The Product-Level TACoS Flaw: How "Other SKU Sales" Are Ruining Your Math

The Product-Level TACoS Flaw: How "Other SKU Sales" Are Ruining Your Math Speaker 1: What's going on, Vagination? Welcome to The PPC Den podcast, the world's first and longest running show all about how to make your Amazon advertising life A little bit easier and a little bit more profitable. Let's jump into it, my friends. Today, I got Total ACoS up on screen and it's surrounded by skulls. I've got a lot to say about this metric. Today, specifically, we're going to be talking about what is wrong with the hyper-prioritization of this metric in the Amazon marketing world. Let's jump into it. By the end of this presentation, we're going to talk about why Total ACoS isn't the dream you think it is, what to do about it to help improve your Amazon PPC, and a bonus here, how to find out which of your products in your catalog have a high percentage of other SKU sales. So let's talk about that. So why this talk? PPC goals on Amazon have evolved over time to a great deal. And I host a weekly Amazon PPC Mastermind. And I sent this big survey out to everyone on it. And the goal, what you had to do in the survey was rank the topics from most important to least important. So what we're looking at here on the right side of the screen is the mean, the average of those ranked things. And you can see that leading by a mile is goal-setting, business strategy, marketing strategy, union. And then actually separate on this list right next to it, SKU-based profit analytics, revenue fees, ad spend, tacos. Profit, et cetera. So these are the two most valuable pieces of Amazon PPC. So spending more time thinking about your goals, defining them, refining them, making sure they are exactly what you want them to be, where you want them to be is really important. And I would imagine that a lot of people out there have talked to people who have Total ACoS as that king metric. And I would say this definitely has evolved over time because It was really simple in the past. When I first got into Amazon PPC, maybe in 2012-ish, it was really simple. It was really easy to hit a total target ACoS. It was really easy to hit your ROAS. Competition was really soft. Almost all the bids were like a dollar or less. It was a beautiful time. It was really easy to set goals. And because Google Ads was the king at that time, If you look at total ad spend, Google Ads still spends more, mostly because every business in the world can use Google Ads, whereas Amazon Ads is just for... Companies on Amazon. That being said, the carryover from Google Ads, which is like, I have a target ROAS. You just go to Amazon and now you have a target ACoS. It's the same thing, just inverted. Really simple. Over time, Amazon is very product focused, right? So e-commerce is driven by the P&L. And there's a lot of good about that. And because of that, profitability often gets brought up when talking about PPC. Of course it does. That's not bad. Total ACoS also gets brought up as a PPC goal a lot, which is actually an evolving role, right? It's fundamentally a different metric than just pure ROAS. Now, what does this actually mean? The thing is, Total ACoS is a really tough PPC goal. So Total ACoS has a metric Total ACoS is a great metric. We'll talk about that. But Total ACoS as a PPC goal is actually something that I consider broken in the Amazon PPC world. The first reason it's broken, this is the least important one, is who called it tacos? The term Total ACoS suggests somehow the T is near the ad cost, like the ad cost is being totaled. In reality, we're totaling the sales. So semantically, my friends, it should always have been ACoTS, TACO should stand for Target ACoS. ACOTS should be Add Cost of Total Sales, which is why I always get a little peeved on this. I get a little peeved on here. I always have to mention this. ACOTS. I've been talking about ACOTS since 2017. I actually did like a deep research here. I was like, who's the first person who called it? Tacos? Looks like friends from Tacometrix, Celex, and Helium 10 pioneered that. Well, friends, you're in Badger Nation. We're calling it ACOTS. Moving on, let's take a quick little demo here. The first breaking point of tacos is that lower does not mean more profit. Lower doesn't mean more profit. If you take a look at this, January, 15 grand, 100 grand in total revenue, 15,000, whoa, Let's slow down here. Ad spend $15,000, total revenue $100,000. That's a tacos of 15%. If we move to February, you have a lower tacos. You dropped $5,000 of ad spend. You generated $20,000 less of revenue and now you have a lower tacos. Are you more profitable? No. If we take a look at net revenue after ads, you move from $85,000 to $70,000. If you have a 12% profit margin in both cases, you're looking at $10,000 of profit in January and $8,400 in profit in February. This is actually way more common than I think people believe, where when there's a hyper focus on Total ACoS, this can happen. Very much so. And in fact, when this happens, part of the discussion is always PPC, PPC, what did PPC do? My Total ACoS is too high. Let me go fix PPC. My Total ACoS is too high. Let me go fix PPC. Like that is the way that Total ACoS is used. And I actually think it's the wrong way to use it. The point is, Total ACoS is not a PPC metric. Total ACoS is very much a multi-pronged metric that involves organic, your paid sales, and your non-paid sales. So when we look at something like this, you can actually see that the culprit here, even if the ACoS gets more efficient, right? You move from 