Anyone selling on Amazon should know about the opportunities for growth and visibility that come with running effective PPC ads. However, many remain baffled in predicting the total cost to run them. And this leads to many sellers not maximizing the potential gains for their businesses because of this uncertainty.
Any kind of cost may significantly impact your profitability, and predicting as much can help you find ways to improve your products so they stay selling and competitive.
While it may be challenging to know ahead of time exactly how much you will shell out for your PPC ads, it is possible to have a close-to-reality estimate. Achieving this is in understanding the various factors that affect the costs and in knowing how to interpret the data your dashboard is showing.
Amazon PPC ads are paid advertisements within the Amazon platform. It is a proven and tested means to boost your visibility and stay competitive. It is also a marketing strategy that can help both beginner and seasoned sellers on Amazon stay afloat and thrive.
As Amazon continuously experiences tremendous growth and dominance in the e-commerce world, so too does the competition within get fiercer. It now becomes a battle of strategy and pricing, but Amazon offers programs and systems (like it’s PPC platform) to help. Some even say that Amazon sellers are pampered too much because of all of the tools and opportunities available to them.
Regardless, you still have to exert a lot of effort in order to win your customers. Amazon is, after all, just a marketplace platform. It provides the support, but it all boils down to your product and strategy.
Amazon PPC or pay-per-click follows an auction-style model to determine when and how your ads will show up. Essentially, you target keywords that are relevant to their corresponding search terms or queries, place bids on them, and win so your ad will be visible to more potential customers.
In traditional digital advertising, you would pay for impressions, or the number of people your ads show to. This is the same rationale as traditional or offline advertising of placing billboards in high-traffic places or commercial ads on TV.
Meanwhile, in Amazon PPC, you pay for clicks, or only when someone clicks your ad. And just being on Amazon is like putting up an ad on a high-traffic platform and only paying for people who stop and read your ad instead of for all who passed by it. This makes it more cost-effective since clicks can signify interest and strong buying intention, which comes with a higher conversion rate.
Amazon PPC is one of those strategies you can implement to lead your potential customers to your listing. But it does not end with clicking the ad – you also have to guide them throughout the whole customer journey until you gain the sale and hopefully, turn them into loyal and repetitive customers. And PPC campaigns can also help you with that.
The advantages of PPC ads include the following:
Another great advantage to Amazon PPC is the impact it has on ranking in conjunction with the search algorithm.
The Amazon algorithm looks at sales as a major contributing factor in ranking products. Which in turn, affects its visibility on the platform. In essence, it also signals trustworthiness and credibility – something that customers are looking for when they scout for a seller to buy from.
And obviously, the more sales you get, the more customer reviews you can earn, which many buyers seriously consider in making a purchase.
If you are a new seller or are selling a not-so-competitive product, to begin with (which can be expensive or non-essential), your chances of having organic sales are lower.
Here comes Amazon PPC to the rescue.
PPC ads can help hasten the results of months of organic ranking efforts by showing your ads in the most visible spots on the search results pages. And your PPC ads may even show on top of your more popular and top-selling competitors.
For you to maximize the benefits of PPC on your business, it boils down to ensuring that these two factors are set to optimum – keywords and ad spend. Your choice of keywords to target and the amount you spend on them play vital roles in determining the results of your ads.
Striking the balance between ad spend and profitability is important so you can maximize the benefits of your PPC ads. And one of the ways to do this is to set a daily budget for your ad spend.
In your campaign, the cost of every click is totaled against the daily budget limit you set. After you’ve used up your budget, your ad will not show up anymore until the limit refreshes the following day.
Amazon allows sellers to have better control of their ad spending and limit per day. This helps you stay on budget, be flexible with opportunities, and track your ad performance better.
Setting a daily budget spend limit also ensures that your ad spend stays aligned to your TACoS (total advertising cost of sale), which is considering the overall budget you should only be allocated to your PPC ads so your products stay profitable.
Tracks Your Ad Performance
Setting a daily ad spend limit allows you to monitor trends in your sales. You can also identify days or seasons of demand. Make sure you take advantage of every positive opportunity by increasing your limit or adjusting your placement bids.
You can also spot compare different metrics and assess the insights they present more effectively since you set a non-changing baseline. Defining a daily limit can also help you compute your average cost per click and conversion rate – both being essential to understanding the performance of your ads.
Allocates Your Budgets to Different Campaigns
You can set different daily budget spending for your campaigns depending on their performances. This way, you can maximize your budget by allocating more to the profitable ones and less to your experiments. A daily cap prevents wasteful spending and maximizes your ROI.
