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How Much to Spend on Amazon PPC [2.5 Rule, Budget, Cost]

It’s a hard fact – Amazon is the largest online retail website in the world, with a

It’s a hard fact – Amazon is the largest online retail website in the world, with a market share of 37.6%. And it’s poised for continued growth as online shopping rises.

With 28% of Amazon customers taking less than 3 minutes to make a purchase, Amazon sellers can drive more conversions if they can get their products at the top of search rankings through PPC.

But how much should you spend on Amazon PPC to get the best returns? This article will explain that and provide effective strategies for optimizing your PPC budget.

What is an Amazon PPC Bid?

Amazon PPC bid is the amount of money you’re willing to pay to receive a click on your ad or product. When someone clicks on the ad, the bid amount gets subtracted from your daily budget.

For example, if your bid amount is $2 and your daily budget is $40, the number of clicks you will get per day will be 20 ($40/$2). Finding the sweet spot for your bid is crucial. Bidding aggressively high might get you a good ranking in Amazon’s search results, but it may not convert as much as you need to cover the high ad cost.

The idea is to be strategic about it – focusing on finding high-converting but less competitive keywords. This will not only reduce your cost of Ad spend but also increase sales.

Remember that bidding the highest doesn’t guarantee the top spot on Amazon listings. Amazon determines the winner based on the keyword relevance and bid amount.

If you want to optimize your PPC bids to maximize your profits, book a free audit call with us today.

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What is a Daily Budget in Amazon PPC?

On Amazon PPC, you can set a daily limit on how much you spend each day on your campaigns. This is called the daily budget.

You do this by filling out the daily budget. But how do you decide your daily Amazon PPC budget? A popular rule derived by the professionals at SellerApp suggests you take 30% of your expected revenue and divide it by the number of days in a month.

For example, if your:

Expected revenue = $5000
Your monthly PPC ad spend = 30% x $5000 = $1500

Daily budget = $1500/30 = $50

Helpful, right?

Anyhow, your campaigns will stop running once your daily budget is consumed. However, if your campaigns spend less than your daily budget on some days, the remaining amount can be used to increase your daily budget limit on other days. Finalizing a profitable daily budget, however, depends on your testing. 

Run test campaigns and see which ones give the best results. For example, the PPC cost for list-view is different from grid-view. You can see which view is generating more profit and stick to that.

Another technique could be the use of negative keywords. Negative keywords help prevent ads from appearing on shopping result pages that don’t match your campaign’s objective. For example, if you sell wooden chairs and have placed a bid on the keyword “chairs,” the customers can click your ad even when they enter “plastic chairs” in the search bar but won’t buy it because it’s irrelevant (you only sell wooden chairs).

Including negative keywords (i.e., “plastic chairs” in this case) would prevent your ad from appearing in the “plastic chairs” and thus save you from unworthy clicks. 

What is Considered Good ACoS and TACoS?

ACoS and TACoS are two significant metrics used to measure Amazon PPC campaigns’ performance.

ACoS (Advertising cost of sale) is the ratio of PPC ad spend to targeted sales, i.e., total ad spend/total sales from ads. A good ACoS for Amazon is generally 10%-20%, although it varies according to the product and your business goals. According to Joe Shelerud, CEO at Ad Advance, it depends highly on your repeat purchases and margin. But typically, the lower it is, the better because that would mean you’re making more sales than you’re spending.

TACoS (Total advertising cost of sales) is a broader term that evaluates the overall impact of advertising on your business. It is calculated by total ad spend/total generated sales and gives you a good view of whether you should continue with the existing campaigns. A good TACoS is generally between 5%-20%

A lower TACoS means you’re getting a major portion of your sales from non-ad sources, which is great for increasing profits. However, if your goal is to achieve a higher market share, a higher TACoS can be justified.

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Key Factors that Affect Amazon PPC Costs

How much should I spend on Amazon advertising? This question can be answered effectively by looking at the factors that affect PPC costs.

1. Click-Through Rate (CTR)

This metric measures how often your ads were displayed versus the number of clicks they received. Calculated as impressions/clicks, they tell you if your ads or product displays are attractive enough for customers to click on them. 

Generally, a 0.5% to 1% CTR is acceptable, and 2% to 3% is considered excellent. If your CTR is lower than 0.5%, you might want to change your PPC budgeting and come up with a bid amount that helps you secure a better ad placement or win more relevant keywords. 

2. Keyword Competitiveness

It is the level of competition for your chosen keywords and it directly impacts your PPC costs. Highly competitive keywords, especially in popular categories like electronics and beauty, tend to have higher bid prices. 

For example, you’ll likely have a higher cost-per-click (CPC) on a competitive keyword like “wireless headphones” rather than a long-tail keyword like “space-saving kitchen gadgets.”

3. Quality of the Product Page

If your product page is properly optimized with high-quality imagery, a professional-looking product description, and a compelling CTA, it will increase your conversion rate (CVR). And what is a good CVA for Amazon PPC? Well, the average conversion rate is 9.58%, so anything in the range of 12% to 15 % is deemed good.

A high CVR will lower your ad spend because fewer clicks by your customers will be needed to make a sale.

