ACoS and TACoS: which KPIs really matter in Amazon advertising

Almost every Amazon advertising report starts with ACoS. The problem is that ACoS on its own often leads to the wrong decisions: cutting campaigns that are growing the brand, or rewarding campaigns that simply pick up sales you’d already won. Here are the definitions with formulas, the role of TACoS and a method for setting a target ACoS based on your margin.

The definitions, with formulas

ACoS (Advertising Cost of Sales) is the ratio of ad spend to sales attributed to ads.

ACoS = ad spend / ad sales × 100

ROAS (Return on Ad Spend) is the inverse: how many euros of sales you generate for every euro spent. An ACoS of 25% equals a ROAS of 4.

ROAS = ad sales / ad spend

TACoS (Total Advertising Cost of Sales) compares ad spend with all of the product’s or account’s sales, organic included.

TACoS = ad spend / total sales × 100

Why ACoS alone is misleading

ACoS only looks at the sales Amazon attributes to ads. It doesn’t tell you whether those sales would have happened anyway, or whether advertising brought in extra organic sales. Three typical situations:

• Campaigns on your own brand. They have very low ACoS because they capture customers who were already looking for you. They look great in the report, but some of those sales would have happened without the ad.
• A new product launch. ACoS is high because the product has no reviews or sales history yet. Cut it straight away and the product never builds its organic ranking.
• Generic category searches. They cost more, but they bring in new customers. Judge them against the same target as brand campaigns and you’ll always switch them off.

How Amazon attributes sales matters too. A sale is linked to an ad if it happens within a set number of days after the click, so the ACoS for the last few days is always provisional and tends to improve as sales get attributed. Anyone who looks at yesterday’s figure and cuts bids is working with incomplete numbers.

There’s also a limit of method: ACoS measures revenue, not margin. A 20% ACoS is excellent on a product with a 50% margin and disastrous on one with 15%.

TACoS and organic sales

TACoS answers the question that matters to a brand: is advertising growing total revenue? On Amazon, sales generated by ads improve a product’s sales history and often its organic ranking too. When that happens, total sales grow faster than spend over time and TACoS falls.

Here’s how to read the trend over time:

• Spend up, total sales up, TACoS stable or falling: advertising is working.
• Spend up, total sales flat, TACoS rising: you’re buying sales that used to come for free.
• Spend down, total sales down by more than proportionally: advertising was propping up organic sales too, and the cut went too deep.

Example: a product sells 20,000 euros a month, of which 6,000 are attributed to ads, with spend of 1,500 euros. ACoS is 25%, TACoS 7.5%. If the next month spend rises to 2,000 euros and total sales reach 28,000, ACoS may even get worse, but TACoS falls to about 7.1% on much higher revenue. It’s a choice you judge on the total, not on a single campaign.

Contribution margin: the real benchmark

To decide how much you can spend, you need contribution margin per unit, before advertising. Here’s how to calculate it:

1. Take the selling price excluding VAT.
2. Subtract the cost of the product.
3. Subtract Amazon’s referral fees.
4. Subtract fulfilment fees and an allowance for storage and returns.
5. What’s left, divided by the net price, is your contribution margin as a percentage.

This number is your break-even ACoS: if ACoS equals your margin, every ad sale leaves you with nothing.

How to set a target ACoS: an example

A hypothetical example with simple numbers:

• Selling price excluding VAT: 25 euros.
• Product cost: 8 euros.
• Referral and fulfilment fees: 8.50 euros.
• Storage and returns, estimated: 1 euro.
• Contribution margin: 7.50 euros, or 30% of the net price.

Break-even ACoS is therefore 30%. If you want to keep at least 10% margin on ad sales, your target ACoS is 20%. From there you can differentiate by goal:

• Brand campaigns: target below 20%, because they need to be highly efficient.
• Scaling campaigns on generic terms: target close to 20%.
• Launches or winning new searches: you can temporarily accept up to 30% or even more, with a duration and budget decided up front.

Finally, look at TACoS for the whole product: if it stays below a level your P&L can carry, you can afford more aggressive individual campaigns. Setting targets across the whole catalogue and turning them into bids is the work we do in our Amazon Advertising services.

At what level to read the numbers

ACoS and TACoS should be read at different levels. ACoS makes sense by campaign and by keyword, because that’s where bid decisions are made. TACoS makes sense by product and by account, over periods of at least a month, because organic sales react slowly. Mixing the levels, for example judging a single keyword on TACoS, only causes confusion.

Other KPIs to keep alongside

• Ad conversion rate: if it’s low, the problem is often the listing or the price, not the bid.
• Cost per click: useful for seeing whether you’re paying too much for placements that don’t convert.
• Ad sales as a share of total: if it grows too high, the account is dependent on ads.
• New-to-brand customers: available for some ad types, it shows whether you’re widening your customer base.

Many of these numbers are scattered between the advertising console and Seller Central or Vendor Central. To see them together, with margin and organic sales in the same view, we use Bettershop Analytics.

What to do now

Work out the contribution margin of your ten main products and derive the break-even ACoS for each. Then put current ACoS and the last three months’ TACoS next to them. You’ll see straight away where you’re overspending, where you could push harder and where advertising is genuinely growing your sales.

Frequently asked questions