Your ACOS Target Is Lying To You
Category
Amazon
Published by
Tom Emmanuel
Read Time
6 Minutes
Most UK brands set an ACOS target, hit it, and still lose money. The number is not wrong so much as incomplete — and in the UK there is a VAT problem underneath it that almost nobody accounts for.
Tom Emmanuel
Founder, Furnace Commerce
Why ACOS flatters you
ACOS only sees advertised sales
ACOS is ad spend divided by ad-attributed revenue. It says nothing about the rest of your business. You can run a 20% ACOS on a fifth of your revenue and still be spending far more than the account can carry, because the other four fifths are subsidising it.
The UK VAT trap
Amazon Ads reports UK sales inclusive of VAT, and Amazon charges the referral fee on the VAT-inclusive price. Your margin, however, is earned on the net. Calculators built for the US market miss this entirely and will overstate your headroom by roughly a fifth.
Returns are not a rounding error
A 5% return rate does not cost you 5%. You lose the fulfilment fee, often the return processing fee, and a share of the goods that come back unsellable. On a £30 item that can be another 30p a unit before you have advertised anything.
What TACOS actually tells you
TACOS is total ad spend divided by total revenue, organic included. It answers the only question that matters: is the whole channel profitable? If TACOS is rising while revenue is flat, you are buying sales you used to get for free.
The practical test is simple. Work out your contribution per unit after VAT, referral, fulfilment, goods and returns. Express that as a percentage of the price the customer pays. That is your maximum sustainable TACOS. Anything above it is bought at a loss.
How to run to a TACOS target
Set the ceiling before the target
Calculate breakeven first, then choose a target below it that leaves the margin you need. Agreeing a target with no reference to breakeven is how accounts end up growing revenue and shrinking profit at the same time.
Segment before you judge
A launch SKU and a mature bestseller should not share a TACOS target. New products legitimately run above breakeven while they earn rank. Mature products should be at or below it. Blending them hides both.
Watch the organic share
If TACOS climbs while ACOS holds steady, your organic sales are falling and advertising is quietly replacing them. That is the earliest warning sign of a ranking problem, and it shows up in TACOS weeks before it shows up in revenue.
Review it weekly, not monthly
Bid changes take days to settle and Amazon attribution windows lag. Monthly reviews mean you find out about a problem five weeks late. Weekly is the slowest cadence that still lets you act.
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