How TACoS Relates to Your Ad Performance

How TACoS Relates to Your Ad Performance Michael Erickson Facchin: The really unique thing on Amazon is that ad spend on a keyword, particularly sponsored products, top of search, conversions, influence organic sales, thus influence tacos. Sometimes this doesn't happen to the degree that we want, sometimes it does, sometimes it's delayed, sometimes it's immediate. What's going on, Badger Nation? Welcome to The PPC Den podcast, the world's first and longest running show all about how to make your Amazon PPC life a little bit easier and a little bit more profitable. Today, let's talk about TACoS. Specifically, TACoS, ACOS, profit, the relationship between these three things, but more importantly, the misconceptions that I see come up time and time again. And this is one of the most important things that I think anyone in the Amazon ecosystem can The PPC Den is here to help you benefit from, which is having a really good grasp on our metrics. If you make the wrong moves, and we will look at how people make the wrong moves in this very video and how you can make the right moves. So I would also say that it's not a guarantee here, meaning I see a lot of people who are skilled at business, believe they have good understanding of financial intelligence for businesses like the P&L and the balance sheet and cashflow statements. But to translate it into the Amazon world, you know, the concept of Net proceeds from sales and Amazon fees, it can really be a labyrinth. So I think if you are not careful, if you have never intentionally established a perspective on how to navigate these metrics, I think you will be in a lot of trouble. So with all that said, let's jump into it. I want to begin a couple of years ago, maybe in a pre-Amazon world. I believe I started first doing Amazon advertising in like 2015, give or take, and Pre-doing that, ROAS was king. In fact, off of Amazon, ROAS is king. What is our ad revenue over ad spend? What is our return on ad spend? ROAS, right? That is that ratio, right? So if you spend $100 on your ads and those ads generate $1,000 of revenue, what does that give you? So in this case, it would be $1,000 over $100 would give you a ROAS of $10. Fairly straightforward, right? Now, of course, as Amazon PPC got more popular, the word ACOS got more popular. However, I will say that in the world of E-commerce marketing. ROAS still reigns supreme. A lot of companies, even Amazon-focused companies, still prioritize their ROAS because it's a better indication to them just revenue from ads and ad spend from ads. As Amazon got more and more popular, obviously ACOS came into play. Add cost of sales. I would wager that because of the intense product focus on Amazon, it just made more sense, right? We look at our net profit percentage. We look at our cost of goods percentage very closely, hopefully, on Amazon. So it made sense to have this as a percentage of sales. So add cost of Ad sales, in this case. That is the story so far. These are these numbers, and hopefully as an Amazon seller, you know these numbers already. To move back and forth, to move from a ROAS to an ACOS, you know, if you want to go from ROAS to ACOS, that's one over the ROAS will give you the ACOS. If you want to go from ACOS to ROAS, that is 100 over the ACOS. So in this case, $250 of ad spend, $1,000 of revenue would give you a ROAS of four, because 1,000 divided by 250 is four. And of course, 250 over 1,000 is 25%. So this is old news. We all know how to calculate ACOS. And I also think it was interesting to be able to swap back and forth very quickly that I think is a worthwhile thing to do as an Amazon person navigating campaigns. In the sense of a 5% ACOS is a 20% ROAS, and it sort of scales just like that. So at a 50% ACOS, that's a 2x ROAS. At 100% ACOS, that's a 1 ROAS. So being over 100% ACOS means you have a less than 1 ROAS. Being at a 50% ACOS means you have a 2, and being at a 25% ACOS means you have a 4 ROAS. So hopefully all of this is standard news For you, right? We're not getting to the exciting stuff just yet. Outside of Amazon, there is a figure marketing efficiency ratio. This is total revenue from all channels divided by ad spend and it serves a very useful purpose. Function, which is my ad spend related to my total revenue. A lot of companies might have a marketing percentage-based budget and for some companies their marketing efficiency ratio includes all of their marketing spend. So not only their ad spend but also the payments that it takes to manage the ads. So their advertising person and maybe their chief marketing officer and like all their other marketing expenses go into that as well. Some companies outside of the Amazon space do use this figure, marketing efficiency ratio, which is total revenue from all channels divided by ad spend. And you can use the sum figure, the sum symbol over there to do total revenue, which is revenue from all sources divided by ad spend. This is obviously important for a whole