Enhancing Profitability :
Strategically Distributing Budget TACOS Reduced from 20% to 13%.
TACOS from 20% to 13%
Kyzenn Levers
PPC
This case study delves into the experience of a client who approached our team seeking ways to improve profitability on Amazon. The initial challenge involved an evenly spread advertising budget across all products, resulting in high Total Advertising Cost of Sales (TACoS) and missed sales opportunities. To address this issue, a strategic approach was adopted, categorizing products into different buckets based on performance and potential, leading to a more efficient allocation of advertising spend.
Background
The client operated on Amazon with a diverse product portfolio, each with varying levels of sales performance. Despite having a substantial advertising budget, the client faced challenges in achieving optimal results due to the equal distribution of spend across all products. TACoS was high, and the client sought a solution to improve profitability and maximize the impact of their advertising efforts.
Strategy
1. Products Categorization
We started with a strategic approach of categorizing products into distinct buckets.These buckets included:
- Best Sellers: High-performing products with proven sales and profitability.
- Medium Sellers: Products with moderate sales performance.
- Low Sellers: Products with lower sales volumes.
- High Potential: New or under-optimized products with growth potential.
- Clearance: Products that needed additional strategies for liquidation.
2. Budget Allocation
The key to optimizing profitability lies in allocating advertising budgets based on the performance and potential of each product category. The following budget distribution strategy was implemented:
- Best Sellers: Given a higher advertising budget to capitalize on their strong performance and maximize sales.
- Medium Sellers: Maintained a reasonable budget to sustain existing sales without overspending.
- Low Sellers: Reduced budget allocation and explored alternative strategies, such as content improvement and deals, to stimulate sales.
- High Potential: Reserved a portion of the budget for testing and promoting products with growth potential.
- Clearance: Allocated a limited budget for liquidation efforts, optimizing spend while minimizing losses.
Results
The strategic shift in budget allocation yielded significant improvements in overall campaign performance. By allocating a higher budget to best sellers, the client experienced increased visibility, leading to a boost in sales and profitability. Furthermore, the reserved budget for high-potential products allowed for experimentation and identification of new revenue streams.
Analysis
This case study underscores the importance of strategic budget distribution on Amazon to enhance profitability. By categorizing products into buckets and aligning budgets with their individual performance and potential, the client achieved a more efficient use of advertising spend. The approach not only optimized sales for established products but also facilitated the identification and promotion of new opportunities. As the e-commerce landscape evolves, sellers must continually refine their strategies to adapt to changing market dynamics and maximize return on investment.