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ACoS and TACoS - what to make of it and how to improve it

Kennedell Amoo-Gottfried
April 12, 2022
September 16, 2022
ACoS and TACoS - what to make of it and how to improve it

Chances are that you primarily rely on your advertising cost of sales (ACoS) to gauge how well you’re doing in terms of ad spend. 

It is, of course, a massively important metric central to any advertising strategy - you need to know how the money you are spending in advertising is affecting your sales unless you just want to waste a load of money.  

But it leaves some big things out of the picture. It is great as a straight one-for-one comparison, in that it will tell you how your direct spend translates to direct sales made from those ads, but it won’t, for example, account for how your ad spend affects the organic increase in awareness that comes from the increased exposure. 

For that, you will need to look at your total advertising cost of sales (TACoS). 

What’s the difference between ACoS and TACoS

If you spend $20 on advertising and sell $200 of inventory as a direct result of those ads, ACoS can tell you your ad spend is 10%, but it won’t tell you anything about the additional value that came from people learning more about your brand even if they didn’t buy. 

Your TACoS, on the other hand, gives a broader view of the impact you ad spend has made on the longer-term growth of the business. 

Simply put, a low ACoS or TACoS indicates an effective and efficient use of ad spend, generating a high amount of sales, while a higher ACoS or TACoS means that the spend needs to be reviewed as it is likely being wasted and not converting sales. 

Is minimizing the two of them always what you should be going for, though? Not necessarily

What should I be aiming for?

When you look at the trends displayed by your ACoS and TACoS, what are you meant to make of them? Here’s a rough breakdown: 

  • ACoS and TACoS both decreasing: 

          At face value, this is the ideal scenario and shows that you are highly efficient at driving sales - both direct and organic - with your ads. Beware of having it go too           low, however, as it could mean there is more revenue you could be generating if you deployed more ad spend. 

  • ACoS and TACoS both increasing:

           Just because your ACoS is up doesn’t mean it's the end of the world.

           This is especially true if you have just launched a product. The priority in that case is to increase sales and visibility, and it would make sense to have an inflated ad            spend target to make that happen. Over time, you would then expect it to come down.

           You will also typically have a higher ACoS during slow seasons to make up for organic demand. 

  • ACoS increasing and TACoS decreasing:

           Consider this hypothetical scenario - You are freaking out because your ACoS is at 110% even after your product sales become stable following launch. You will            probably be thinking to yourself that there is something dreadfully wrong in the strategy and you need to drive down that ACoS. 

           OK, it is probably somewhat true that you need to get your ACoS down - you typically don’t want to be spending more on your ads than you are getting from            them - but, if your TACoS is low, say at 20%, it indicates that you are getting a great amount of organic traction, with 80% of your revenue coming from sales            driven outside your ads. 

           Maybe that 100+% ACoS worked in your favor even if people didn’t follow through immediately! (Seriously though, you might still want to get a handle on it)

  • ACoS decreasing and TACoS increasing:

           The inverse of the one above, and definitely the one you do not want to see. You may be glad to see that you’re getting better results per unit of ad spend, but it            also indicates that your organic sales are becoming a smaller part of your overall revenue - which is the opposite of what you want - and your sales become            increasingly dependent on your advertising activity.

Be aware that these will behave differently at different price points. If your product has a tight margin or if you are operating a competitive strategy to undercut rivals, you can see your ACoS inflate as your increased ad spend eats away at your potential profits. Conversely, high-margin products give you more room to play around.

A second order effect of that, however, is that your TACoS could benefit from having that low price point and organic sales would rise as you become known as the more competitive product, offsetting any ad losses. 

Getting your ACoS and TACoS down take a comprehensive approach across all elements of your product offering to make conversions easier. This includes the use of A+ content, videos, social media, optimisation of your keywords, images, rankings on the A9 algorithm and more. 

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