by Brad Hunt April 15, 2024

TACOS is Your Key to Unlocking Amazon Success

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.

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.

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.

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! Within 30 days you’ll have an actionable, winning Amazon strategy, and within 90 days you’ll be driving results or your money back.

  • Amazon Marketing

Brad Hunt

Brad Hunt

Bradford has created and implemented marketing strategies for small start up businesses to large corporate enterprises. He currently serves as a Director of Amazon and works with our Marketing Consultants to come up with fun and innovative strategies that are designed to drive more revenue for our clients. When he’s not at his computer, you can usually find him fly fishing in the local Utah rivers during the Spring/Summer months, hunting with his buddies in the Fall and snowboarding during the Winter.

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