Amazon marketing team! Within 30 days you’ll have an actionable, winning Amazon strategy, and within 90 days you’ll be driving results or your money back.