15 grand of ad spend with 50 grand of PPC sales, And you improved the efficiency of the PPC perfectly, like you couldn't ask for a better thing. And you moved to 10 grand PPC spend, 48 grand PPC sales. So you sacrificed 2 grand of PPC sales and you're saving 5 grand of PPC ad spend. Your ACoS improved incredibly from 30% to 20%. However, your organic sales fell, and as a result, you have less revenue, you have less profit. This actually happens a ton. So it's actually really interesting about this scenario, which I believe happens a lot because I think there's a hyper-focus on PPC and an under-optimization on organic in the context of Total ACoS. This actually happens more often than I think the industry talks about. And in fact, if I was a PPC manager in January, and they're like, hey, our total ACoS is 15%, we got to get it under 13. It's like, okay. The moves to make would be to go in and trim some fat, make the PPC more efficient, like try to, you know, boost sales volume on certain things inside your PPC account at a cost effective manner. You would do something like this. And if organic is neglected that whole time, you sort of miss the boat and like your organic sales could drop. So if I were to combine this, Total ACoS in its spirit, so like even before Amazon, there was a metric called Marketing Efficiency Ratio, MER. And that described how much you're spending relative to the total revenue on the business. This comes up a lot, like if I have a Shopify store, That does $100,000 a month in sales. People might say, well, what is my total advertising budget I should have? 10% is a healthy number that will work globally with the business metrics. So then that 10% number would go to the paid media manager, the PPC manager, and they would say, hey, take this $10,000, go make the most out of it, right? So it was used as sort of a budgeting metric, and then you can modify and tweak it. You could say, Hey, every single month, let's pace at 10% of total sales. So you'd have these weekly checks to track how much the total business is doing relative to your ad spend. And you would use this as a dial to ensure that we're always landing where we want to land. So it was like a budgeting metric in spirit. When it comes to using it purely as a PPC metric, it gets broken. Because like I said, if you're using it to fix PPC to get more profitable, It is, I believe that's an incompatible indicator, right? Like you can't necessarily use that. Now, truthfully, the easiest way to improve your ACoS is to just turn off your ads, cut your ad spend in half, right? You would do it immediately. You would, the very next day, have a fixed, perfect total ACoS. Now, when you say something like that, it's like, oh, wait a second, like that's not actually the goal. The goal is actually, let's boost bottom line profitability. And when you talk about boosting bottom line profitability, then you can look at every item on the P&L and then decide where do we want to tweak these. The PPC Den is all about parameters. The parameters that should and could get discussed is, of course, PPC efficiency, as well as organic efficiency. And then every other metric there is zoomed out. Pricing optimization, conversion rate optimization, product market fit optimization, fixing our production and getting better, more favorable cost of goods. So, the real thing is, if you go into an account and you begin to trim because your total ACoS is too high and trim because your total ACoS is too high, and you're hyper-focused on PPC, you will end up with sort of this death spiral, right? So, you cut it, your total ACoS goes down, your organic sales go down, so on and so forth. And then you're back in a spot where you need to push Your PPC spend similar to a launch, right? You launch a product on day one, your Total ACoS is infinite. You know, you haven't gotten any sales just yet. And then eventually it levels out. Lower Total ACoS doesn't necessarily equal more profitability. The next thing I believe is the biggest point in this conversation, which is Total ACoS is on a per product basis. It's really difficult. I think it's broken. And I don't think people realize this. So let me talk about this. This is a typical thing, right? We all know these definitions, total sales, organic sales, paid sales, ad spend, ACoS, Total ACoS. We know these metrics. I've got a little example here with tiny numbers, right? Okay. Now, if we were to define these, I think we could all define these mostly good, right? Ad spend. How much do you spend on ads that involve that product as a product ad? This is simple, right? Product A, you go into your advertising report. How much did I spend on product A? Easy? Easy so far. Don't worry, it's going to get hard. Total sales for that product would be the amount that that product sold in business reports combined on all traffic sources. Pretty simple, pretty straightforward so far. We know the total sales for a product. That's a known thing. We know the ad spend for a product. That's a known thing as well. We know how to calculate total ACoS, the ratio of how much you spent on that ad versus total sales, right? We're good so far. Don't worry. It's going to get hard in a second. Paid sales. When you look at your advertising account and you look at keywords and you look at search terms and you look at campaigns, what are you actually looking at? And even if you look at your product ads, what are you actually looking at? What you are looking at is paid sales for a product ad or a keyword, not the product itself. Paid sales is the amount of sales that were