Now, let’s look at some strategies for optimizing Amazon PPC spending to achieve a higher Return on Ad spend (ROAS).

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The 2.5 Rule to Estimate Amazon PPC Cost

This simple rule of estimation lies on 2 key assumptions.

  • A CVR of 10%.
  • An ACoS of 25%.

The rule states that your PPC cost-per-click should be no more than 2.5% of your product’s selling price. For example, a product selling for $30 shouldn’t have a CPC greater than $0.75.

Let’s understand it with an example.

Suppose you’re selling a laptop cover for $30. You learned that the PPC cost to get you on the 1st page for the keyword “black laptop cover” is $0.50. It’s a good keyword to target since it’s less than 2.5% of your sale price (i.e., $0.75).

Simple enough? But this is just a starting point. So much more goes into managing the PPC ad spend.

Book a free PPC audit call with us and discover how you can reduce ACoS and, ultimately, your ad spend.

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How to Set Your Amazon PPC Advertising Budget

How do you plan a PPC budget? Here is a 6-step process to follow. 

1. Allocate the Total Advertising Budget

Generally, it should not exceed 35% of your total sales. If you are a new Amazon seller, you should start on the higher side of it. 

Once your product has matured and brand awareness has been established, bring it down.

2. Break Down the Budget by Campaign Structures

There are 3 main campaign structures to target:

  • Sponsored products: These products offer the highest CTR and CVR, so you should allocate the highest percentage of the budget to them. This percentage can be anywhere between 60% and 75%.
  • Sponsored brands: These ads are shown above the product listings. Since they establish your brand as an authority and usually have lower CPC than sponsored products, they come second in priority. Give them 15%-25% of your budget.
  • Sponsored displays: They are shown on the left-hand slider of the Amazon search engine results pages (also in customer reviews and Amazon marketing emails) . They are usually the least competitive but are not usually clicked. Assign 5%-10% of your ad spend to these.

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3. Determine the Break-Even ACoS

Calculating this metric gives you a realistic amount to spend on ads without compromising profitability.

Here’s how to calculate it with an example:

Selling price of your product = $50

All expenses = $20

Profit margin = 50-30 = $20 per product

Break-even ACoS = $20/$50 = 40%. To ensure profitability, your ACoS should be less than 40%.

4. Adjust Budgets Based on Goals

This involves increasing the budget for high-converting campaigns and optimizing the low-performing campaigns.

Also, set daily budgets for each campaign depending on factors like CVR, profit margins and return on investment (ROI).

5. Consider Seasonality and Market Trends

Adjust your budget according to peak seasons and shifting market trends. 

For example, you would likely want to increase your ad spend during seasons like Christmas and Black Friday.

6. Monitor and Adjust Accordingly

Regularly monitor the performance of your ad campaigns using Amazon’s campaign manager and track metrics like CTR and ACoS. 

If the performance is tanking, adjust accordingly. 

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How to Optimize PPC Campaigns for Profitability

Every Amazon seller dreams of a profitable PPC campaign. This is possible with strategies that lower Amazon PPC costs while increasing profits. 

Let’s discuss some of them below:

  • Target new competition: Simply type your target keyword, apply the “newest arrivals” filter on the SERP, and access their list. Next, set up a product targeting campaign. This will enable your product to appear alongside similar items on their product pages. Mina Elias, an Amazon expert, lives by this super insightful tip.
  • Filter bad competition while targeting categories: When creating a product targeting campaign, include your target categories and click filters to add brands with ratings lower than three stars and a higher price point than yours. This approach ensures that your products are displayed alongside those with lower ratings and higher prices, effectively persuading customers to choose and purchase your product instead.
  • Write a persuasive ad copy: A good copy includes the benefits of your product and high-quality images. This gets the customers to click on that ‘Add to Cart’ button more.

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Frequently Asked Questions (FAQs)

Let’s now look at some popular questions you might have related to Amazon PPC.

How Do Seasonal Trends Affect Amazon PPC Spending?

Seasonal trends can be linked to increased competition and higher conversion rates. 

Both of these affect the PPC spending because you would need to:

  • Increase your daily budget according to seasonal products.
  • Adjust your keyword strategy to include seasonal keywords.
  • Leverage discounts to improve seasonal buying.

Should I Increase My Amazon PPC Budget During Peak Sales Periods?

Yes, you should adjust your PPC budget according to your customers’ increased buying interest during peak sales periods. 

Analyze historical data, set flexible budgets, target high-converting keywords, and run multiple campaigns to create the most optimized budgeting framework and campaign.

How Do I Balance My Amazon PPC Budget with Overall Marketing Costs?

To effectively balance your PPC budget with overall marketing costs, consider allocating a fixed portion (e.g., 25%) for the first month while closely monitoring the outcomes. Then, adjust your metrics and analyze the results again in the subsequent month before comparing them with other marketing efforts. 

If PPC yields superior results, consider increasing the allocated percentage and vice versa.

Conclusion

Hope you got the answer of how much to spend on Amazon PPC after reading this article.

Before developing an optimized PPC strategy, you must consider factors such as ACoS, bid amount, campaign type, and keyword competition.

We can help you with that. Book a free PPC audit today to discuss the improvements in your ad campaigns.

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