Kris and Dustin discuss two very important terms when looking at Amazon pay-per-click PPC data, ACoS and TACos.
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What is Amazon ACoS?
ACoS, or advertising cost of sale, is used to measure how well your advertising campaigns on Amazon are performing. Thankfully, ACoS is an easy enough formula to calculate. ACoS is calculated like this: ACoS = (Ad Spend ÷ Sales Revenue) x 100 For example if you spend $10 to advertise Product A and the advertisement gained you a single sale of $50, then your ACoS would be calculated like this (10 ÷ 50) x 100 = 20. So your ACoS is 20%
What is Amazon TACoS?
Total ACoS, or total Amazon cost of sale, is used to measure how well your advertising campaigns on Amazon are helping you generate total revenue. Thankfully, total ACoS is an easy enough formula to calculate. Total ACoS is calculated like this: Total ACoS = (Ad Spend ÷ Total Sales Revenue) x 100 For example, if you spend $10 to advertise Product A and the advertisement gained you a single sale of $50 but you additionally sold a single organic item at $50, then your total ACoS would be calculated like this (10 ÷ 1000) x 100 = 10. So your total Acos is 10%
– Hello everybody and welcome to episode 28 of two Amazon sellers and a microphone. Kris, what’s up?
– Not much, how are you?
– I’m good. A day after election day so… a lot of wildness going on right now in the world
– Yeah it’s wild.
– But everything in the Amazon world just gonna keep on chugging along regardless. So excited about today’s topic. ’cause I think just in terms of you and I talking to sellers on a day-to-day basis, there’s a lot of concern and confusion about ACoS in general and what’s a good one and what should you be looking at, your ACoS or your total ACoS? So today we’re gonna just dive into the difference between ACoS and total ACoS also known as TACoS for your PPC campaigns. So that this to me gives me a fun to talk about Kris.
– Yeah we see this a lot with new sellers especially coming on the platform they’re like, “I wanna get like a 10% ACoS” it’s like, okay well either your product is not very good or you’re not willing to spend more money to achieve more ranking. So it’s… this term is tricky because a lot of people brag about “I have a really low ACoS” but you could be leaving sales on the table. So we’re gonna break that down on a few of these steps here for you.
– For sure. And just to get started with what ACoS and TACoS actually means, ACoS stands for Advertising Cost of Sales. So it is your Ad spend divided by the revenue generated for those Ads from those Ads. So it’s a metric that’s shown inside your campaign manager in seller central. TACoS you have to calculate yourself. Because Amazon does not report this but that includes your organic sales. So it’s your Ad spend divided by your total sales whether they were paid or organic. In reality, that’s the only metric that matters. Your PPC ACoS is just sort of awareness of how much you’re spending per to sale driven by your Ads. But that’s where people get confused and they get discouraged is they… you have to know what your goal is to know what a good ACoS is. If you want to have low Ad spend if that’s your goal, then you need a low ACoS. But that could also mean no sales or low sales. But if you’re wanting to a rank or increase your sales etcetera then a high ACoS can actually be good. It can be what you’re looking for. I think that’s really difficult for a seller to wrap their head around.
– Yeah and to that point is some people are some sellers, you know you don’t even, you don’t know what your break-even ACoS is like that’s a super, super important metric you need to know is like what is your break-even ACoS for those campaigns. And you can figure that out just by simply saying what is your profit margin on that product that is in that campaign? So if your product is not a product and it gets 40%, you make 40% margins on that. Your break-even ACoS for that campaign is 40%. So when you go into sites, when you go inside Sellozo and we ask you for your targeted ACoS, depending on where you’re at in the product cycle if you’re trying to launch and rank and achieve more sales and really try to get your ranking up, you would wanna sit your target ACoS at you either break even, or a little bit higher than your breakeven. If you’re on page one already, and you’re kind of like in maintenance mode and you’re kind of would bring back your Ads spend a little bit, then that’s where you could set your target ACoS a little bit below your profit margin. We see this all the time where sellers come in and they have a targeted ACoS and they’re like “I want my target ACoS to be 10%” While their current campaign targeted ACoS their ACoS for their campaign is like 50. So when they come in here and they put like, their target at 10 and their current ACoS is 50, it’s the first thing that tool is gonna do is just really lower the bids for everything. I mean your sales are gonna drop off. So you gotta figure out where you’re at in the in the selling circle. Are you already on page one and just looking to kind of be in maintenance mode? Or are you trying to increase your ranking and get more sales and try to use advertising for that then you’re kind of like in a launch mode and you need to be more aggressive when setting your targeted ACoS.
