Is ACOS a Vanity Metric? How to Use TACOS for Individual SKU Profitability

Your ACOS is great, but your overall profitability is still suffering. Here’s what’s happening: You might be hyper-focused on ACOS without considering the bigger picture of your business.

This is a common mistake that Amazon sellers make, especially when they’re trying to scale their advertising. Chasing a low ACOS can sometimes lead to missed opportunities and lower overall profits.

In this article, we’ll show you how to use TACOS (Total Advertising Cost of Sale) at the SKU level to get a more accurate understanding of your advertising effectiveness and overall profitability. Let’s dive in.

Why ACOS Alone Doesn’t Tell the Whole Story

ACOS (Advertising Cost of Sale) is a key metric, showing you the percentage of ad spend it takes to generate a sale. If your ACOS is 25%, that means you’re spending $25 in ads for every $100 in ad revenue.

However, ACOS only considers advertised sales. It doesn’t account for organic sales driven by your advertising efforts. Most sellers don’t realize that their PPC campaigns can significantly impact their organic ranking and overall sales volume.

Here’s why that matters: Let’s say you have an ACOS of 20% on a particular product, which seems great. But if your overall sales for that product are flat or declining, your advertising might not be as effective as you think.

Introducing TACOS: Total Advertising Cost of Sale

TACOS (Total Advertising Cost of Sale) measures your ad spend as a percentage of your total revenue, not just your ad revenue. This gives you a more holistic view of your advertising effectiveness.

The formula is simple:

TACOS = (Total Ad Spend / Total Revenue) x 100

Here’s a quick example: If you spend $1,000 on ads and generate $5,000 in total revenue (both advertised and organic), your TACOS is 20%.

TACOS helps you understand how your advertising impacts your overall business, including organic sales, brand awareness, and customer lifetime value. Most sellers focus on ACOS, but here’s the thing: TACOS gives you a better grasp of true profitability.

How to Calculate TACOS for Individual SKUs

Calculating TACOS at the SKU level provides even deeper insights into product profitability.

Here’s a step-by-step guide:

1. Gather your data: Export your Amazon sales data for a specific time period (e.g., the last 30 days). Include total revenue and units sold for each SKU.
2. Determine ad spend per SKU: Use your Amazon advertising reports to identify the ad spend attributed to each SKU. If you’re using product targeting, this is straightforward. If you’re using keyword targeting, you’ll need to estimate based on the percentage of impressions or clicks for each SKU.
3. Calculate TACOS: Use the formula above (Total Ad Spend / Total Revenue) x 100 for each SKU.
4. Analyze your results: Identify SKUs with high TACOS (e.g., above 30%) and investigate why. Are they new products that need more visibility? Are they underperforming organically?

Example:

• SKU A:
• Total Revenue: $2,000
• Ad Spend: $400
• TACOS: 20%
• SKU B:
• Total Revenue: $500
• Ad Spend: $200
• TACOS: 40%

In this example, SKU B has a much higher TACOS than SKU A, indicating that it’s less profitable from an advertising perspective.

What a High TACOS Really Means

A high TACOS doesn’t automatically mean your advertising is failing. It could indicate several things:

• New product launch: New products often have higher TACOS as you invest in building awareness and driving initial sales.
• Seasonal product: TACOS may fluctuate throughout the year for seasonal products.
• Low organic ranking: If a product has a low organic ranking, it may rely more heavily on advertising, resulting in a higher TACOS.

Here’s how to fix it: Let’s say a product is underperforming organically. You can increase your organic ranking by optimizing your product listing, improving your product reviews, and running targeted advertising campaigns.

Using TACOS to Optimize Your Amazon Advertising

TACOS provides valuable insights for optimizing your Amazon advertising strategy.

Here are some actionable steps:

• Identify underperforming SKUs: Focus on SKUs with high TACOS and low organic ranking.
• Optimize product listings: Improve your product titles, descriptions, and images to boost organic visibility.
• Run targeted campaigns: Create Sponsored Products and Sponsored Brand campaigns targeting relevant keywords and product categories.
• Monitor your results: Track your TACOS and ACOS over time to measure the effectiveness of your optimization efforts.

One of our clients saw a 15% increase in overall profitability by focusing on TACOS at the SKU level. They identified several underperforming products, optimized their listings, and ran targeted advertising campaigns.

Don’t Forget to Track TACOS Over Time

TACOS isn’t a one-time calculation. It’s a metric you should track consistently over time to monitor the effectiveness of your advertising and marketing efforts.

Here’s why that matters: By tracking TACOS over time, you can identify trends, detect problems early, and make data-driven decisions to improve your overall profitability.

TACOS is your friend when used correctly. You’ll have a clearer picture of which ad campaigns are generating true profitability for your Amazon business.

Takeaway

While ACOS is important, TACOS gives you a more complete picture of your advertising effectiveness by considering both advertised and organic sales. By calculating and tracking TACOS at the SKU level, you can identify underperforming products, optimize your listings, and improve your overall profitability on Amazon.

Ready to take your Amazon advertising to the next level? Contact AdLabs today to learn how our bid management software can help you optimize your campaigns and maximize your profits.

Key Discussion Points from the Episode

Here are some of the most valuable insights Andrew and Stephen shared during the full episode discussion:

One plus one doesn’t always equal two in Amazon. I know that goes against a lot of what we’ve said. There’s a lot of math in Amazon’s algorithm, but I do think is black and white, cut and dry, but not 100%.

Alexa, play that Amazon ads podcast. Which one would you like to hear? The best one.

OK, now playing that Amazon ads podcast. See, gentlemen are completely changing their game. After listening to that Amazon ads podcast, my ads are finally profitable.

This article is based on Episode 58 of That Amazon Ads Podcast. Subscribe for weekly Amazon PPC strategies.