Amazon’s customer base continues to grow, with consumer shopping increasingly moving online. However, this also means more and more sellers are joining Amazon’s platform to compete for these customers. Advertising on Amazon is becoming increasingly competitive.
Advertising on Amazon’s platform is a key component in your success as a seller, as it positions your products in front of relevant customers who are ready to buy. In order to successfully advertise on Amazon, brands have to develop effective PPC strategies. An essential step in developing your PPC strategy is determining the right daily budget for your campaigns.
What is Amazon PPC?
Amazon PPC (Pay Per Click) is the advertising platform Amazon provides to sellers to help them get their products in front of relevant consumers. A well-optimized PPC campaign will boost your product’s visibility and increase sales. In turn, this will eventually increase the organic traffic to your listing.
There are 3 types of PPC ads you can choose from for advertising campaigns. They include:
- Sponsored Products
- Sponsored Brands
- Sponsored Display
Amazon PPC has an auction format like most ad campaigns. Advertisers submit bids for certain keywords and compete against each other for prime ad spots. When a customer searches for these keywords, the ad with the highest bid wins the auction and gets displayed to the shopper. When the shopper clicks the ad, the winning advertiser pays one cent more than the second-highest bid.
This means that if the highest bid for a keyword is $1.00 and the second-highest bidder has a default bid of $0.50, the winning advertiser only pays $0.01 more than the second-highest bid. In this scenario, the winning advertiser would pay $0.51 for a click (not $1.00).
Who Can Run a PPC Campaign on Amazon?
Amazon has certain requirements you must meet to run an ad campaign on their platform.
- You must have an active professional Amazon Seller Account
- You must meet all Buy Box eligibility requirements to advertise using Sponsored Products
- You must be enrolled in Amazon Brand Registry in order to use Headline Search ads.
Allocating Advertising Budget by Ad Type
It is important to keep in mind that there is no concrete answer or one size fits all solution when it comes to the right Amazon PPC Spend. Every brand is different, and so is every PPC campaign strategy. The amount you should budget each day will vary from campaign to campaign.
Many brands spend their budget using this method as a rough guide:
- 75% on Sponsored Products
- 20% on Sponsored Brands
- 5% on Sponsored Display
While this rough guide can be useful, each of the ad options offers different results, so the amount you spend on each should partially depend on your goals. For example, a Sponsored Display ad would be a great way to promote a product that is related to a customer’s past purchase. However, if your goal is brand awareness, then Sponsored Brand ads would be better suited. If you want more visibility for specific search results, a Sponsored Product ad would be most effective.
How to Identify Your Ideal PPC Spend
Finding the right Amazon PPC spend for your brand will depend on what you are aiming to accomplish and what the right budget is for your business as a whole. A key to determining how to identify your ideal PPC spend is understanding what various factors are at play.
Factors to consider include level of competition, product categories, ad targeting, and ad placement. Another factor to consider is your product’s stage of life…
Is your product in its launch phase, growth mode, or maintenance mode? Depending on the answer, you may consider changing your advertising strategy.
- For products in launch or growth mode, invest in playing with the market to test what you are capable of.
- For products in maintenance, it’s a best practice to focus on profitability.
If you still don’t know where to start with your budget, many experts generally recommend that you spend approximately 10% of your total revenue on Amazon for Amazon PPC. This amount of investment into advertising is usually enough to feed the Amazon flywheel and bring you organic benefits if your campaigns are well optimized.
Tip: The right Amazon PPC spend should be viewed as a cost of sale instead of as additional spend.
How To Set Your Amazon PPC Campaign Budgets
By setting a monthly budget for each of your ad campaigns, you’ll keep your spending in check and stay aligned with your total PPC budget. Analyzing the profitability of your individual campaigns can help you allocate daily budgets and optimize campaigns to maximize return on ad spend.
There are a couple of steps involved in determining how to allocate your PPC budget…
Identify Your ACOS
Identifying your average cost of sale (ACOS) is essential before deciding how much to spend on product advertising. An ad campaign with a low ACOS is more likely to be profitable. Determining your ACOS allows you to determine how much advertising you can spend and still meet profitability goals.
For example, if your product retails for $100 on Amazon, and your COGs and other fees add up to $70, that means your profit is $30 and your profit margin is 30%. To continue making a profit on that product, your ACOS should not be over 30%. Consider what ACOS is realistic for your profitability goals.
Use a tool like myHorizons to analyze your profitability by ASIN. See the myHorizons profitability tool below…
Understand Your CPC (Cost-Per-Click)
To determine the right bid amount, you need to calculate your cost-per-click when setting up your Amazon PPC. A lower cost per click is ideal for profitability, but sometimes it’s necessary to increase CPC if your campaigns aren’t seeing any action because your ads aren’t getting clicked.
Calculating Cost Per Click
Let’s use the same example from before, and imagine your product on Amazon retails for $100. If you are selling this product with a 40% conversion rate, this means one buyer converts for every five prospective customers who click on your ads. In this example you would be paying $1.60 per click for your selected keyword, because your default bid would be: 40% x $100 x 40% =$1.6
Identify the Right Keywords
Find a balance that works for you when choosing your keywords. Ideally, you want relevant keywords that attract high intent customers but should avoid wasting ad spend on top keywords that are expensive and not as relevant to your product.
- Identify top tier keywords that have high search volume and high relevance to your product
- Find low competition keywords. Keywords that have both high volume and high relevance with little competition are great opportunities.
- Increase conversion rates with long-tail keywords (because shoppers who search with these keywords are more likely to complete a purchase)
Use a keyword research tool such as Helium 10 to identify the ideal keywords for your campaign.
The key to a successful PPC campaign is planning, which includes finding the right Amazon PPC spend for your brand. Make sure you are following best practices for optimizing your campaigns, setting realistic goals, and consistently checking in to ensure you are spending your budget wisely.
Additionally, be sure to monitor your campaign performance and make the necessary adjustments to achieve the best results. Your campaigns should receive regular optimization to ensure you’re seeing the best ROI.
Developing advertising strategies and implementing solutions increase profitability can be overwhelming for any Amazon seller. For sellers looking for additional support, Envision Horizons offers a solution. myHorizons is making selling on Amazon less stressful and more profitable by automating Amazon brand management. For more information on myHorizons, visit our site. Or schedule your own personal demo here.