Makes You Flexible with Opportunities
Just like how it becomes an advantage to be able to allocate ad spend based on a campaign’s performance, setting a daily budget also allows you to be flexible with the various opportunities that your PPC dashboard may present you.
Tracking where your daily budget goes can help you with forecasting and decision-making. The same goes for spotting opportunities like new competitive yet more affordable keywords to target or shifting keyword trends.
Setting your Amazon PPC budget requires careful weighing of different factors.
Firstly, you have to know your profit margin and never spend beyond that. It may not be advisable either to spend all of your profits on ads so you can safely keep part of your profits for contingency.
Thus, your ACoS, or Advertising Cost of Sale, should be less than your overall margin.
Then of course, for you to fully maximize your ad spend, you have to be mindful of your PPC ad performance. Do this by tracking and understanding what every metric implies and acting accordingly to lessen losses or to take advantage of opportunities.
This way, you can continually improve your ads, especially on the aspect of keyword choice, bids, and daily budget allocation.
Now that you have your ACoS and overall profit margin set, allocating a budget for each of your campaigns comes next.
Consider grouping your ads based on your goals so you can optimize your ad spend. Here are the benefits to this:
Meanwhile, you can also group ads in a single campaign with a similar CPC. This is so you can optimize your ACoS for each, and TACoS overall.
Here is a step-by-step procedure on how to allocate your PPC budget for each campaign.
Step 1: Identify Your ACoS
As with any business, you should know your numbers. And with Amazon selling, ACoS is one of the most essential to know and understand.
What is ACoS?
ACoS stands for Advertising Cost of Sale or the amount you spend on advertising through PPC compared with the amount of sales you made from the ad(s).
You should compute your target ACoS first before running a campaign. You have to base your keyword choice and spend on your ACoS so you will continue to be profitable on Amazon.
Over time, as your PPC ads mature and become effective, your ACoS falls naturally while your overall sales increase.
In essence, ACoS has now become an important metric that can tell a lot about your PPC ad or campaign performance. You should be aiming to lower your ACoS without affecting your sales, which signifies an upward sales performance as a result of your improved visibility brought about by your PPC ads.
How do I calculate my target ACoS?
Target ACoS is essentially your PPC ad spend budget limit. It is represented in percentages.
To interpret, it is the percentage amount of your sales that can be spent on your PPC ads.
You only just have your profit left to spend on your PPC ads. Thus, you have to consider your profit margin when setting your target ACoS.
How do I calculate my profit margin and break-even ACoS?
Therefore, identifying your target ACoS means taking into account all the costs that come with your product and then subtracting them from the retail price you set. What remains is your profit, which, when represented as a percentage, is your profit margin.
Take note that aside from the cost per click, Amazon does not charge anything else on your PPC ad.
Here's the breakdown of the usual costs that come with a product being sold on Amazon:
You have to then subtract these costs from your selling price, leaving you with the profit amount.
Now, to compute your % profit margin,
Your % profit margin is equal to your break-even ACoS. If ad spend is at this percentage, you have neither losses nor profits.
Therefore, if you want to remain profitable, you have to set your ACoS below the % profit margin.
What's a good ACOS for Amazon PPC beginners?
It is actually difficult to set the exact number that you can identify as "good ACoS". It is dependent on many factors like your product's category or your business industry in general.
It can also be reliant on your goals and timeline for them.
Historically, 30% is a good starting target ACoS for Amazon PPC beginners. And ACoS tends to be higher at the beginning, but as your ads mature, should naturally fall to an optimal value.
Just remember the golden rule – do not spend for your PPC ads beyond your profit margin, also known as break-even ACoS, or in essence, your ad spend budget.
Step 2: Understand Your CPC (Cost-Per-Click)
Let's delve further into the fundamentals of PPC ad costs. One of the major influencing factors is cost-per-click or CPC.
CPC is the amount you spend every time your PPC ad gets clicked. And you can easily check this in your ads dashboard. But, it is better to know what this number implies about your ad performance.
Alternatively, you can also compute it by dividing your advertising cost by the number of clicks your ad gets.
A very high CPC may signal a problem with your keyword targeting strategies. You might be targeting keywords that are too competitive and you simply can’t get enough visibility to gain traction.
Impression: The cost per click is high because you do not get as many clicks in your ad, which may mean you have lots of competition for it. Or, you are not reaching your ideal customers hence your ad has fewer engagements.
Your goal is to lower your CPC without diminishing your product visibility. You can try to achieve this by:
Step 3: Determine the Duration of Your Campaign
Amazon PPC campaigns are not necessarily designed to be set up and then forgotten. But it takes time for them to gather enough data and provide you with accurate metrics. They require monitoring and continuous optimization to become effective in achieving your goals, however you do need to give them time to work.