– Yeah, that’s a good point, Kris. And I think that the trick is is to know what stage you’re in and what your goals are. And also to know what am, what advertising is actually doing on Amazon. It’s different than other platforms. It’s different than a Facebook or Google Ads etcetera. You can generate organic sales from Ads because the more sales you drive, your product is moving up the rankings for those keywords and now you’re getting those organic sales which is why when you calculate your organic revenue into your total ACoS, you’re getting an indicator of the success of your Ads. And so when people get scared like you brought up about the ACoS if that’s all they care about, you may never expand your reach on the Amazon platform. You may just live in wherever you currently exist and not branch out. And you could be leaving a ton of money on the table. And so if you’d know that, if you say, “I’m willing to spend money on Ads, I’m willing to be unprofitable at first because I want to grow. I wanna show up on all these different keywords.” And then you start driving your organic sales. Now your, your revenues increased. Your Ad spend may not be profitable yet but you’ve now shown up all over the Amazon platform. And that’s when you said you can go into more of a maintenance mode. But before going into maintenance mode all you have to do is look at your total ACoS. Because if you’ve got a total ACoS that well within your margins, you might have room to be more aggressive. I know there’s a lot there’s lots of cases where you’ll see a PPC ACoS, ACoS that’s in campaign manager of maybe it’s 60% but your total cost is 10%. And if your margins are 40% on that product, maybe if you’re more aggressive maybe if you raise your total ACoS up to 70, 80%, you might generate you might double your sales and you’re still profitable. So I think the key to being a really successful seller on Amazon is to not get scared by the ACoS number. High ACoS can be your friends sometimes ’cause it means that you’re aggressively advertising and generating a lot of sales and that it turns into organic sales.
– And especially to your point like the high cost especially if you have a product that’s like a repeat purchase or consumable, you don’t, you don’t want to limit yourself by setting your target ACoS too low because you’re not gonna be able to reach all those other new potential customers out there. So if you have a product that people buy over and over again or they subscribe and save, you may wanna shoot for like 15 to 20% higher than your breakeven ACoS because you wanna get all those sales in there build up your subscriptions. And this can take like six to 12 months. This is not maybe more on the 12 months side. This is not like a quick two-month process. You may not be profitable on your Ads for a while, but what you’re doing is you’re slowly increasing your organic ranking. You’re getting more subscribers. And then over time, you’re gonna kind of bring back that Ad spend because you’re starting to get subscribers and your ranking is starting to increase. So it’s a long-term play and you and I was gonna see it when we talk to sellers depending on what their product is and that’s like the first thing we do. Is like sinister product predator. Let me see your product groups depending on what the product is, their goal is going to be different for each seller. So it’s all depends on the product too.
– Yeah, but I think I think just like you talked about, there is a strategy to being successful on Amazon and launching a product, and being aggressive on advertising is a part of it to get you right into it. I just, I was just talking to a seller there. It was interesting because they’re, they’ve got a good product but they don’t spend a lot of time on Amazon so of course, their images and everything are terrible. And I was telling him I said well first thing will do, we gotta make sure we clean up all these images. We gotta make sure we, your listings are on point. I was showed to his competitors and it was perfect because he was in a space where competitors were doing a terrible job also. So he could totally differentiate himself from all of his competitors with unreal pictures and really spruce up his listing. And he said well, “I don’t know if I really went advertising It’s like, what can you see? What do you see they’re doing?” And he was doing like 10 sales a month or something really well right now. And I ran Helium 10 on his main keyword and it was the top 10 sellers were doing a half a million dollars in revenue in the last 30 days. And I said well, you could get a percentage of that. And you could go in there. They’re not doing a very good job. So yes are you willing to get your product up there? And people see it next to those where you’re gonna shine and then you could maybe rank organically? I mean that’s why you can take the strategy of being aggressive with your ACoS and then have it just totally pay off in a long term. You’re gonna optimize your campaigns. If you’re using a tool like Sellozo, at some point you’re gonna get in maintenance mode, your tool is gonna optimize it. Your Ad campaigns will be profitable long-term, so you can just keep them running but you will have but you’ll be in this space on Amazon where you’re just generating so many more sales.
– And you gotta be ready for it cause it’s not like just to know a couple hundred bucks a month kind of deal. You gotta be ready to scale. And especially if you want to rank you gotta be able to put some money behind it.
