Top 4 Tips to reduce Amazon ACoS and TACoS in 2023
The Amazon marketplace has become so competitive over the years that the best way to increase product views and boost brand recognition is through PPC (pay-per-click) ads. Amazon’s PPC allows sellers to advertise and promote their products in a way that isn’t possible through conventional means and this is where metrics like ACoS and TACoS come into play.
This is why you might have likely come across many sellers asking “Why is my ACoS so high?” or “What is a good ACoS on Amazon?”
We’ll discuss just that and more in this article, including “How to calculate TACoS”.
ACoS explained and how to calculate it
ACoS stands for Advertising Cost of Sales. It’s a metric that indicates the ratio between the revenue you generate through PPC ads and the money you invest into your PPC ad campaign. It’s one of the key metrics to help measure the profitability of your ad campaigns.
It’s easy to calculate your ACoS: just divide your total advertising cost by your total ad revenue. Multiply the result by 100.
TACoS explained and how to calculate it
TACoS is an abbreviation for Total Advertising Cost of Sales. While ACoS is used to track and measure the results and/or efforts of your ad campaigns, TACoS is simply a metric to measure total sales revenue, irrespective of whether that revenue comes from Amazon PPC advertising or organic sales.
The TACoS metric can be used to analyse:
- How ad sales affect organic sales
- Monitor the dependency on ads for specific accounts or products
- Understand overall business profitability
TACoS is a very useful metric for measuring your ad spend in comparison to the total revenue you generate, thus, allowing you to understand how your campaigns are impacting your overall revenue growth, especially organic sales.
Wondering how to calculate TACoS? That’s pretty easy too: divide the total ad spend by the total sales revenue, then multiply it by 100.
Why is my ACoS so high and how can I reduce it?
Before we can shed some light on “Why is my ACoS so high”, we should understand “What is a good ACoS on Amazon” to begin with.
To be completely frank, there is no universal number but rather a “good” ACoS depends on what your strategy is. So, there are several factors to consider here, such as the type of product you’re selling and the profit margins for that product. Let’s say you have a product which has a 50% margin – in this case, you can definitely afford a higher ACoS compared to one with, say, a 20% margin.
It’s also important to understand that ACoS is a metric which helps you optimise your Amazon ad campaigns and ensure that you are indeed getting a good return on your investment. Some sellers want to maximise sales through Amazon advertising while others want to simply maximise profits. What you focus on is what impacts the “good” ACoS you are chasing.
Now, with that said, a typically good ACoS is usually around 30% or less but this can change depending largely on your advertising strategies and goals. We’ve seen many sellers aiming for a 6-15% ACoS which is a good target. Keep in mind though: to maximise profit, your products should be priced higher than your overall advertising spend – this is the best way of generating revenue and keeping your ACoS low.
At the same time, you must strike a fine balance. On the one hand, you certainly don’t want to invest small amounts of money on advertising products which do not give you any visibility. On the other, you don’t want to overspend and see your profit margin sinking.
It’s fair to say that we have shed enough light on “What is a good ACoS on Amazon”. We’ve also addressed the nagging question “Why is my ACoS so high”, which brings us to the ways with which we can reduce it:
1. Focus on relevant keywords
When you focus on the right keywords – that is, relevant ones – it will help you attract more leads, which means you won’t have to spend as much on advertising. Did you know that even a single ad can attract lots of leads simply by you selecting the right keywords? But how do we find the right ad keywords to begin with?
If you’ve ever done this for SEO purposes, then you already know that Amazon’s internal keyword research and optimisation works a little differently. Therefore, an Amazon-specific keyword research tool is what you want to use although consulting an Amazon agency is the quickest way to find the relevant keywords.
Once you’ve zeroed-in on the relevant keywords, you can integrate them into your listing. One thing to note though is that unlike regular SEO, you don’t need to repeat your keyword multiple times. Once is enough.
2. Optimise page content focusing on conversion rates
When you manage to successfully drive leads to your page, you must supply them with information that’s relevant to the selected keywords. For example, if someone searches for “black sports jersey”, then your listing should have information that’s relevant to black sports jerseys.
Amazon will use your product information to determine search relevancy. If this information isn’t relevant to the product someone is searching, you’re not going to earn that many conversions. Amazon’s end goal is to connect the right people with the right (relevant) listings, so that they can convert into buyers.
Before posting your sponsored products on Amazon, you need to make sure that the product information is relevant and helpful to your target audience. Now, whether that’s in the form of a product guarantee or special feature, you need to provide the kind of information that convinces prospects to choose your product/business over others.
The more relevant the information is in your listings, the more traffic you will drive to your product detail page and keep users engaged. At the end of the day, if your product is relevant to their needs and comes at a competitive price point, you’ll be able to acquire lots of conversions.
3. Optimise titles
Your product title is one of the first things someone sees when they find you through the sponsored product listing. To attract relevant leads, you need to optimise your title; that is, it needs to have your target keyword and the right information in regards to that keyword.