bunch of reasons in the sense that it tells you, is your revenue getting too close to your ad spend or is your revenue getting, do you have escape velocity from your ad spend? All of this stuff fairly straightforward. It's almost like a preamble to what total ACOS is, which of course total ACOS here is the inverse of Marketing Efficiency Ratio. So I added a couple more metrics here. Ad Spend, Ad Revenue, ROAS, ACOS, Total Revenue, Marketing Efficiency Ratio, which in this case would be 30. Now, of course, Marketing Efficiency Ratio, typically that's in like ROAS terms and revenue over ads. And of course, in the Amazon perspective, we have Total ACOS, Ad Cost of Total Sales, Ad Spend, Ad Revenue, ROAS, ACOS. And then of course, Total Revenue, Marketing efficiency ratio and total ACOS. In this case, it would be a 3.3% total ACOS because we are going from $7,500 in total revenue versus $250 in ad spend. So $250 over $7,500 is just $4.3. A very low single-digit total ACOS. Again, I picked simple figures for us to visualize a lot of this. Now, this is where some of the misconceptions begin, right? Let's talk about some of these misconceptions. And I just wanted to sort of look at what this figure is. Total ACOS is your ad spend over your total revenue, which includes non-advertising revenue. Now, the really unique thing on Amazon is that ad spend on a keyword Particularly sponsored products top of search conversions influence organic sales, thus influence TACoS. Sometimes this doesn't happen to the degree that we want. Sometimes it does. Sometimes it's delayed. Sometimes it's immediate. There's a lot of Amazon nuance that happens here. In fact, when you tell a new to Amazon advertiser, even if they've spent Hundreds of thousands off of Amazon on Meta ads or Google ads and you bring them to Amazon and you begin to tell them, hey, if we get more aggressive on our advertising, organic sales might go up and then we might be in a really nice position later. That is It's very jarring to hear for them at first, but because of this phenomenon, because the way that ad spend can influence organic sales and thus influence total ACOS, total ACOS has been lumped into the arena of a PPC metric because it literally has ACOS in it. So total ACOS, ACOS is a PPC metric, so henceforth total ACOS should also be In advertising metric, I would say that in my conversations with off Amazon advertising, marketing efficiency ratio is not considered PPC metric. Could it simply be because it doesn't have the word ROAS jammed in there? So I want to clear up the first misconception, which is total ACOS is not, has never has been, A PPC metric. It is just simply not a PPC metric. There is nowhere in your advertising account where you can pick any entity, a keyword, a search term, a campaign, so on and so forth, and give yourself the most accurate total ACOS figure. It just doesn't exist. So for example here, if we look at the same scenario, 250 ad spend, 7,500 total revenue, total ACOS of 3.3%, and we have the exact same Advertising performance. So again, advertising performance, you spend $2.50 at a 25% ACOS in timeframe A, and then you do the exact same advertising spend in timeframe B, $2.50 ad spend. 25% ACOS. So it has been exactly the same, but your total ACOS goes up. It goes in the wrong direction, right? TACoS got much worse, but your PPC performance is exactly the same. It is a huge misfire to then go into your PPC campaigns and hit them with a sledgehammer, hit them with a scalpel, because PPC Metrics do not include total ACOS. Total ACOS is not a PPC metric. When you are inside engineering and working on your PPC campaigns, there is nowhere where you can see a total ACOS. It just doesn't exist. And you can have exactly the same performance in your PPC campaigns. Didn't touch a thing and total ACOS gets worse. So obviously in this scenario, what happened? How do we have the exact same amount of advertising spend? The exact same amount of advertising revenue, but our total ACOS got worse. Well, of course, it's because total revenue went down. So if your advertising revenue stayed exactly the same, guess what? This is actually an organic issue. And I will tell you that I almost never, ever have conversations with brands where their total ACOS gets worse and their first reaction is not, hey, let's go investigate organic. Let's put organic under a microscope. And in this wants to, you would want to know where did we lose these organic sales, these non advertising revenue sales, that conversation doesn't happen enough. And it really should for full Amazon growth. So I just think this is a really, really important conceptual thing. It's not difficult. Technically to understand, but it's conceptually the way that a lot of people have their automatic responses make their Amazon advertising life a little bit harder because it's almost like misattribution of results. They look at that total ACOS and they go into their PPC campaigns and they ask where the issues happened. So of