Insights

Measuring Advertising Success on Amazon: ACoS vs TACoS

Measuring_Advertising_Success_on_Amazon 2

The way you measure success in an advertising strategy matters. Success metrics inform campaign adjustments and provide a roadmap for reaching your goals. Many advertisers look at Advertising Cost of Sale (ACoS) to determine the overall success of a campaign, but there’s a potential flaw with this metric that shouldn’t be overlooked.

 

A quick advertising word problem

Take a look at these two hypothetical advertising campaigns:

Campaign A

Total spend = $30,000
Attributed revenue = $100,000
ACoS = 30%

Campaign B

Total spend = $40,000
Attributed revenue = $100,000
ACoS = 40%

In the above example, which campaign performed better?

 

The answer

It might seem like a no brainer to pick Campaign A. According to ACoS, Campaign A spent less to make more, but that’s not necessarily correct. Here’s why: ACoS only considers advertising spend over advertising revenue and doesn’t give you a full understanding of what strategies are moving total business.

ACoS measures advertising in a vacuum, and because of that, this metric tends to overinflate return. Instead of looking at just advertising revenue, advertisers need to take topline revenue into account, which leads us to Total Advertising Cost of Sale (TACoS).

 

The big difference between ACoS & TACoS

ACoS = Advertising Cost of Sale
Advertising Spend / Advertising Revenue

TACoS = Total Advertising Cost of Sale
Advertising Spend / Topline Revenue

TACoS measures advertising spend against topline revenue instead of just advertising revenue, which means you’re taking advertising out of the vacuum and looking at it from the larger picture of your business as a whole. Because of that, TACoS provides a better understanding of which strategies are actually moving total business.

Let’s take another look at the above problem from the perspective of topline revenue.

Campaign A

Total spend = $30,000
Attributed revenue = $100,000
Topline revenue = $1 million
ACoS = 30%
TACoS = 3%

Campaign B

Total spend = $40,000
Attributed revenue = $100,000
Topline revenue = $1.3 million
ACoS = 40%
TACoS = 3%

When you include topline revenue, Campaign B is the top performer despite having a higher ACoS. That’s not uncommon. In many cases, a higher TACoS translates to a lower ACoS and vice versa.

 

The final takeaway

Lower ACoS doesn’t always mean better advertising performance. On the surface, lower ACoS looks like you’re spending less to make more, but that isn’t the full picture. You have to put campaign performance into the context of your full business to actually find out what’s working and what’s not.

“There’s an old adage that says, ‘measure what matters,’” said Netrush Director of Advertising and Optimization Jackson Hathaway. “This is especially applicable in advertising, where there are lots of different metrics to choose from. They all tell you something different. A lot of advertisers get stuck on ACoS, and while there’s a time and a purpose for ACoS, it’s really important to ensure you’re getting the full picture.”