TACoS in E-commerce Marketing: A Detailed Guide for Advertisers

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TACoS is a term that we all hear in our daily lives, but here we are not talking about the Mexican dish that consists of a folded or rolled tortilla filled with various mixtures. If not this then what? Let’s learn in detail. The world of eCommerce marketing is rapidly evolving, and businesses always look for new metrics that can help advertisers/marketers develop their custom strategies boosting ad performance and optimising the return on investment (ROI). In marketing, the term that is emerging and has gained significant traction is TACoS, which stands for Total Advertising Cost of Sale. People often confuse the TACoS term with ACoS (Advertising Cost of Sale) which is quite similar as a metric per se. It offers a more holistic view of advertising which is efficient and profitable in the context of eCommerce Marketing. With this blog, the advertisers and the marketers will get to know the concept of TACOS, how it is different from other forms of advertising metrics, and why businesses must track the TACOS to optimize their advertising speed and maximize profitability.

What is TACoS in Ecommerce Marketing?

The TACoS (Total Advertising Cost of Sale) is a well-known metric that is used by eCommerce businesses to assess the utmost efficiency of overall advertising campaigns. TACos is a more detailed metric than ACoS which typically helps the businesses to consider the direct relationship between the ad spend and the sales generation.

TACoS includes all the sales that are organic and the paid within calculation providing a more comprehensive picture of a business’s performance, defining the true impact of advertising and the overall sales. It evaluates the total cost of advertising relating to sales, (not just the sales which are generated from ads), it gives businesses a clear idea of overall profitability and how the ads should contribute to both the paid and organic sales.

The formula for calculating the TACoS is:

In this, the total ad spend refers to the total money that is spent on the advertising campaigns (including all the platforms such as Google, Facebook, Amazon, etc).

Total Sales refers to the combined value of both the organic and paid sales over a given period.

How does TACoS differ from ACoS?

To witness the prominence of TACoS, it is quite essential to first distinguish TACoS from the ACoS, which is also another commonly used metric in eCommerce marketing.

ACoS (Advertising Cost of Sale) focuses solely on the relationship between the advertising spend and the overall revenue generated from those ads. To calculate ACoS the formula is:

Understand that the TACoS showcases the ratio of advertising spend of the total sales, which includes both the organic and the paid sales. Whereas ACoS looks at the view of how ads perform on their own. TACoS enables the broader picture of how the ads influence overall business revenue, presenting the impact of organic sales.

For example: Let’s suppose you are running PPC campaigns for a particular product, the sales directly result from those that would be counted in ACoS, whereas the sales of the same product came organically because of a rise in online visibility or brand awareness driven by the PPC campaigns, considered in TACoS. It offers a holistic approach resulting in the indirect effects of advertising or organic sales.

Why TACoS is Important for Ecommerce Businesses?

Holistic Performance Tracking

TACoS aids eCommerce businesses in tracking the broader range of audiences and analyzing the impact of their advertising efforts. While giving a detailed insight into how well the ads get turned into conversions. TACoS helps businesses to evaluate how efficiently the advertisements spend on supporting the overall sales growth and to include organic sales. It makes the TACoS a full-fledged metric to help advertisers understand the business’s effectiveness in the context of the business’s overall performance.

Understand the Relationship Between Organic & Paid Sales

In eCommerce, paid advertising campaigns are most commonly used to drive immediate sales and maximize organic visibility. For example, well-known Amazon PPC campaigns maximize the product’s visibility on the platform, which leads to organic clicks and sales over time. The TACoS opens a broader picture which includes both the organic and the paid sales in the calculation. It helps with the tracking of TACoS and helps businesses gain a clearer understanding of how paid ads impact long-term growth and organic traffic.

Better Budget Allocation

With the TACos, the businesses can identify whole by the advertising spend to drive meaningful growth and to prevent overspending on the total sales. A high TACoS indicates a significant portion of sales is coming from paid ads, whereas a lower TACoS indicates that the advertising spend is utilized well, supporting both the paid and the organic sales.

Tracking Brand Health & Long-Term Growth

Ecommerce TACoS is generally used to track the brand’s overall health with time. If the TaCos shows the lowest scale and the decline range, that means the brand is building reputable organic sales in addition to the paid ads, which reflects the increased brand appeal and fosters customer loyalty. In reverse, a high or increased TACoS indicates that the business is relying more on paid advertising which is unsustainable in the long term.

Improved Profitability Analysis

TACoS witnesses all the sales including all organic, and it helps the business to access the more accurate profitability. Businesses with high ACoS but low TACoS drive potential traffic, organic sales, and significant brand reach. Having such analysis helps the business to make more informed decisions about the ad spends versus organic growth potential.