– And the more competitive the category, or the higher lifetime value of the customer, for example like a consumable like you were talking about where there’s repeat sellers, your competitors are bidding more aggressively on those. They’re willing to lose. So depending on what category you’re in, it’s gonna take a bigger chunk of initial advertising investment to rank. And that’s where product selection etcetera comes into play. That’s where sellers like you and I, our initial goal is to find voids in the marketplace where we can have an easier entry into that. But no matter where you are, you’re you need to understand what it’s gonna take you to be successful on Amazon and understand that that’s not necessarily a negative but if you have that Ad budget and you can do it, it’s what you need to do. You otherwise you’re just never going to rank properly on Amazon. And that’s a hard one. It’s hard to sell that to somebody sometimes.
– I know cause there, that goal of that whole ACoS low ACoS term is so much thrown around and advertises like “I got a low ACoS” that people like think that’s what they need to focus on. But they could again to our point earlier they could be just leaving money on the table because they’re not being aggressive enough with their advertising. And if you can just do that for a period of time, your rank is gonna go up, you’re gonna get more sales, and these just come back, back for you. And then again, we’ve talked about this numerous time you’re listening. So like this is again where you gotta have a really good listing. If your listing is short titled, two images, and no bullet points you can run all the Ads you want but hang on convert as well. So like this again, your listing is definitely something you wanna focus on because this is only gonna help with your Ads as far as performance goes.
– And that’s a good point you brought up about the way this gets pitched. I mean there’s lots of tools out there. There’s lots of agencies and assistants who pitch that they’re gonna manage your campaigns for you. And the hot sale is, “Hey we’re gonna lower your ACoS and grow your sales.” And those are two pretty conflicting things. Not, not necessarily possible and advertising and tools like Sellozo, they’re misrepresented when that’s what you think they’re gonna do. The tool’s gonna do whatever your strategy is. If you’re looking to grow a good automation tool when you set high targets is actually going to increase your ACoS on purpose it’s gonna raise your bids. It’s going to show you more. That’s part of optimization is getting it out there. Yes if you wanna reign in your Ad spend, okay and you’re and you’re in a more mature part of your product life cycle. Yes the tool is going to reduce bid on poor performing keywords to get you that. But a tool, it’s just not super possible to lower your ACoS and grow sales. It’s the other way around. You grow your sales by spending on Ads and then you lower your ACoS. And really what you’re doing is you’re lowering your total ACoS. It doesn’t matter if you could actually raise your target ACoS is and your total ACoS can go down that I would consider lowering your ACoS cause that’s the actual Ad spend per unit sold. So yeah I think that that’s just critical when you’re if you’re whether, whether you are not selling yet on Amazon, and you’re looking at what it’s gonna entail or if you are currently selling on Amazon and you’re frustrated on which way you’re gonna go, you’re frustrated maybe you’re advertising too expensive and you don’t see any daylight at the end or you’re just don’t know what you should do. That’s, that’s why this is an important topic. It’s important to, to really monitor your total ACoS so you know the impact. Make you’re running Ads and you’ve got a if your target ACoS is whatever at your margins, and you’re noticing over time that your total ACoS is decreasing while your sales are going up, that’s positive. That means your Ads are having the right impact which means you can be more you can raise those targets if you want to and test out where that limit is. And so yeah that’s it’s, it’s an interesting topic. It’s tricky it’s not cut and dry. It’s not low ACoS good high ACoS bad. There’s a whole lot of gray in there and the ACoS metric is what you’re using for your strategy.
– Yeah and you touched on a little bit about total ACoS. kinda hit on that again. But what’s the difference again between total ACoS and the ACoS? What are you, what are you looking at there?
– Sure well if you go into your campaign manager, you’ll be able to see your ACoS. That’s what in Sellozo we call that your PPC ACoS just to differentiate. And that’s your Ad spend divided by the revenue directly attributed to Ads. So the revenue from people clicking on your Ads and buying. So-
– So Ads spend divided by Ad revenue.
– Exactly, exactly. And so that’s a good metric to know, but it’s a misleading metric because if you’re with the way you calculate the total ACoS, is you include all sales of that product whether they’re paid or organic. And so you take your Ad revenue. I mean your Ad spend divided by your total revenue for that product. That’s your total ACoS and that is a true number. You can tell I’m if you’re at code and the cost is 10%, then your Ad spend per unit sold is 10%. And that’s important. So that’s the metric that’s the metric that has to be long-term within your margins or you won’t be profitable. Your, your PPC ACoS long-term could be well above your margins and you could be really profitable. You just have to know. That’s another reason why a tool like Sellozo, is important cause you can quickly see that and you can quickly track that over time. How is my total ACoS doing overtime inside Amazon they don’t even report it. You don’t have your total ACoS which I’m kind of surprised by because it would make campaigns look a lot more attractive. If they reported it.
– People would love that.