course, the organic sales are missing, right? Now you can add another line item and track those organic sales, right? So we lost in this scenario. Thousands of organic sales and you can clearly see that once you track this. So I can see the total ACOS change, but it's actually a result of the Organic sales movement. So again, total ACOS is not a PPC metric. When you are looking at and tracking your total ACOS, the first reaction should never be, let me go immediately into my PPC campaigns and begin to make total ACOS based optimizations, because you don't know at that point, when you're just looking at total ACOS, if it is indeed an ad issue or an organic issue. And it's very, very important to know that before you go and plan your attack. So, I want to correct this misconception. TACoS is a PPC metric. That is a misconception. TACoS is instead a business ratio which shows the relationship between organic paid and total revenue and only evaluates two-thirds of that ratio. For a true picture, you also must calculate your organic sales, period. If you think about it, if you're trying to go and look at your keywords, keywords have multiple search terms, even Exact Match does. They appear in multiple places or multiple products, typically. And keywords have clicks, CPC, ACOS, conversion rate, revenue, so on and so forth. But does an individual keyword have a total ACOS? You know, you can look at your PPC performance, get a total ACOS, Overall, right, you can track this overall, but then when you turn around and go to your campaigns, you're operating the world of ACOS. You're operating in PPC metrics. So it's really important to, you know, sever that part where The only thing that impacts total ACOS is PPC. If total ACOS is bad, it must be a PPC issue. We first always need to track organic as well. TACoS per keyword or TACoS per product. Another really interesting thing I wanted to get into with this sort of overall misconception is that in your advertising account, if I click on product A and I buy product B, the cost for that ad is going to show up For product A, right, that's the thing that got the click. The revenue for that ad, even though they bought product B, when I'm looking at my PPC campaigns, when I'm looking at my keyword performance, That revenue will be sent back to product A, right? It is the product ad that you are advertising. So that product A that you're advertising, even though they buy product B, that revenue gets sent back in your ad campaign reports for revenue for that ad. Revenue for the product It shows up in business reports, shows up for product B. There's no section anywhere in your Amazon business reports that says, hey, how many clicks that it got when it was a product ad and how much you spent when it was a product ad versus how much actual pure revenue you obtained from it. So there's some incongruency here. And of course, we know this as Same SKU sales, other SKU sales. So just a little bit about how I've done it over the years and the way that we built it into our platform as an example. Total ACOS, ad cost divided by total revenue for that product, right? Total sales from the business reports in Seller Central for that product. Ad sales as defined by advertising reports. Again, advertising reports include product B because it's like the full impact of that product ad and approximate organic is an approximation. One thing that I found to be really important is listing same SKU sales, other SKU sales, so that you can approximate total ACOS. And I have a really extreme example. Imagine every single click for product A ended up buying product B. We actually listed that out. And in this really extreme example, the advertising would report 140,000 in sales. But imagine if all the 140,000 sales Instead of product A, the thing that they clicked on, imagine if all of those sales happened for product B. So this is like a manufacturer demo, just to illustrate that fact, worth noting. So the action item there, I would definitely, yes, you can track total ACOS at the account level. Of course, that's the easiest and most accurate. Can you track it at the per product level? Actually, yes, it does give you a good ratio of how much that specific product is generating in terms of total sales, approximate organic, Ad sales and same SKU sales from advertising. And of course, you also want to track the other SKU sales that it contributed to. Very, very helpful. And there's a lot of mess in here, right? Imagine if all of those sales for product A that they clicked on Going to product B, well, product B's total ACOS is going to look exceptional because it got a whole bunch of free advertising paid for by product A. So there's so many levels here. The thing to know is that total ACOS is not a PPC metric. Let's jump over to misconceptions two and three, shall we? Misconceptions two, total ACOS going down is good. Total ACOS going up is bad. That's a misconception. Very tied closely to this is bad, Total ACOS is a PPC problem. So here's a great