What Is TACoS and How Do You Keep It at a Minimum?
Sellers often find themselves stuck in the weeds, focusing on immediate metrics like ACoS (Advertising Cost of Sales), and losing sight of the bigger picture.
But here's the kicker—focusing solely on ACoS can leave you blind to how your advertising spend is affecting your overall business health.
Are you spending more on ads while your organic sales are going down? Are you truly getting the most bang for your advertising buck?
Without a broader view, you could be missing out on valuable insights, and worse, you could be putting your business's long-term sustainability at risk.
That's where TACoS comes in.
Now, what is TACos? This is your Total Advertising Cost of Sales.
It’s the big-picture metric that provides a more comprehensive understanding of your advertising efforts in relation to total sales.
In this article, we'll dig deep into what TACoS is, why it’s so crucial, and how you can keep it at a minimum for a healthier, more profitable business.
First Things First: What Is ACoS?
To grasp the essence of TACoS, one first needs to be familiar with its close relative – ACoS.
ACoS is like a magnifying glass.
It zeroes in on the direct relationship between how much you've spent on a particular ad and how much revenue that specific ad has generated.
This metric provides an immediate snapshot:
“I spent X amount on this ad, and it brought Y sales.”
Related reading: Amazon Advertising Methods and How Much You Should Spend on Them
What Is TACoS and Why Is It Important?
While ACoS is about the specifics, TACoS gives you a bird's eye view.
It isn't just concerned with sales resulting from your ads. Instead, it takes into account all your sales, be it from ads, organic searches, referrals, or any other source.
In essence, TACoS answers the question,
“Considering all my sales, what portion is being chewed up by my advertising spend?”
How Is TACoS Computed?
Now that we've established a foundational understanding, let's decode the math behind TACoS.
Here's a breakdown:
- Total Ad Spend: This represents the sum of money you've allocated to all your advertisements in a given period.
- Total Sales: This is the combined revenue from all sources during that same period, not just the sales generated by the ads.
Let's paint a picture with numbers for clarity.
Imagine you're a seller of artisanal coffee. In a given month:
- You spent $500 on various ad campaigns.
- Sales generated directly from those ads amounted to $2,000.
- But that's not all! You also made $3,000 from other channels. This could be regular customers, those who found you via organic searches, or referrals from happy customers.
Given these figures:
- Total Ad Spend = $500
- Total Sales (Ad + Non-Ad) = $2,000 (from ads) + $3,000 (other sources) = $5,000
Plugging these values into our formula:
Interpreting this result: It means for every dollar of revenue you made in that month (from all sources), you spent $0.10 on advertising. This gives you a tangible sense of how advertising expenses play into your larger financial landscape.
Related Reading: Amazon PPC Advertising Strategies and Tips
How to Keep TACoS at a Minimum
An inflated TACoS means a significant chunk of your revenue is consumed by advertising, which can strain your profit margins. Reducing TACoS can result in more sustainable growth and profitability for your business.
Let's explore some actionable strategies to keep TACoS in check.
1. Optimize Ad Campaigns
Just like a garden requires pruning for optimal growth, your ad campaigns need regular refining.
Monitoring metrics such as click-through rates (CTR), conversion rates, and return on ad spend (ROAS) will help identify the best-performing campaigns.
Platforms like Google Analytics can offer granular insights.
By investing more in high-performing ads and tweaking or halting the low performers, you ensure a better return on each advertising dollar spent.
2. Leverage Organic Marketing
While paid ads give instant visibility, organic marketing offers longevity.
Techniques like content marketing, blogging, and search engine optimization (SEO) can position your brand as an industry authority.
Engaging and shareable content not only attracts organic traffic but also improves site ranking, leading to long-term dividends without continual spending.
3. Enhance Product Listings
First impressions matter. A catchy title, detailed yet crisp descriptions, and high-quality images can make a prospective buyer stay on your product page longer.
An optimized product listing increases the chances of conversion and ensures that the money you're spending on driving traffic to the page isn't wasted.
4. Encourage Customer Reviews
Around 90% of consumers read online reviews before making a purchase decision.
By soliciting and showcasing genuine positive reviews, you're not just enhancing product credibility but also leveraging social proof.
This can lead to a higher conversion rate and thus a more favorable TACoS.
Related Reading: Modern Amazon SEO Strategies for 2023 [Amazon A9 Algorithm]
5. Diversify Marketing Channels
“Don't put all your eggs in one basket.”
Different platforms cater to different demographics. By spreading your advertising across Google Ads, Facebook, Instagram, and even newer platforms like TikTok or influencer channels, you can:
- capture a broader audience
- optimize ROI
- and reduce dependence on any single platform
6. Understand Customer Lifetime Value (CLV)
Instead of a one-off sale, think of a customer as a long-term asset. A customer who returns to purchase repeatedly offers a higher CLV.
Offering quality products, excellent customer service, and post-purchase engagement can turn a first-time buyer into a loyal patron, spreading the acquisition cost over multiple purchases.
7. Retargeting Campaigns
A majority of first-time visitors to your store may not purchase.
However, with retargeting campaigns, you can re-engage these visitors by showing them personalized ads based on their browsing behavior.
These campaigns often result in higher conversion rates as they target individuals already familiar with your products.
8. Offer Bundled Products
A strategy employed by giants like McDonald's with their meal combos, bundling increases the average transaction value.
Offering complementary products together at a discounted rate can entice customers to spend more, ensuring higher sales without proportionally increasing advertising costs.
9. Seasonal & Event-based Advertising
Aligning campaigns with events like Black Friday, Christmas, or even niche events like National Pet Day for pet-related products can yield significant results.
Consumers are already in a shopping mood, and targeting this sentiment can result in better conversion rates.
10. Foster Loyalty Programs
Rewarding customers for repeated purchases or referrals encourages brand loyalty.
Programs offering points for purchases or discounts for referrals can not only boost sales but also transform customers into brand ambassadors, promoting organic growth.
Related Reading: Four Lesser-Known (and Cheap) Amazon Advertising Methods
11. Continual Learning & Upgrades
With the digital landscape evolving rapidly, staying updated is crucial.
Regularly attending webinars, courses, or workshops can expose you to newer advertising strategies or tools, enabling you to achieve more with your advertising spend.
12. Analyze & Adapt
Data is your best friend. Using tools like Google Analytics or proprietary e-commerce analytics, regularly assess your sales trends, traffic sources, and conversion bottlenecks.
This continuous feedback loop allows for timely adjustments, ensuring that your advertising strategy remains optimized.
Wrapping Up
While it’s essential to gain immediate returns on ad spends, a business's long-term sustainability hinges on understanding and optimizing its broader financial landscape. By keeping a keen eye on TACoS and implementing strategies to maintain its balance, sellers can ensure they're not just driving sales but building a robust, sustainable business model.
With the combined insights from both ACoS and TACoS, e-commerce sellers are better equipped to navigate the ever-evolving marketplace. This ensures they get the best bang for their buck while laying down strong foundations for lasting success.
