Contrary to popular belief, running profitable PPC campaigns isn’t just about devising innovative strategic campaigns. It’s also about determining a budget and adhering to it.
Advertising budget outlines all the money a brand intends to spend on Amazon marketing campaigns (Sponsored Ads mainly). Deciding on a budget beforehand is especially critical for small brand owners and new sellers that don’t have experience drawing marketing budgets and want to keep costs as lean as possible.
While we cannot fixate on a magic figure that works for all brands, we will answer the most common questions that will help each brand determine the perfect advertising spend for their business.
Is Amazon PPC really necessary?
Short answer: yes.
If your brand is relatively new and products are not ranking on page #1 for the top most keywords, a huge chunk of your sales will come from PPC initially. With Amazon Sponsored Ads, you can temporarily rent the coveted real estate on page one of SERPs and get your products in front of shoppers right when they are searching for your product.
Effective PPC campaigns results in more sales increased reviews and better organic positioning. While you should not entirely depend on PPC for sales, you must use it in the initial stages of product launch for getting a head start in sales and the latter stages for retaining your market share.
Even name brands with thousands of reviews and organic positioning on page one continue to advertise aggressively to stay in the competition.
How much to spend on Amazon PPC?
A question that every Amazon seller ponders upon is: what’s the right amount to spend on Amazon PPC.
There is no one-size-fits-all approach to determining how much brands should spend on paid advertising. Each brand has unique goals that inform how much they are willing to spend on PPC.
If you are not sure where to start, you can commit to reinvesting a certain percentage of your revenue into advertising and you’ll have the amount set aside to spend on Amazon PPC.
Ideally, your advertising budget should be approximately 10% of your total revenue. This percentage works if you are just starting or want to maintain your current position in the market. If your goal is market domination and capturing competitors’ sales, consider investing 15% of your total revenue in PPC.
It’s also important to look at the temperature of the niche you are selling in. To advertise in uber-competitive categories, you may want to increase your total PPC budget in order to gain more visibility and recognition.
The 70-20-10 rule
Out of the 10% budget allocated for Amazon PPC, 70% of it should be used for strategies you know are going to work, 20% of it should be used to try out new strategies that are intended towards growth and 10% of it should be used to experiment targeting opportunities, new placements, etc.
Do I advertise all the products in my catalog?
No. We recommend you advertise aggressively on the top 20% of products that make up most of your revenue.
How much to spend on each ad type?
The overall PPC strategy remains the same for almost all the brands: Create automatic Sponsored Product campaigns that uncover useful search terms and gradually shift to manual campaigns to drive more sales. A sprinkle of Sponsored Brands for brand awareness and Sponsored Display to target customers visiting competitor’s detail pages.
The question is, how do you allocate the budget for each ad type? Three ad types (Sponsored Products, Sponsored Brands and Sponsored Display) are not equally valued when it comes to budget allocation.
Putting a lot of stock in Sponsored Brands and Sponsored Display can make it difficult for you to maintain a profitable ACOS. While both ads have their advantages, they are nearly not as profitable as Sponsored Products.
Here’s what the ad budget of most profitable PPC campaign structures looks like
We recommend using 70% of your ad budget for Sponsored Products, 20% for Sponsored Brands and 10% for Sponsored Display.
Of course, these percentages solely depend on your advertising goal. For example, if your goal is to increase sales, allocate more budget to Sponsored Products and if you want to focus on raising brand awareness and gain visibility, pull back on Sponsored Products and allocate more of the budget towards Sponsored Brands and Sponsored Display.
What is considered a good ACOS?
An average of 25% ACOS is deemed acceptable for well-optimized PPC campaigns that have been running for over two months.
However, it is not advisable to solely rely on ACOS for determining the profitability of your PPC campaign.
Despite being an unmissable metric in measuring the success of your campaign, ACOS does not reflect the larger picture. Apart from generating direct sales by luring more customers to detail pages, PPC also contributes to increasing brand awareness and organic ranking.
A comprehensive approach to determine the profitability of a PPC campaign would be to include TACOS into the metrics mix. TACOS reveals the effectiveness of advertising in the long run and shows how much your business relies on advertising.
Here’s how to interpret TACOS:
|TACOS Scenario||What Does It Mean?|
|TACoS is flat||Organic sales is increasing|
|TACoS is falling ↓||Organic sales is increasing|
|TACoS is rising ↑ and ACOS is falling ↓||Organic sales are reducing|
|TACoS is rising ↑ and ACOS is rising ↑||Organic sales are reducing|
|ACOS and TACoS both are rising ↑||Acceptable if your product is new|
Although paid advertising is inevitable, it is not advisable to completely rely on it for sales. Your advertising should have a snowball effect; gradually, it should lead to brand awareness and increased organic sales.
How to optimize PPC campaigns for profitability?
Amazon has a sophisticated reporting system and an easy-to-navigate dashboard that helps brands optimize their PPC campaigns.
- Use the “Almost or out of budget filter” to get a list of campaigns that already have or are soon going to exhaust their budget.
- Regular optimization tasks should include optimizing bid amounts, determining profitability at the product level and adding converting search terms and negative keywords from the Search Terms report.
- If you are selling seasonal products, the budget should be increased during high-traffic months. However, advertising efforts should not be stopped in off-months as that can negatively affect your market share.
- Boost new product launches by advertising your newly launched products alongside established products. Sponsored Brand and Sponsored Display ads are some of the best ways to do this.
- Before bringing any paid traffic to the listing make sure your listing is informative and appealing. Properly optimize your copy and images and leverage Enhanced Brand Content to get a boost in conversion.
Putting a cap on PPC spend is essential for creating profitable paid advertising campaigns.
Amazon marketplace is becoming increasingly pay-to-play and thanks to COVID, CPCs are higher than ever. Besides, there are so many advertising updates rolled out by Amazon that tempt brands to leverage Amazon ads to make their presence felt. Sponsored Products introduced a new search term impression report, Sponsored Brands can now feature a custom headline and logo and Sponsored Display now allows advertisers to promote their products on platforms like Twitch.
Amidst the competition and increasing CPCs, you must set a budget that serves as a roadmap to advertising success. Your advertising budget should be able to flex to meet the changing demands of your business. Your Amazon marketing consultant can help you decide, but it’s totally up to you to determine the amount you want to spend on Amazon PPC. Keep these guidelines in mind next time you finalize your PPC budget.
If you are strapped for cash, plenty of free opportunities can help you drive organic traffic to your detail page, increase sales and build brand recall: Amazon listing optimization, A+ Content, Stores, Posts, Amazon Live and more. Check out the full list here: Amazon Creative Tools to Increase Brand Recall.
Need help determining the PPC budget? Our team of Amazon Ads Specialists can help you decide on a budget that aligns with your goals and identify opportunities to reduce wasted spend. Contact us now!