scenario. Running a coupon, reduced ad revenue, TACoS goes down. I'm sorry, TACoS goes up when you run a coupon. And this has nothing to do with PPC, right? This is running a coupon and reducing your average card value because of that coupon. So it's worth knowing there. What this actually means. So this first example addresses a bad TACoS, an increase in TACoS in the wrong direction, is a PPC issue. So again, imagine if you had timeframe A, spend $250, generate $1,000. And in time B, your ad revenue actually goes down. You have a higher ACOS. You have a higher TACoS. This could be the result of a coupon. So this is potentially a couponing issue, right? So all things being equal, you might end up with less revenue for the same amount of orders. Again, it's a broader conversation. Total ACOS is not a PPC metric. It is a big ratio of organic total and Advertising spend. So it's sort of worth noting here that there's lots of things that go into a total ACOS. Now, what about total ACOS goes up, which is bad? Is it a PPC issue? This is back to the initial example that I gave where you have ad spend and ad performance exactly the same, 25% ACOS both times, but your total revenue goes down. Hence, your total ACOS goes up. And it's a result of organic sales, right? So imagine if your organic sales got cut in half, your total ACOS jumps up and you begin to go into your advertising and begin to trim. And imagine you trim it so much, you trim your ACOS down. And your organic sales are going down. So imagine if you did that and you get a better ACOS, you get a better TACoS, but you continue this sort of downward spiral. I've seen this way too many times in my career. So in this scenario, TACoS and ACOS does get better, but the business is losing market share. TACoS is lower. This is actually a really bad situation. So imagine a scenario where you spend less Your ACOS gets better as a result, so you're trimming a lot of the fat from your PPC campaigns. So, you know, we went from a 25% ACOS to a 15% ACOS, but your total revenue went down. Your organic sales went down. Your total ACOS got better. Should you celebrate? Absolutely not, because you actually lost market share. So I've seen this scenario too much, and it's worth noting that, again, a better total ACOS does not necessarily equate to a healthier, more robust business. In this scenario, we have more aggressive PPC. We have a worse total ACOS. We have a worse ACOS, but there's more sales all around. Is this good or is it bad? Let's evaluate this really quick. So in this scenario, we increased ad spend. We went from 250 to 700. We increased ad revenue as a result. Congratulations. Moved from $1,000 ad revenue to 2,500 ad revenue. Great. So as we pushed it, as we expanded our PPC campaigns, our ACOS got worse. We went from 25% ACOS to 28% ACOS. That's not great that the ACOS went up, but it's pretty great that we more than doubled our sales, that we used PPC to expand our market share. That's pretty cool. If you take a look at what happened to total revenue, And organic sales, organic sales also went up. Total revenue also went up. Now our total ACOS really went up from 3.3 to 7.3. Is this bad? Do we have a more unhealthy, less stable, less robust business? How can you tell? You know, these are just total ACOS and ACOS. You cannot go to the bank with your ACOS or total ACOS. You need, of course, profitability at the end of it. You need net proceeds. So in order to really understand this, you need to take one extra step. Which is analyzing the full performance of your PPC impact. And the way that you do that is you need to add cost of goods, Amazon fees. Now I'm sort of simplifying this process here. There's lots of fees that go into it and there's lots of other subtractions from your revenue. But the point of adding cost of goods, adding just a general bucket of fees is really valuable here. So we can get some net proceeds. So imagine you had a 30% Cost of goods and 30% fees. So in these scenarios, if I add these in and I basically subtract that from my revenue, right? So I have more cost of goods the more I sell, of course, and I have more fees the more I sell, of course. But if I take total revenue and I minus this extra expenses, Do I end up with a healthier, more robust business? Like what do my net proceeds actually do? Do I have an actual healthier business? And the answer, if I take my revenue and I minus my ad spend, I minus my cost of goods and I minus my fees, I actually have more net proceeds with a higher total ACOS. It's more than doubled from 3.3 to 7.3. I have a higher ACOS. It went from 25 to 28. I have higher TACoS. This business is much healthier. I've got a way bigger market share. I went from 7,500 total sales to 9,500 total sales. I'm getting more orders. I'll get more reviews. I started something beautiful here. I've better established myself and there's actually more profit with these hypothetical figures. So The misconception 4 is that higher TACoS means lower profit. It does not. A