Amazon advertising cost is an important part of your budget. As advertising costs rise (along with FBA fees, cost of manufacturing, shipping fees, and more) there are many factors to consider when it comes to managing your ads. In this guest article, Blue Wheel Media shares insights to help you make the most of your Amazon ad dollars.
Competition on the marketplace has dramatically increased in recent years, causing your Amazon advertising costs to go up right along with it. Combined with the rising costs of goods, shipping challenges, and inventory constraints, your ACoS has likely increased.
But managing your advertising based on just one metric can be challenging and inefficient. If you measure based only on ACoS, you are viewing one piece of a very complex puzzle. Additional metrics such as TACoS and ROAS alongside ACoS can paint a fuller picture of your holistic Amazon account. (Don't worry, we'll explain all of these shortly!)
At Blue Wheel, an advanced Amazon Advertising agency, we have shifted our reporting strategy to these three different metrics when analyzing our clients’ Amazon Advertising efforts. In this article, we will be sharing the benefits and use cases of each one.
ACoS, or advertising cost of sale, tracks how much you earn from your advertising efforts. ACoS is calculated by dividing your ad spend by your ad sales.
Naturally, what ACoS reveals is how your ad spend directly resulted in sales from those ads. You want your ACoS to be as low as possible, indicating how many dollars you made for every dollar you spent on advertising.
So, with that in mind, a 100% ACoS would mean you have broken even between your spending and the resulting sales. Many brands prefer to maintain a certain ACoS, ensuring their profit margins are achieved.
ACoS is primarily used to analyze the success of individual advertising campaigns. Different campaign types will have a different target ACoS, so you wouldn’t want to necessarily lump all of your campaigns together to deliver an overall ACoS. (Unless, of course, that’s how you need to report to your manager. In that case, keep reading for our recommendation in that scenario!)
However, ACoS is limited in its reporting capabilities. It only tells one side of the complex story that is your Amazon account — the advertising side. It doesn’t take into account your total sales or the efforts you’ve put into developing your Amazon Brand Store.
Kyle Slunick, Director of Marketplace Advertising at Blue Wheel, echoes this use case.
ACoS is a great metric to use when the majority of total sales are made up of advertised sales. For example, sellers with a rotating catalog that are unable to build substantial rank and relevancy due to product rotation can benefit from using ACoS as their primary key performance indicator."
TACoS is a slight variation on ACoS (not the food that comes in a tortilla), and it gives a more complete picture of your Amazon business. ACoS solely tracks the results of your advertising efforts, but TACoS looks at your total sales — that’s where the “T” comes from!
TACoS is calculated by dividing your ad spend by your total sales, encompassing all of your advertising efforts and all of your sales, whether or not they were directly the result of your advertising.
As the name suggests, TACoS is your total advertising cost of sale — which means that it gives the full picture of your Amazon business, not just your advertising. TACoS is a great overall metric to focus on.
When you want to report on your account’s overall performance, not an individual campaign, TACoS is a great metric. In addition to your advertising efforts, it also takes into account organic search conversions. So, while you absolutely need to advertise on Amazon, there are instances where sales come from outside that — and TACoS takes that into account.
TACoS is a metric we use to measure the impact of ad spend and its reflection on total sales. Ad spend, ad conversion, willingness to spend, total conversion, and run rate all contribute to a listing’s organic rank.
TACoS is one of few metrics that functions as an indicator to maintain profitability while ensuring that the advertising strategy is still driving. Paired with other commonly used metrics, TACoS fluctuations allow us to pinpoint any changes and ensure the right levers are pulled to drive growth."
-Kyle Slunick, Director of Marketplace Advertising, Blue Wheel
ROAS is a metric commonly used in off-Amazon advertising which means return on ad spend. Essentially, ROAS is the inverse of ACoS. Rather than dividing your ad spend by your ad revenue, you divide your ad revenue by your ad spend.
ROAS details how much money you made in revenue for every dollar spent on advertising. While you want to keep ACoS low to better manage your Amazon advertising cost, a higher ROAS means more profit for your business!
You might not be used to seeing ROAS used in Amazon reporting, but it is still a viable metric to use. If you are reporting these numbers to someone who is not well-versed in Amazon but is knowledgeable in other digital advertising fields, ROAS will be a familiar metric that they will have a frame of reference for.
“With ROAS being the inverse of ACoS, the same applications apply. ROAS is a great metric to use when the majority of total sales are made up of advertised sales or when advertising efficiency is a priority to the brand,” Slunick notes.
Because ACoS and ROAS are inverse, you could show both numbers to indicate the relationship they have to each other and acquaint people who aren’t familiar with Amazon with how ACoS works in relation to a familiar metric like ROAS.
It shouldn't be a surprise that ACoS is rising — especially with the recent news of Amazon's ad revenue totaling $31 billion in 2021. So, as the Amazon advertising cost goes up, you might be wondering which metric is the magic one. The truth is, there are varying scenarios that require different metrics. Here are our recommendations:
In reality, you will likely use all three metrics in different scenarios. By monitoring each of these, you will be able to have a better, more holistic picture of your entire Amazon business — not just your advertising. From advertising campaigns to organic efforts to products that went viral on TikTok, your Amazon business is complex. Don’t limit your reporting to one metric — utilize all three!
“ACOS/ROAS and TACoS are important to use in unison,” encourages Slunick. “While priority and application may differ depending on a seller’s goal, fluctuations across these 3 KPIs can help sellers better understand the impacts of changes within an account and the right course of action to achieve future success.”
Learn more about Blue Wheel’s advanced Amazon Advertising services! Blue Wheel is offering a complimentary Amazon Advertising audit to interested eComEngine clients. If you sign a 12-month agreement with Blue Wheel, you’re eligible for one month free!
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