Amazon’s Pay-Per-Click (PPC) Advertising is a unique feature of the platform that allows sellers to easily track and target their customer base as well as analyze and enhance their product sales in a low-cost fashion. Anything from launching new products to competing for space in critical keywords search results, Amazon PPC Advertising can bring you the discoverability, traffic and sales you need in a way that surpasses organic advertising capabilities. In order to understand the effectivity and profitability of your PPC campaigns, it is highly recommended that you take advantage of the ACoS, TACoS and ROAS metrics. These tools can guide you in determining which advertising campaigns you should invest in and which you should consider withdrawing from. In this blog, Black Caiman Media will break down what the acronyms ACoS, TACoS and ROAS mean, as well as detail how they work and they benefits they can provide to your Amazon business.
Amazon Advertising Cost of Sales (ACoS) is the metric that shows you the ratio between the revenue you’re generating from PPC ads versus the money you’re investing on PPC ads. ACoS is a critical metric to understand as a way to measure the profitability of your advertising campaigns. The formula used to calculate ACoS is found by taking your Ad Spend and dividing it by your Number of Sales (Ad Spend/Sales From Ads). For example, if you invested $200 on PPC ads for one of your products and ended up bringing in $600 in sales from those PPC ads, then your ACoS for that given product would be $200 (Ad Spend) divided by $600 (Sales From Ads) to equal 25%. Generally speaking, the lower your ACoS is the better, as a lower ACoS score means that you’re generating more money than you are spending on your PPC advertising.
Amazon Total Advertising Cost of Sales (TACoS) is a similar metric to ACoS, however, the key difference lies in the “T”, or “Total”. TACoS accounts for all sales of a product rather than just those generated by PPC advertisements, which is what ACoS tells you. Unlike ACos, TACoS takes into account the total revenue generated by not only the PPC ads, but also sales generated from other avenues such as organic sales. The formula used to calculate TACoS is found by taking your Ad Spend and dividing it by the Total Sales. For example, if you spent $100 on PPC ads for one of your products and in turn gained $1,000 in total sales on that product, which includes revenue from other avenues as well as PPC ads, then your TACoS on this product would be $100 (Ad Spend) divided by $1,000 (Total Sales) to equal 10%. Overall, the TACoS gives you a broader picture of how your product’s sales are doing overall in contrast to what you’ve invested into PPC ads.
Amazon Return On Ad Spend (ROAS) is a prominent metric within e-commerce that works similarly to the ROI in so that it tells you exactly how much of a return your advertising campaign is providing. The ROAS metric works in similarly to the ACoS, but in reverse. While the ACoS metric is used to measure advertising costs/profitability, the ROAS metric measures the return/profitability on your advertising costs. The formula used to calculate ROAS is found by taking the Ad Sales and dividing it by your Ad Spend. For example, if you spent $100 on PPC ads and sold $500 worth of product, then your ROAS for that given product would be $500 (Ad Sales) divided by the $100 (Ad Spend) to equal 80%.
All of the Amazon metrics are beneficial and should be leveraged as analytical tools to find profitability of PPC advertising within your Amazon business. You should use whichever of these metrics you are most comfortable with, because at the end of the day they all reveal the same information — they all tell the same story, in different ways. Regardless of your preference for ACoS, TACoS or ROAS and the goals you target for them, the general idea should always be to aim at generating more organic sales. If you’re interested in further improving your Amazon business with proven strategies from a reputable agency, contact Black Caiman Media today. We are Amazon Experts and your turn-key solution to your Amazon business, specializing in launching new brands, growing existing ones, SEO, advertising and consulting services and much more. Reach out to us today on the Black Caiman Media website! We look forward to hearing from you.