Let’s revisit the black sports jersey example. If someone is looking to find a sports jersey on Amazon, a black one to be specific, what kind of ‘relevant’ information do they expect to find in the title?
Information about the sizes available, the choice of patterns (if any) or the main material, would all be considered ‘relevant information’, and when this pops up in search results, people are more likely to visit your product page – as opposed to another page which is selling the same product but doesn’t have the relevant information.
4. Choose the right bid amount
Many Amazon sellers either bid too high or too low but if you want to lower you ACoS and get the most from your advertising spend, then you need to choose the correct ad bidding amount. An Amazon marketing and advertising agency can help with this but here’s a formula to set you off on the right foot:
Average order value x conversion rate /1/target ACoS
Does that appear confusing? It isn’t. You just multiply your average order value with conversion rate, and then divide that by 1 – you will then divide that value with your target ACoS.
This will give you your estimated bid amount and help you stay on track as far as choosing the right bid amount goes.
Why is my TACoS high and how do I reduce it?
Let’s kick things off by explaining what’s considered a “good” TACoS.
As with ACoS, a good TACoS percentage is subjective, really, because it depends on what you want to accomplish. Still, it’s best to aim for a lower TACoS percentage, just like with ACoS. For a product that’s matured well, we’d call a TACoS percentage of 10-15% “good”. However, looking at your TACoS percentage by keeping your ACoS in view is far more meaningful than a specific TACoS number or percentage alone.
Let’s say your product has consistently high TACoS – anywhere around 40% – this means that you need to review and tweak your ad campaign through fresh keywords, bids, or products, or all three. However, this percentage is perfectly fine for new products because with new product launches a high TACoS is to be expected. But as sales and revenue increase, your TACoS should go down.
Similarly, if you have a low TACoS rate (15% or less), then that means you have a good paid-to-organic sales ratio. This indicates strong brand awareness and the potential for repeat purchases. The lower you can get the TACoS rate to go, the better, although a low percentage should also provide extra headroom to improve product visibility. To keep the rate as low as possible, see to it that:
- The proper budget has been allocated to your ad campaign;
- Your bids are fully aligned with the average CPC for your respective category, and;
- You are targeting product-relevant keywords only.
Here are more common ways of keeping your TACoS low:
1. Spend less on ads and increase organic sales percentage
On the subject of reducing TACoS, there are generally two common ways to reduce it, where the opposite of these actions will, in fact, increase it:
- Cut down your ACoS by spending less on advertising or rather making more effective use of your budget
- Increase your products’ organic sales percentage.
In relation to these two generic ways, we can certainly go deeper:
2. Improve conversion rate
If you focus on CVR (conversion rate), you may be able to achieve both of the above at the same time. For example, when you bid on your highest converting search terms, it can cut down your ACoS by optimising your ad spend; an improved CVR will help you climb up the organic rankings for the targeted search term.
Cutting down any wasted PPC ad spend is very important when we talk about reducing ACoS and, in turn, TACoS. However, your primary focus should be on the second point – that is, increase organic sales because that is how TACoS can be effectively cut down while boosting overall sales.
Also, while we’re on the subject of improving conversion rate and decreasing TACoS, we need to achieve at least one of the following scenarios:
- Scenario #1 – Ad spending goes down while total sales either remain the same or increase (by using negative keywords, for example, to reduce wasted ad spend as much as possible)
- Scenario #2 – Ad spending remains the same while total sales go up (by allocating your budget to more efficient targets)
- Scenario #3 – Ad spending goes up with total sales increasing at a much faster rate (by increasing ad spend for a more optimised, higher-converting listing).
TOP tip: Review your business reports “unit session percentage” and work out products that are below the average, these products are more likely to have higher ACOS/TACOS
Now, let’s demonstrate some of the steps you can take to improve ad efficiency and boost organic sales, both of which will help you lower TACoS.
3. Improve ad efficiency
To cut wasted ad spending (scenario #1) and boost ad sales (scenario #2 and 3), we must optimise our Amazon ads, and that means focusing on improving these metrics:
- CTR; with a higher click-through rate, you’ll be driving more traffic to your listings detail page
- CPC; your bids need to be competitive while ensuring that you do not overpay for ads, this is how we will improve our cost-per-click
- Conversion rate; a higher conversion rate will yield more profitable ads
- Average sales price; the higher your average sales price, the higher the profitability will be, assuming all other factors are constant.
4. Boost organic sales
Other than making the most of Amazon advertising, you need to generate strong organic sales and that can be done through a more optimised product listing. This namely revolves around:
- Ensuring that your listing’s search terms are fully relevant and up-to-date
- Optimising your product content – description, titles, bullet points, images, videos, A+ Content, etc.
- Regularly managing your product reviews & questions
The next time you wonder ‘How to calculate TACoS’ or ‘Why is my ACoS so high’, you’ll known exactly what to do next. To ensure that both these metrics are healthy, Chris and his team are available to help you work it all out so that you can maximise your ad spend while keeping paid and organic sales as high as possible.