How Incremental Advertising Spend Effects the Growth of SCOGS and More on Vendor Central
No brand that sells on Amazon is exactly like another. Most have different goals, challenges, and levels of resources. But, one thing they all have in common is the benefits they can gain from advertising on any channel in which they sell products. Over the years, MPS strategists immersed themselves in the world of Amazon Advertising. And, one of the advantages of working with a variety of clients, is our ability to leverage learnings from one brand to another. This not only supplements our expertise, but it allows us to provide clients with unique programs to help them reach their goals. In this blog post, we share more about an advertising tactic that's proven successful across a number of clients. We've repeatedly seen the positive effect incremental advertising spend can have on SCOGS, TACoS, and other key growth metrics. Continue reading for examples using client data and additional insights.
Why does Increasing SCOGS and Decreasing TACoS Matter?
These units of measure can tell a brand how well their advertising is performing and can also provide a snapshot of overall brand growth. Shipped Cost of Goods Sold (SCOGS), in particular, is a metric that represents sales to the end consumer based on how much the Vendor sells an item to Amazon for. So, while it is important to focus on your Amazon Advertising sales and ROAS, the key metric to define your growth is SCOGS, or some variation of total account sales.
While it is important to increase advertising spend to increase SCOGS, how these dollars are spent is equally important. We suggest spending on search terms and tactics that will reach consumers that are in-market but not yet brand-loyal. In other words, it's worthwhile to spend on non-brand and competitive search terms. When taking this approach, brands could see an initial increase in ACoS, but assuming the advertising targeting is effective, they should also see an increase in sales to net new customers. This will result in an eventual increase in SCOGS which will lead to growth in market share.
TACoS, on the other hand, is a metric specific to Amazon Advertising. It measures advertising spend relative to total sales. So, usually, it's better to see a decrease in TACoS while maintaining or growing advertising spend. When this is the case, it means a brand's sales are going up and advertising investment is creating incremental sales growth.
Below are two client examples showing how increased advertising spend positively affected these metrics.
Client Case Study 1 - Home Office Category
When working with a client that sells air purifiers, we evaluated the cause and effect of increasing advertising spend over the course of three months. As reflected in the above chart, the client spent $210,000 more on advertising in July compared to what they spent in June. The client then dialed back its advertising budget in August.
After reporting on this timeframe, we found the increase in spending that took place in July resulted in SCOGS growing by 32%. For this account, this was an increase of more than $1 million. This caused the client’s total advertising cost of sales (TACoS) to decrease from 5% to .66% in this timeframe.
Client Case Study 2 - Grocery Category
For this client, MPS strategists observed something similar and measured results over the course of 10 months. During this time, advertising spend increased by 50% ($106,800) from May through August, compared to January through April ($72,300).
Looking back at the data, the client saw a temporary, short-term increase in TACoS from 8% to 11%. However, the increase in advertising spend paid off in the mid-to-long term. In September and October, the client yielded a 4% TACoS.
Increasing your advertising investment on any marketplace can be intimidating. Especially after such an unprecedented year that strained budgets across the industry. However, boosting budgets can pay off in the long run if backed by the appropriate knowledge and support. Whether the added budget increases SCOGS or decreases TACoS, advertising can elevate a brand's business.
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