It can take only a few hours or so to set up a whole campaign and go live and about 48 hours for it to start receiving data from your ad performance.
However, a campaign takes about 14 days to provide you with enough data for you to gain real insights from, and about 3 months to give you a more accurate picture of your ad performance.
When it comes to getting results from your PPC ads like an increase in sales or improved brand awareness, it can take anywhere from the day it went live to months after.
Setting up a considerable duration for each of your campaigns can help you measure performance more effectively. More so, to enable you to maximize your gains. You also have plenty of time to gather as much data to analyze, allowing yourself and the algorithm to gain insights on how to improve your product and give it a competitive advantage.
There is an attribution window that you should also consider. This is the period wherein a sale made out of a click is added after up to 7 days (for Sponsored Products) or 14 days (for Sponsored Brands) to the dashboard. This is important when assessing the performance of your campaigns.
The Amazon algorithm is attuned to consider organic sales as a significant signal of credibility and relevance, that eventually causes your product listing to rise in ranking in the search engine results.
However, this would result in newly launched products being at a disadvantage because obviously they have zero sales at the beginning...if not for the honeymoon or “grace” period.
As such, Amazon PPC is here to help you in launching and in propelling your new product listings. It can give you the boost you need with the opportunity to show up on the prime spaces in SERPs during this crucial time.
More so, the honeymoon period, or from that time your products reached the Amazon warehouse up to about one to two weeks, allows you to enjoy a tremendous boost in terms of visibility. That is, given that you have done your part in providing complete product information and an engaging listing that is optimized to the search engine.
This happens because Amazon only considers the factors of optimization and not sales history, thus, giving your potential keywords the ability to rank faster.
Step 4: Find Converting Keywords
Keywords are the heart of your PPC campaigns. They help the algorithm recognize what your product is and why it is the best product to show in a shopper’s query.
You can either allow Amazon to match the keywords relevant to your product (with Automatic campaigns) or assign them yourself (with Manual campaigns) based on the results of your keyword research.
Converting keywords means that they match your product accurately to a shopper's query and that you secure as many sales out of the clicks you get.
There are various keyword tools (just make sure you choose Amazon-oriented ones) available to help you know the converting keywords that are perfect for your product and PPC goal. Keyword tools make the process faster and more efficient versus spending so much time studying and comparing keywords manually.
Using converting keywords can also help you optimize your bids and eventually, your overall advertising spend. You can explore exact, broad, and phrase match keywords to know the best combination for your product.
In reality, there is no one-size-fits-all approach when it comes to allocating a budget for your PPC ads. As long as you spend within your means (break-even ACoS or profit margin), you will not experience losses.
There is also no direct correlation between ad budget and increased sales. However, there is a direct correlation between ad SPEND and increased IMPRESSIONS, which can mean a higher budget will lead to more sales if everything is optimized appropriately.
What is the Average Cost per Click (CPC) on Amazon?
The average CPC appears to be increasing annually because of the increasing competition among sellers and the growing number of customers the platform caters to.
In 2020, the average CPC was $0.71, which eventually became $0.89 the following year. The trend seems to continue as we see more innovations in Amazon advertising like enhanced creatives and visual elements.
What is Amazon's Average Conversion Rate?
The current average conversion rate for Amazon advertising has been about 9.87% and can even go as high as 10 to 15%.
What are Amazon's Average Daily Impressions from PPC?
In 2021, Amazon could give you about 40,000 to 60,000 average daily impressions. This is halfway lower than the previous year, seemingly because of the rise of Amazon sellers joining the platform.
Impressions pertain to how many times your ad is viewed or seen by a shopper, regardless if they clicked it or not.
What are Amazon's Average Daily Clicks?
Clicks come from impressions. And they happen when your ad sparks an interest upon showing it to a searching shopper.
On average, a user may do an average of 382 clicks daily on the Amazon platform through PPC.
What are Amazon's Average Daily Conversions?
Impressions may result in clicks. And clicks may result in conversions.
Conversions are the number of times a click results in a purchase transaction. However, it is not equal to sales since sales pertain to the number of units sold and not to the sales transaction.
On Amazon through PPC, the average number of conversions is 36.67 per user per day.
What is Amazon's Average Daily Spend (Cost)?
A seller typically spends an average of $268.21 per day for their PPC ads.
To get a better grasp over your PPC spend while optimizing and scaling your campaigns, reach out to us at Signalytics. We offer a comprehensive self-service dashboard and tool, as well as fully managed services.