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

ROAS stands for return on ad spend and is calculated by dividing ad revenue by ad spend.

ACoS stands for advertising cost of sale and is calculated by dividing ad spend by ad revenue, and it measures the efficiency of your advertising campaign. It is the slightly more reliable metric as if we’re for example generating sales through ads, this, of course, increases sales velocity which in turn increases positions within Amazon rankings and therefore organic.

TACoS on the other hand takes total revenue into consideration, both ad revenue and organic revenue and is the best metric to use to measure overall performance. 

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. 

Increasing vs Decreasing TACoS, what does this mean?

• 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!
• If TACoS and ACoS are both increasing: although this is not ideal, there are some situations when this makes sense. If you launch a new product, the main objective is increasing sales. Over time, TACoS should begin to decrease as organic search for the brand and product improves.
• If ACoS is decreasing while TACoS is increasing: of the four options listed, 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.

Do you need help setting up Amazon ad campaigns for your brand? Not sure where to allocate your budget? Let’s talk about how we can help take your business to the next level on the platform.