Understanding Amazon’s Key Ad Metrics: ROAS, ACoS & TACoS

Elise Jackson

Post details

  • AUTHOR: Elise Jackson
  • CATEGORY: Amazon Advertising
  • DATE: 04/03/2022

You’ve set up your Amazon PPC Campaigns – great! But what about analysing and reporting, do you know which are the key Amazon advertising metrics that you should be paying particular attention to? 

Amazon has, like other advertising platforms, metrics for measuring how your campaign is performing, and while most metrics are important, there are some key performance indicators to take into account – ACOS, TACOS, and ROAS metrics. 

What are they and why are they useful? Let’s dive into that now. 

What is the difference between ROAS, ACoS, TACoS?

Simply put:

ROAS = Return on ad spend, how much you receive for every £ of ad budget you spend

ACoS = Ratio of ad spend to ad revenue in % term

TACoS = total advertising cost of sale, whereby we measure the advertising spend relative to the total revenue generated

 

What is ACOS?

Amazon ACoS means ‘Advertising Cost of Sale’ and shows how much money you spend on advertising versus sales you receive for a product.

It’s essential to your Amazon PPC Advertising and is a key metric in determining the profitability of your ad campaigns.

Which metric you choose always depends on what goals you set for your PPC campaigns. 

However, If you want detailed information on how your ad campaigns are performing, and to track how much money that ad spend has generated then ACOS can help you get that specific data.

 

How to calculate your ACoS

To calculate your ACOS you need to know both of these:

  1. Advertising Spend (total cost) which is the amount you’ve spent on advertisements during a certain time period.
  2. Ad revenue which is the total sales generated from your Amazon ads during the same time period.

You divide these two amounts and then x 100. This is how it would look:

ACOS = (£100/£1000) x 100 = 10%

 

What is TACoS?

Amazon TACOS stands for the Total advertising cost of sale and considers both ad spend and cost of goods sold to provide a comprehensive view of profitability.

It’s an important metric that includes ad revenue and organic revenue and helps you understand ad spend affects your account health and how to increase your profit margins. It helps you understand the long-term in your PPC Campaigns. 

 

How to calculate your Amazon TACOS

To calculate your Amazon TACOS you need the following information: 

  1. Ad Spend (Total cost) which is the total amount you’ve spent on Amazon during a specific time period (exactly like ACOS calculation) 
  2. Total Sales (attributed and non-attributed) which includes all your sales that are directly attributed to your ad campaigns and those that are indirectly influenced by advertising efforts.

You divide these two elements and then x 100! For example,e if you spent £500 on advertising and generated £3000 in total sales during a month then it would be: 

TACOS = (£500 / £3000) x 100 = 16.6%

 

What is ROAS?

ROAS, or Return on Advertising Spend, is a crucial metric used in online advertising, including Amazon PPC campaigns. It measures the effectiveness of advertising campaigns by evaluating the revenue generated from ads compared to the cost of those ads.

Understanding the ROAS is pivotal for managing advertising budgets effectively and optimising campaigns to achieve desired goals and profitability.

ROAS is essential for assessing the profitability and success of your advertising efforts. It helps you determine if the money you spent on advertising is generating sufficient revenue. A high ROAS indicates that your ad campaigns are generating more revenue than the cost of advertising, implying a profitable investment. Conversely, a low ROAS suggests that your advertising efforts may need adjustment to improve profitability.

 

How to calculate your Amazon ROAS

To calculate ROAS, you need to know two primary figures:

  1. Revenue from Ads (Ad Revenue): The total sales generated from your Amazon ads during a specific period.
  2. Advertising Spend (Total Cost): The amount you’ve spent on advertisements during the same time period.

The formula to calculate ROAS is: ROAS = (Ad Revenue/Advertising Spend)×100

For example, if you generated £1000 in sales from your Amazon ads and spent £100 on advertising during a given period, the ROAS would be calculated as follows:

ROAS=(£1000/£100)×100=1000%

This means for every £1 spent on advertising, you generated £10 in revenue.

 

Why you should be focusing on ACoS & TACoS ahead of any other metrics

Here are a few reasons why the combination of these two Amazon PPC metrics can power up your campaign.

