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.
Quick Answer – How Much to Spend on Amazon PPC
There isn’t a single unique mold for all, but you can start by allocating around 30 to 35% of your expected monthly revenue to PPC, especially if you’re a new seller looking to gain traction.
For instance, if you expect to generate $5,000 in revenue, your PPC budget can be around $1,500 per month or $50 per day.
You can also use the 2.5 rule (which we’ll discuss later) to guide your cost-per-click (CPC) strategy. Basically, your CPC should not exceed 2.5% of your product’s selling price. For a $30 product, keep your CPC under $0.75 to maintain a healthy ACoS and maximize profitability.
Depending on your profit margins and goals, aim for an ACoS of 10-20% and a TACoS of 5-20%. As you gather more data, adjust your budget based on what’s working, which will boost high-converting campaigns and trim the underperformers.
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 Amazon PPC bids to maximize your profits, book a free audit call with us today. Our Amazon PPC management services will help crush your category.
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.
Amazon 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 healthy Amazon 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.
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 develop 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 Amazon 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).
How Your Marketing Goals Influence Amazon PPC Spending
To get the most out of your Amazon PPC budget, you need to align your spending with your marketing goals.
Different goals require different levels of investment and strategy:
Launching a New Product
If you’re launching a new product, your goal is likely to gain visibility and reviews.
This means you’ll need to spend more aggressively at the start, which is often 30-40% of your projected revenue, to gain traction quickly.
Profit Maximization
When your focus shifts to profit, your PPC budget becomes more calculated. You’ll want to optimize campaigns for lower ACoS, pause underperforming ads, and focus on high-converting long-tail keywords.
Budget allocation here is usually tighter, around 20-25% of revenue.
Brand Awareness
If you’re building brand recognition, especially in a competitive niche, you’ll likely invest more in sponsored brand and display ads. While this might not result in immediate sales, it supports long-term growth.
Expect to allocate a moderate budget with a focus on impressions and reach, not just conversions.
Scaling Up a Winning Product
When your product is performing well, the goal becomes to scale profitably.
This is when you increase ad spending while keeping a healthy ACoS. You can reinvest some of your profits to dominate more ad placements and keyword positions.
Clearing Inventory
Your Amazon PPC strategy may become more aggressive if you’re trying to move inventory more quickly (for e.g., before a new version launches).
You can expect to have higher daily budgets and discount-driven ads to maximize short-term conversions.
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 “black laptop cover” keyword 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 ad spend, which is why it’s best to work with a trust Amazon PPC agency.
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.
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
Monitor the performance of your ad campaigns regularly using Amazon’s campaign manager and track metrics like CTR and ACoS.
If the performance is tanking, adjust accordingly.
Amazon PPC Budgeting Pitfalls to Avoid
While Amazon PPC is a great way to advertise your products, sometimes, common budgeting mistakes can cost you a lot of money. Avoiding them can improve your ad performance and save you money.
Here are some key PPC budgeting pitfalls to watch out for:
Setting and Forgetting Your Campaigns
Many sellers set a budget and walk away. But without regular monitoring, you might waste money on low-performing keywords or miss chances to scale winning ones.
Check your campaigns weekly (at least) and adjust based on performance.
Bidding Too High on Broad Keywords
Broad, high-volume Amazon keywords can drain your budget, especially if they don’t convert.
Instead, focus on long-tail, high-intent keywords that are more likely to drive sales at a lower cost.
Ignoring ACoS and TACoS
Not tracking these key metrics can be your biggest mistake.
If your ACoS is even slightly higher than your profit margin, you’re losing money. Keep a close eye on both ACoS (ad sales) and TACoS (total sales) to understand your real ROI.
Spreading the Budget Too Thin
If you try to run too many campaigns with a small budget, it may lead to poor performance across the board.
It’s better to focus your budget on top-performing campaigns and keywords rather than spreading it too thin.
Overlooking Negative Keywords
Without Amazon PPC negative keywords, your ads can show up for irrelevant searches, which will lead to wasted clicks and spending.
Regularly add negative keywords to prevent budget waste and improve targeting.
Not Adjusting for Seasonality
If you’re running the same budget year-round, you’re likely missing out.
Failing to scale up during high-demand seasons or scale down in slower periods can lead to inefficient ad spend.
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.
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.
How Do I Adjust My Budget Based on PPC Performance Data?
Adjusting your PPC budget based on performance is fundamental to maximizing returns and minimizing waste.
You can do this by:
- Using metrics like CTR, CVR, ACoS, and TACoS to evaluate each campaign’s effectiveness.
- Increasing spending on high-performing campaigns that generate low ACoS and high conversions.
- Pausing or reducing the budget for campaigns with high spending but poor ROI.
- Reallocating budget from underperforming keywords to high-intent, better-converting ones.
How Can I Track the Effectiveness of My Amazon PPC Spend?
Tracking PPC effectiveness is essential to adjusting your spending, and here’s how to do it:
- Monitor ACoS to understand how much ad-driven sales you spend per dollar.
- Keep an eye on TACoS to gauge how ads are impacting total sales.
- Analyze your CTR and conversion rate to assess ad relevance and landing page quality.
- Use Amazon campaign manager or third-party analytics tools to break down performance by keyword, product, and campaign.
- Compare results over time to spot trends and opportunities.
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 Amazon PPC audit today to discuss the improvements in your ad campaigns.