generated from every SKU in your catalog as a result of this product ad. So when I, you know, If I don't do anything in my account, if I have a single product campaign and I get sales for that, some of the revenue listed near that campaign, listed near the keywords for that campaign, listed in the search terms for that campaign, listed in the product ad for that campaign is an aggregate of every single product in my catalog that got that sale. It could be zero, meaning literally you could have a campaign, a product ad that only generates Other SKU Sales in your catalog. That is possible. So paid sales, when you look at your advertising account and you look at your keywords and you look at your campaigns, the revenue there is for every single product in your catalog, not the thing that got the click. You can look at this. This is true for every ad type. Sales is the total value of products sold to shoppers attributed to your ads. Attribution depends on campaign type. Sales may include, they do include, products not featured in the ad. Sales may be higher than gross sales. That's another thing. But the ad sales for a campaign, for a product ad, for a keyword include every single thing in your catalog. And then life gets really tricky. Life gets really tricky in just a second. Meaning, if you look at the organic sales, so that's basically the way that this is typically done. Total sales minus paid sales equals organic sales. However, organic is really defined as revenue generated from ads that generated sales, organic sales, repeat purchases, off Amazon traffic, as well as the other SKU sales from other campaigns. Meaning, if I'm advertising product A in a product A campaign and it generates $1,000 of sales for product B, That $1,000 of product sales, that accrued cost in product A is going to product B, lowering product B's Total ACoS, increasing product A's Total ACoS. And you can verify this. Go into Sponsored Ads Reports, go download a Sponsored Products Purchased Product Report, and then you can actually see this. You can see how much the product ad generated as well as Today, we're going to talk about 7-Day Advertised SKU Sales and Other SKU Sales, meaning you will see situations where I have a product, I spent $2,000 on it, it generated $4,800, that's an ACoS of 49%, but when I look over here, the same SKU sales is $3,100, the other SKU sales is $1,750, And in some cases, it'll generate almost the same as the other SKU sales and same SKU sales. Here, it's $1,100 in same SKU sales, $1,100 in other SKU sales. So basically, this $1,100 is going towards other things. It's reducing the Total ACoS of all these other products and increasing the Total ACoS of the product that got the click, which is a huge deal, right? Because there are advertising campaigns that are contributing heavily to other SKU sales. But when you look at Total ACoS for that product, it looks bad, but it's not taking into account the fact that it's lowering the Total ACoS of other products and artificially increasing the way that we calculate Total ACoS for the product A. So in that example, that's from a real account. It actually had these numbers, did 155,000 over the course of a month. Same SKU sales was 108, 47,000 was other SKU sales, meaning 30% of the sales are being pushed out to other SKUs in the catalog. That means 47,000 of revenue, that's lowering the total ACoS elsewhere, but is actually accruing costs for a product that is hurting the total ACoS of that product. So it's sort of a misinformed metric on a per product basis. Product A accrues cost without Total ACoS sales. Product B gets this, and we count this typically as organic revenue because there's no other way to do it. You can actually see this in your ad account. Once you download that report, you can run a pivot table and see the products that generate a lot of same SKU sales versus other SKU sales, and you can sort of see that combined thing. So you can basically say, if I'm advertising this product, I have all these other products that generated sales. Which product do I have in my catalog that generates more other SKU sales than same SKU sales? It's worth knowing. So this sort of halo effect that lifts all of the products is really important to know about. So the big thing here with Total ACoS is if you make it a really hard and fast rule in your PPC campaigns, it's going to be really tough. So basically, If you're optimized around a Total ACoS, if you're optimized around a Total ACoS, always, anytime you evaluate performance, you have to factor in organic as well. You have to. You have to know if your organic sales have changed over a particular timeframe to truly know if it's a PPC issue or it's an organic issue. You have to, have to factor that in. So, recommended approach here. Number one, begin thinking more full funnel, meaning maintain organic visibility versus PPC visibility, rank tracking, organic rank tracking. Everyone doing Amazon needs to do organic rank tracking of some sort because you need to know when things shift. Was it a result of organic rank changes? So this is a screencap from AdBadger. We have an organic rank tracker so that you can type in your products, your competitor products. You can get a good pulse on the industry, and then you can just simply see what the positions are for all of these keywords that are driving organic sales. You need to know when those things shift so that when you run your Total ACoS analysis, you are able to say, did I lose a lot of important organic ranking, which probably hurt my organic sales. The next thing you'll want to do