ACOS, ROAS and TACoS: which advertising metric should steer the budget?

Retail media teams report on a handful of efficiency metrics. They are simple to calculate, but easy to misread – and the choice of metric shapes how budgets are spent.

The definitions

• ACOS (advertising cost of sales) = advertising spend ÷ sales attributed to advertising.
• ROAS (return on ad spend) = sales attributed to advertising ÷ advertising spend. It is the inverse of ACOS.
• TACoS (total advertising cost of sales) = advertising spend ÷ total sales, including sales not attributed to ads.

What they miss

ACOS and ROAS only look at sales the platform attributes to advertising. Some of those sales would have happened anyway – for example when a shopper searches for your brand name and clicks a sponsored result above your own organic listing. A low ACOS can therefore reflect spending on customers you already had.

TACoS takes a wider view by relating advertising to total sales. If advertising builds visibility that also lifts organic sales, TACoS can fall even while ad spend grows. If it rises, advertising is taking a larger share of every sale.

Adding margin

None of the three metrics knows your margin. A 25% ACOS is comfortable for a product with 50% contribution before advertising and loss-making for one with 20%. Targets should therefore be set per product or product group, based on the contribution it can afford and the role it plays – launch, growth or profit.