 

  • Effective ROI measurement

Using ACOS and TACOS helps you determine how effectively your spending translates into sales and revenue which is essential for cost control and to understanding if your campaigns are profitable.

A low ACOS could signify high profitability, which means you’re on the right track. For example, say you sell a product for £50 and your ACOS is 2%, that means you made £49 profit  But having a really high ACOS might mean something isn’t quite right, so you need to make a change.

 

  • Calculate your profitability 

TACOS takes a more comprehensive approach by considering not only ad spend but also the cost of goods sold, providing a holistic view of profitability.

A low TACOS can mean your ads are generating a higher ROI. If you get a high TACOS, ads related to your product are not performing, so you will need to review your campaign and test new bids, products, and keywords. 

 

  • You can spot trends within your campaigns 

When either is high or low, this is an indication of either something good or bad happening within your campaigns. It’s important to know what is good and bad sign and when you should switch budget, keywords and placements: 

Increase in ACOS and TACOS: This depends on what your goal is, if you launched a new product and want impressions then this isn’t a bad sign. Otherwise, if both have increased you are running at a loss and definitely want to look into what’s going wrong.

Decrease in ACOS and TACOS: This is where you jump for joy because it looks as though your organic sales are outperforming your paid sales. We recommend keep monitoring your ads still and adjusting if necessary.

Decrease in ACOS but increase in TACOS: Although this rarely happens, this indicates that your organic sales are actually decreasing (or becoming a smaller portion of your total revenue). Ultimately, this is shifting brands away from their long-term goal, which is to increase organic sales and become less dependent on paid advertising as the only driver of sales.

If TACoS is increasing: this indicates you’re investing more in ad spend, but that your organic sales are not increasing at the same rate.

If TACoS is decreasing or flat: this means that the product being advertised is generating strong or steady sales. It also suggests that organic sales are improving, which ultimately means your brand awareness is growing too!

 

  • Data-driven decisions

Using both ACOS and TACOS metrics you are able to get a clear picture of profitability and transparency around your advertising costs which can help you make data-driven decisions.

ACOS gives you insight into how much revenue is spent on ads while TACOS ensures you are accounting for all costs associated with advertising-driven sales so you make informed decisions about your advertising budget.

 

Common questions surrounding these ad metrics

How long does it take after setting live for ACoS to settle down?

This depends on the product and its position within the market. Some types of products are profitable straight away and others have to run at 100% ACoS for a few weeks to start building momentum.

 

What happens if spending and revenue are similar ie ACOS close to 100%?

This is quite common for products that are not established in the market and not converting well yet as well as in the early test & learn stages. We tend to push ads more aggressively as the main focus at this point is to grow revenue volumes. It is also common to see ACoS fluctuating a lot on a daily basis as the volumes are very low.

 

What happens if ACoS stays at 100% – surely that means the brand is running at a loss?

It is extremely rare that we run at 100% for longer than a few weeks. If this happens it means the product is a slow starter or not very successful on the platform.

For the first few weeks, depending on the product and the amount of spend, if we’re running at close to 100%, we explain to the brand that this is a testing budget that we use to discover converting keywords, and that this will come down as the product gathers more reviews and becomes more established. As the product becomes more established,, the organic revenue share should also grow which improves the TACoS and profitability across overall sales.

We view the high starting ACoS as a one-off investment to launch the product rather than a long-term cost. Usually, we try to become profitable asap while having some wiggle room to experiment and grow. 

 

Our thoughts 

While there are other important metrics – ROAS for example, which is Return on ad spend – ACOS and TACOS are key Amazon ad metrics because they offer a comprehensive view of ad campaign performance and profitability. 

Combine them and you have a power couple ready to light a fire under your reporting and strategy. Using them correctly enables you to make data-driven decisions, optimise your campaigns and maximise your ROAS. 

Need our help?

Are you looking at your campaign metrics and still wondering what it all means? We have a team of Amazon experts who make it their mission to understand the ins and outs of your business and optimise your advertising campaigns to power up your sales! Want to know more? Send us a message and give us a call.

 

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