is, of course, use your search query performance. This is another screencap inside AdBadger. You want to know, did my total share of sales for something change? You want to know if it was like a market search volume change. You want to know if there were just fewer conversions all around. You'd want to know your share of sales for all of this. So if you're putting pedal to the metal, you're increasing Total ACoS, you would want to know if you are in the right position, gaining market share or losing market share. So search query performance or search trends, as I like to call it, is super duper valuable. The next thing too, You want to track changes, not just in your ACoS, but your total revenue and your organic sales. This is another screencap inside Ad Badger, because this is the way that I think one needs to do this. So basically you track your change in ACoS, you track your change in total revenue, you track your change in total ACoS, you track your change. And then even inside here, we call it approximate organic because it's not true to call it organic click-based sales. It's just non-paid sales from the product ad. So, there's some layers here. So, looking at the changes here will help you ensure, was it an organic issue or a paid issue? Where should I be focusing my attention? You'll also want Total ACoS byproduct with Same SKU and Other SKUs highlighted. So, we have that here. We're able to see Same SKU Sales, Other SKU Sales. That way, when we're running our analysis, we have the total ACoS on the account level where it's most accurate. And then we also have total ACoS on a per product basis. And then as you're evaluating that, you can see approximate organic, same SKU sales, other SKU sales, and compare how these things change over time. So the lesson here is that you need to track your full profitability. You need to track your organic sales. You need to see how all these things are trending together to know to prevent yourself from making a PPC change That was actually misinformed because organic sales changed or you're dampening something that actually does have a ton of other SKU sales. So that, my friends, is the way to approach this. Now, on a day-to-day basis, we just looked at a bunch of data that you should be tracking. On the day-to-day basis, there's some things that you can do. You can basically say, hey, look at my total ACoS on this product. Go look at your PPC campaigns. See what the ACoS is for those products. And if it's good, you're good. If it ain't broke, don't fix it. Reality B might be something like your ACoS is too high. I'm sorry, your ACoS is 30%, your Tacos is 15%. So you need to reduce your target ACoS in your campaigns and be mindful of any downward organic spiral. So you need to track this, right? So if your total ACoS for the product is too high, you can look at it, you can assess it in the ways that we just looked at, and then you could begin to make some changes, maybe target a 25% ACoS for that campaign. We're going to talk a little bit about PPC, which will improve the efficiency, reducing the cost portion of that. And then you track organic presence, your total sales, your market share along the way. So that's really, really, really, really important to do. Another thing to do is do it old school, have a total ACoS at the account level, and then let the PPC manager optimize ad spend. Then you track your P&L. You can dig into your P&L to sort of pinpoint refinements. Where the PPC manager attempts to influence organic revenue as well as profit. So there's tweaking titles and images and trying to improve click-through rate and conversion rate and thinking of keyword research for the product page. Another thing too is you can continue to use it, but just always keep it in context. Always look at the organic sales for a product. Always track same SKU, other SKU sales, look at organic ranking. It'll be way better than potentially misfiring where you're We're going to talk about optimizing PPC for Total ACoS, but then potentially missing a whole bunch of things. Another way to do it is to combine Total ACoS by parent-child family. So if you were to run that report that we talked about earlier, download a purchase product report, run a pivot table to see advertised product versus purchase product. You can add another column there for parent, child, family groupings. And what you may find is that, oh, when I do Total ACoS by product, family, it's actually a lot more accurate, meaning a lot of those other SKU sales are for the same variation, which is helpful. But having that data to prove yourself, to prove that hypothesis true or not, it's an important part of the puzzle. Well, my friends, That's a 2026 update on Total ACoS. I hope this evolves the way that we do PPC. I would say if we incorporate those elements of understanding the place of Total ACoS, understanding the accuracy of Total ACoS, factoring in and evaluating other SKU sales, factoring in organic ranking into the conversation, I believe that you can use Total ACoS in a way that actually drives profitability, On the account as well as profitability on the organic non-paid and paid sales side. My friends, thank you so much for listening. I love this topic. Let me know your thoughts. Have a good one and I'll see you next week here on The PPC Den Podcast. Unknown Speaker: I've made mistakes. I've made a few. I've had my share of rocky ones. But I've gone through. We are The PPC Den, my friends. And we'll keep on going easy. We are the PPC Den. We talk about Amazon. No time for medicars, cause we fix the gambit of the world.