You’re Probably Calculating Your Amazon Advertising ROI Wrong. Here’s Why.

If you’re like the majority of sellers on Amazon, you probably rely on ACoS (Advertising Cost of Sales) to measure the ROI from your pay-per-click ads. And with good reason. Fundamentally, ACoS is a business metric that helps sellers determine the amount of advertising dollars needed to drive advertising revenue.

ACoS is calculated as a percentage: divide Total Ad Spend by Total Ad Revenue and multiply by 100. Without ACoS, we would have no way of measuring how our ad spend impacts our advertising revenue. And that’s an incredibly important relationship! But let’s take a step back for a minute and ask ourselves a simple question: why do we advertise on Amazon?

Is it because we love advertising? Not quite! Advertising is the most powerful lever a seller can pull in order to generate sales quickly and cost effectively. Specifically, Amazon advertising enables us to drive revenue, build sales rank, and subsequently increase organic search traffic. As a result, savvy sellers recognize that investing in advertising goes beyond increasing ad revenue or achieving a low ACoS.

In short, we want to create and sustain measurable long-term growth with our ads. To realize this larger objective, we need a metric that quantifies the impact advertising has on our overall business, not just our ad sales.

TACoS is a metric unique to the Teikametrics Retail Optimization Platform, Flywheel, created in an effort to help sellers solve this issue. Let’s break it down further.

What is TACoS? How is it different than ACoS?
TACoS is your Total Advertising Cost of Sale. Unlike ACoS, it is a metric that gives sellers context for understanding how ad spend impacts their total revenue. Specifically, TACoS is a percentage calculated by dividing Ad Spend by Total Revenue and multiplying by 100.

Solely tracking ACoS fails to capture overall business performance. By contrast, TACoS considers the total revenue a business generates, including sales from paid and organic advertising. Sellers can therefore use this metric to assess the overall lift provided by their advertising efforts.

How do I use TACoS?
Tracking TACoS over time helps answer the age old question: are my ads actually working? But don’t forget ACoS just yet! Monitoring TACoS and ACoS side by side allows for sellers to measure advertising’s true impact on business performance as a whole.

For example, an ACoS that is declining over time might not always be a cause for celebration. Here’s why. Yes, advertised sales are becoming a smaller percentage of your advertising spend, which is good! However if TACoS is increasing at the same time, total sales are becoming more and more influenced by ads, and ad spend is becoming a larger factor in total revenue.

Conversely, a rising ACoS may not be as grim a scenario as you might think. Think about when you’re launching a product. You will (and should!) be paying more for advertising sales, and those ad sales are going to be a big factor in total revenue. In this case, higher net unit sales is the priority, and you can accept a rising ACoS and TACoS to achieve this goal.

How do I measure TACoS?
To calculate TACoS as seller, you need both sales and advertising data. However, merging these data sets together at the product level can get tricky quickly. Furthermore, attributing ad sales is especially challenging, given that one ad can sell more than one product. As a result, it can be quite complex for sellers to calculate, track, and manage TACoS themselves.

This is exactly why Teikametrics built TACoS into their Retail Optimization Platform, Flywheel. Flywheel uses machine learning technology to automate TACoS calculations and give sellers better context for evaluating their advertising.

Flywheel puts cutting-edge data science at your fingertips. Moreover, its interface gives you an unparalleled view of your business, from the broad to the granular, gross profit to product-level profitability metrics. You get both a revolutionary algorithm and complete visibility of gross profit, and this combination is what makes Flywheel unlike anything else on the market.

And did we mention it works? Businesses on average saw 34% growth within the first 30 days of using the product. The Teikametrics team is offering a free account audit from an Amazon expert with exclusive access to the Flywheel Retail Optimization Platform. Click here to learn more!

Author:
Robbie Hill is the Director of Content at Teikametrics. Teikametrics is the world leader at leveraging data science and machine learning automate Amazon advertising. Teikametrics helps thousands of sellers through their Flywheel Retail Optimization Platform by combining sales, product and advertising data to maximize profitability. He likes creating and working on compelling projects, learning about sellers, and understanding their passions to find the best e-commerce stories to tell.