Why You Need to Understand TACoS When Selling on Amazon

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With advertisers investing larger amounts of money every year on Amazon Advertising, as of 2018, this number is now over $10 billion.  More Sellers and brands are beginning to focus on their TACoS, no, not the food TACoS, but their target average cost of sale. What does this number actually mean for brands looking to advertise on Amazon? Could a TACoS evaluation and strategy provide better insight into the long-term growth of a brand? Let’s find out.

TACoS, not to be confused with ACoS (Advertising Cost of Sale), is a term used to define your Target Advertising Cost of Sales. When using the Amazon platform, the calculation reflects the maximum advertising cost of sale your advertising campaigns could reach to remain within your target profit margin to make a sale. To figure out your TACoS, subtract your target profit margin from your break-even number.  First, you must take some time crunching the numbers involved in bringing your product to market.

Determining Your TACoS

First, you’ll need to calculate the costs related to product logistics and various other numbers and fees associated with selling your product before evaluating profit margin.  This cumulative number will help define TACoS role and decide if advertising is truly profitable.

1. Product Cost: Product cost refers to the expenses incurred to create a product such as direct labor, materials, consumable production supplies, and factory overhead.

2. Shipping Cost: Several factors are involved in figuring out shipping costs, which are typically the most exhaustive expense in the e-commerce world. Technology and software costs must be considered as well as the type of packaging and product specifics like weight and carrier options.  You must also define two separate shipping costs, including how the product will be sent either via Amazon Vendor Central or Amazon Seller Central.

3. Platform Selling Fees (Amazon): Amazon provides several seller plans, including a Professional Amazon Seller plan vs. the Individual Seller Plan.  Again, the fees will vary. Amazon provides an excellent free tool in Seller Central to help define the fees involved in determining your product’s profit margin in hopes of increasing sales.

4. Other Costs: These costs might include packaging and materials, prep time, warehousing, logistics fees, and additional employee needs.

Knowing these numbers, including all fees, should help provide your total profit margin and how much you are going to make when selling your product.

Retail Price – All Fees = Profit Margin

Now that you know all of your product costs and profit margin, you can calculate what percentage of your total sales you are spending on advertising.  To work out your TACoS, you divide your total advertising spend by your total sales revenue and then multiply it by 100.

TACoS = (Advertising Spend/Total Revenue) x 100

If your TACoS is decreasing or remains flat, your advertised product is probably generating strong or steady sales. A flat rate might also show that organic sales are heavily contributing to your total revenue and that your e-commerce advertising plan is playing the right role in the growth of your brand.

Every TACos Looks Different and Tells Its Own Story

We appreciate all types of TACoS, and we don’t believe there is only one right way to strategize one. So much will depend on your growth rate, costs, and how much you want to profit. At Geneva Supply, our team helps sellers every day to identify these advertising factors and point TACoS in the right direction before moving forward with creating your customized Amazon selling strategy.

So, what do you think about a TACoS evaluation for your next Amazon product launch? How can we help you get the biggest TACoS ‘crunch’ to boost your profit margin? Let’s talk

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