Tacos are well known to every fan of Mexican cuisine, but why do I mention it? Rest assured, I have not re-branded myself as a food blogger. Today I wrote a few words about ACOS and TACOS indicators in marketing, often used by advertisers on Amazon, measuring the effectiveness of e-commerce ads. Want to learn more about performance indicators? Check out my previous articles on KPIS and be sure to sign up for the newsletter!
What is TACOS?
TACOS in marketing is simply Total Advertising Cost of Sale. This compares the money spent on advertising with the company’s revenue, so the indicator helps create short- and long-term marketing strategies. This is a broader view than analyzing ROAS or ACOS (Advertising Cost of Sales) because it measures the ratio between advertising expenditures (across all advertising channels) and total sales revenue. Here you are taking into account both sales from advertising and from organic traffic from a search engine or sales in a stationary store.
How to calculate TACOS?
Calculating TACOS is not difficult, in fact, quite intuitive. Simply divide total advertising expenses by sales revenue and multiply times 100%. Of course, as a rule, the determinant of an effective strategy is the lowest possible TACOS.
ACOS versus TACOS – what are the differences?
ACOS is a less capacious indicator than TACOS: only revenue that comes from advertising is considered here, so it is ideal for measuring the effectiveness of an advertising campaign. It is calculated analogously to TACOS, except that you divide the advertising expense by the revenue from sales derived from advertising and multiply times 100%. Many people ignore TACOS and use only ACOS, but in my opinion it is worthwhile, at least once in a while, to reach for broader data. Some brands have already gained such recognition that they do not rely mainly on ads, but sell a lot through organic traffic, so a comprehensive approach is important.
How to analyze ACOS and TACOS?
In the simplest terms, we want ACOS and TACOS to go down, because the goal is to spend as little as possible on advertising with as many sales as possible. However, if, for example, after the introduction of a new product or changes in the campaign, the numbers increase, there is still no reason to panic, it is worth waiting at least two weeks and only then make further changes.
When analyzing TACOS in marketing, it is worth considering at least a few scenarios:
- Growing TACOS – Organic sales are declining or not growing as fast as ad spending, e.g., if you increase budgets in PPC campaigns during a hot period. It is worth considering here, for example, optimizing the site for SEO.
- Declining or steady TACOS – that’s what advertisers are aiming for. It means that sales and brand awareness are increasing, and your budget is being used to the maximum.
- TACOS goes up, ACOS goes down – organic sales don’t bring your company many conversions and you rely on ads.
- TACOS and ACOS are increasing – this can happen if, for example, you are introducing a new product, but in the long run it is undesirable.
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How to use TACOS in marketing?
If time is passing and your TACOS is not dropping, it’s a sign that your marketing strategy could use some changes. You can introduce them in at least 3 ways:
- Advertising spending decreases while sales increase or at least stay the same – it’s worth using exclusionary keywords, for example, so as not to waste the advertising budget.
- Advertising spending remains unchanged, but total sales increase – for example, by allocating more of the budget to targets that yield better results.
- Ad spending is higher, but sales grow faster – for example, you can increase budgets in well-optimized campaigns geared toward products that generate the most conversions.
The fact that TACOS is not always falling is not always a cause for concern – in mature brands, keeping it steady is even desirable. If the indicator remains very low all the time – it may mean that you are being too cautious with your advertising spending and losing the chance to sell on a larger scale.
TACOS is mainly useful for determining net profit margins and total advertising profitability, to see how much product sales are dependent on advertising and how much users are searching for them themselves, and to better analyze your store’s sales cycles.
Do you need a specialist to take care of your online store comprehensively, instead of analyzing just one indicator? Contact me – I do not only Google Ads, but also e-commerce consulting.
