ACOS VS TACOS

Transcript:

There's a lot of buzz around these two words amongst brands and advertisers.

ACOS stands for advertising cost of sale and is calculated by ad spends divided by sale attributed to ads.

TACOS stands for total advertising cost of sale and is calculated by ad spend divided by total sale that you have driven for that brand in that particular month.

Now why these two different metrics and what's a better indicator?

To me, TACOS is a better indicator and there are multiple reasons why I'm saying so.

Reason number one, your organic sales also increase with your ad sales.

So if you are investing your money in ads, it will also impact your organic sales.

What I'm trying to say is, let's say your ad sales has increased by 10, 20, 30%.

Eventually it will impact your organic sales.

So maybe sometime down the line your organic sales will also increase because of that investment.

And I've also talked about the reason. The reason is flywheel effect.

There are videos, audios that I've posted on flywheel effect before, so maybe you can check that out to understand how your ad investments

impact on your organic sales.

And hence the return on investment should be calculated on total sales and not just ad sales.

Reason number two, Amazon ad attribution is not 100% correct.

Moreover, people click on ads on one device and then make the purchase from the second.

There are instances when one person look for the product, clicks on the ads and share it with their friends

and family and they make the purchase for them.

So the attribution is lost in these cases and they will always be plus minus of 10% in AD attribution.

Reason number three, why tacos is a better indicator.

TACOS gives you the most transparent picture if you are profitable as a business or not.

If you can afford your TACOS from your product margins, simple, you're profitable.

The calculation becomes very easy compared to when calculated with ACOs.

So yeah, I mean ecommerce is really simple.

People just make it complicated.