higher TACoS can mean more profit if you also boost organic and you get that volume in game. Now, of course, how do you know what keywords you can boost organically? The simplest answer are keywords that you have an unfair advantage for. A great place to find those unfair advantage keywords, create a single keyword campaign with a big top of search placement modifier to maximize those orders. In those scenarios, you benefit a lot by throwing ACOS to the wind. For example, to boost organic sales, you'd be better off getting 100 orders at 50% ACOS. Rather than 50 orders at a 30% ACOS as a conceptual understanding. So a really easy place to do this is to use your search query performance data. And you would just evaluate where your brand's conversion rate is better than the market's conversion rate. That is generally a good sign to chase down To get you started, now over the years, I've talked a lot about the search query performance data. I recommend that you get the checklist that is attached to almost every episode of this show in the description somewhere. So wherever you're watching, you can probably find it. Go and download our Amazon PPC checklist and look at our search query performance data. It's great. So do that. So in summary, four misconceptions and four corrections. Is Total ACOS a PPC metric? No. It is two-thirds of the PPC organic total revenue relationship. Never look at your Total ACOS without balancing it with organic and total sales and understanding what organic did. Total ACOS up is bad. Total ACOS down is good. Depends. You need full business context. Bad TACoS is a PPC problem. It can be, certainly can be. Also check your organic to be sure that it's not an organic issue. A lot of times it's both. High TACoS means less profit. It can, don't get me wrong, but it can also be profit boosting. A little bit more complicated than just high TACoS, bad. LO, TACoS, good. This episode is, of course, sponsored by AdBadger. Welcome. And I just wanted to share a couple of things that are relevant to this episode that you might be interested in. We did something in 2025. We released version 3 of our software, which was really exciting. It's really a year that I feel like AdBadger has really caught its stride, something that I'm really proud of, that we've all worked incredibly hard since 2017 building. We have total ACOS tracking. We have ACOS tracking. We have profitability tracking. So you can track your profitability actually inside AdBadger as well, which You know, it wasn't in there originally, like the early years, because I was like, oh, we're just focused on PPC metrics. But I think the day in the life of a PPC advertiser on Amazon, it's definitely helpful to take it one step further and look at how is the PPC performance influencing organic and influencing profitability. It's been requested quite a bit over the years, and I'm really happy that we banked in some extra analytics. I think in the first half of the year, we'll end up having added probably 30 40 metrics into our tool related to profitability like cost of goods and fees and such. Something that I'm really excited about. Long time coming. We've also had for a couple of years single keyword campaign building. So when you identify that keyword that you really have that unfair advantage of, creating that single keyword campaign, you just select it. Create a single keyword campaign in a couple of clicks. It's pretty cool. Bit optimization, min-max settings. So like after you create your So the keyword campaign, you know, you give it a really big bid optimization target to automate and be sure that you're maximizing your visibility up there. I'm excited as part of this sort of theme, we are adding search query performance data in 2025, and we have on-demand One-on-one coaching for software customers so they can get on the line and talk through a lot of these things with a quick call, 75 an hour, where we do some prep work and we help you walk through a lot of these problems. So you can sort of extend, you know, if you're listening to this, you're a software customer, you can take that a little bit further and talk through it with us in a one-on-one environment. Well, friends, I would like to thank you for sticking around to the end of this episode. Joined by Badger Nation out there. So when you look to the stars, and you try to connect those constellations, be sure That total ACOS is connected to the organic perspective, the paid perspective, and the profitability perspective. Once you put together this glorious combination, this glorious constellation of numbers, you will truly be a more powerful Amazon marketer. Have a good one, and I'll see you next week here on The PPC Den Podcast. Unknown Speaker: I've got my bids, some placements too. I've had bad mistakes, I've made a few. I've had my share of Thank you for watching. Keep me seated my friends And we'll keep on dancin' We are the PPC Den. We've talked about Amazon. No time for medicars, cause we've fixed the game, baby.