– It’d be in their interest to do that but they don’t and so you need a tool to calculate that for you. And like you said at the beginning, you also really have to know your actual margins on your product so when you’re calculating your margins, make sure you’re including everything. Your cost of goods, all your FBA fees, inbound shipping, any other things that are happening with your product that again is calculated inside Sellozo. So you can see that really easily what all your fees are for the product. But those are important to know and it’s just really important to have a winning strategy when you’re gone with this and just don’t get caught up and high ACoS is bad. That’s it that’s a lot of times that’s the kiss of death for a lot of sellers. If they, they see that and they leave quickly. The other flip side of that is don’t go into a competitive Mitch with a thousand dollar Ad budget and think you’re gonna launch with that because you’re not. And so is a death is you don’t spend enough so you cut yourself off too early. You almost launched. You were so close. If you just would’ve kept going, you’d have been there. But you quit because it’s unprofitable. So you just really have to do your research to know what it’s gonna take to launch. And then what long-term is gonna be a good total ACoS for you.
– Yeah that’s a good point for some of the keywords you may target, they just are gonna be super competitive. Tons of searches, tons of competitors. You may wanna focus on like longer tail versions of that keyword. Where the competition is kind of not as high. Maybe the cost per clicks are gonna be a little bit lower. And maybe the ACoS is probably gonna be a little bit lower. So you can kind of rank that way cause if you’re selling, we always use dog brush but if you if you go after dog brush, your ACoS can be extremely high. But if you go after a dog brush for small dogs and somebody buys your product through that search term, you’re not only gonna rank for that phrase, but dog brush is also gonna get a little bit of more of a boost too because it’s in that searched term. So sometimes focusing on the longer tail keywords, you’ll get a lower ACoS because the competition is focusing on those higher search searched terms.
– Yeah that’s a good point. I think that’s actually could be a topic for a whole another podcast is what launch strategy, should you do for X, Y, Z competition level and XYZ budget levels that you have because you’re right there are ways to launch with less money in competitive categories by focusing just on a few keywords etcetera. But again whichever way you go knowing your the difference between that ACoS and your TACoS and how you can use those numbers to gauge whether or not your advertising is working in the right direction that you want is so important. And hopefully this, this helped you guys out understand that your TACoS much more important than ACoS. But ACoS is what you’re setting your targets on. So you need to understand what it represents and why high can be good. I launched products 200% ACoS target ACoS when I launch a product.
– Yeah you gotta change your mindset. Like I’m with you here because uh we’ll do demos with people and they’re like, “what’s should my targeted ACoS be?” I’m like well are you on page one or where you were, what’s your goal? I wanna rank more. I wanna increase my sales. All right let’s go to a hundred, 200% targeted ACoS. And they’re like, “Whoa, that is crazy high.” It’s like well yeah we’re trying to launch this thing, get you a bunch of clicks, get you a bunch of conversions, get a lot of traffic to the listing so that you can write more on your keywords. So you got to kind of change your mindset a little bit. It’s like where do you want? What’s your goal? And then again if you want to be profitable, you can go lower than your target or your profit margin. If you want to scale up, I would go higher than your profit margin when setting at targeted ACoS.
– Exactly, great. Great points again. I think we’ve, I think we’ve covered this pretty thoroughly here and-
– just make sure if you would like to understand this data better or have a tool to calculate that for you. Reach out to Kris and I. Go to sellozo.com and book a demo with us. We’ll walk you through how Sellozo reports this. We will look at your listing with you. We’ll look at your product. We’ll look at your campaigns. We’ll help you construct a strategy. We’ll talk about your budgets. We’ll get you going in the right direction of, of launching a product or putting it in maintenance mode whatever stage you’re in. We love doing that. We’ll love talking to you so reach out to us Kris and I will give you a 14 day free trial on the platform so you can really play around with those numbers and see the impact over that 14 days potentially of what happens with that total ACoS. Is it going down? That’s good. We’ll walk you through all that. So please go to sellozo.com book a demo with us and we’ll be talking about your campaigns right away. We’d be excited to do that.
– Yeah Also like this podcast and subscribe to this podcast. If you’re watching us on Facebook, like Sellozo, like this Sellozo page. If you’re on YouTube, subscribe to our YouTube channel. Where we’re putting out content like this all day hopefully this is helpful to you guys. And we’d love to see you in a demo soon. Kris.
– Yeah we’d love to have some people come on and ask some questions too. So if you if you do Facebook live, come on and ask a question well we’ll definitely help out.
– Absolutely. Again we’ll see you guys on the next episode. We’ll be back tomorrow. Kris have a great day.
– See ya!