How to Use TACoS for Optimization of Advertising Strategy?

Set TACoS Benchmarks

Besides several other Ecommerce marketing metrics, businesses need to access TACoS to launch a successful campaign. A TACoS target varies depending on the business models, margins and industry standards. However, most of the businesses aim to keep their TACoS at around 5-15%. If the TACoS is going higher than this, it’s time to reassess the advertising strategies.

Monitor TACoS Over Time

Track the TACoS over time which helps businesses to reevaluate market trends and to identify the areas that need improvement. If the TACoS cost is rising over time, it is a sign that the ad is becoming less efficient or it needs further evaluation to focus more on driving organic sales and to reduce the dependency on the paid campaigns.

Optimize Ad Spend & Focus on High Impact Channels

If the TACoS is just rising, businesses need to analyse the whole advertising channels or the campaigns that deliver the best return on investment reviewing the ad performance across different platform categorisations. The user needs to identify certain core areas where the budget can be a better place for allocation. The user needs to shift the focus to perform higher on the campaigns or to channelize the strategies that drive both the paid and the organic sales growth.

Balance Paid & Organic Growth

While advertising is crucial to drive immediate sales, businesses need to refocus on building their strong online and organic presence. As the TACos will get reduced it will help businesses to secure a healthy balance between paid and organic sales ensuring that the businesses are not fully reliant on paid advertising.

Test & Refine the Ads

It required the E-commerce advertisers to conduct regular tests aimed at understanding the full impact of the advertising on overall sales. By including both paid and organic sales, the TACoS offers a more comprehensive view of advertising compared to ACoS. By enabling tracking and optimization, TACoS allows businesses to allocate ad spend, which is more effective and less focused on paid ads. It builds a more suitable long-term growth strategy maximising the ROI.

TACoS v/s Other Key Performance Indicators (KPIs)

Where the TACoS (Total Advertising Cost of Sale) is known for its full-fledged metric control to ease eCommerce marketers’ understanding of the relationship between their ad spend and overall sales. It is essential to consider them in the context of other key performance indicators (KPIs). Let’s compare the TACoS with the ROAS (Return on Ad Spend), and Conversion Rate (CVR), to deliver a more nuanced view of their advertising efforts and to optimise their marketing strategies more effectively.

ROAS (Return on Ad Spend) vs. TACoS

ROAS (Return on Ad Spend) is the most commonly used metric in the eCommerce landscape. It enables the measurement of revenue that comes directly from paid ads and by analysing the overall ad spend. The ROAS gets calculated using certain formulas.

The ROAS is used to gain a valuable understanding that promotes the immediate impact of advertising spend on revenue, whereas TACoS allows the broader perspective by factoring both the organic and the paid sales.

Conversion Rate (CVR) vs. TACoS

The Conversion Rate (CVR) is a fundamental KPI that is used to measure the number and percentage of visitors to complete a desired action, such as purchasing after clicking on an ad. It is calculated as:

If the conversion rate is higher for the website or the landing pages that means the business is effective in gaining visitors into paying customers which ultimately lowers the cost per acquisition (CPA) to reduce the TACoS.

Integrating TACoS with other KPIs

The true value of the TACoS becomes more evident when it is used in conjunction with other KPIs.

To measure the Immediate Campaign Effectiveness: Use ROAS, if businesses are focusing on the short-term sales from paid ads. The ROAS provides direct revenue impact for analysis but doesn’t account for the broader impact of ads on organic sales.

To improve Ad Performance & Efficiency: Use CVR, if the businesses are looking to optimize the conversion rate, reduce TACoS or improve the effectiveness of ads. A higher CV leads to more sales from the same level of traffic driving down the TACoS to improve the ROI.

Final Words

TACoS is a prominent metric for all Ecommerce businesses that aims to understand the full impact of advertising on overall sales. By including both paid and organic sales, TACoS offers a more comprehensive view of advertising performance, compared to ACoS. By tracking and optimising, TACoS allows businesses to allocate the Ad spend more effectively, reducing the alliance on paid ads and providing a more sustainable long-term growth strategy.

The TACoS aids businesses in finding a balance between immediate sales to growth driven by paid advertising and the long-term benefits of organic growth. By using the TACOs in conjunction with the other ecommerce KPIs, businesses can ensure that the eCommerce marketing embarks both efficient yet profitable decision-making, setting up sustainability and maximising the competition in the online marketplace.

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At Softtrix, we have been offering solutions for digital marketing for more than a decade. We have a versatile team and each has a dedicated project to handle bespoke digital marketing strategy. 

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