Do you think you are spending too much on your Sponsored Ads? Or perhaps you’re not sure if you’re spending enough? Almost all sellers struggle with this.
The truth is when it comes to Amazon Sponsored Products, and Amazon Advertising in general, there is no definitive dollar amount that you should be spending on ads.
Instead, it varies from business to business. That’s because the ultimate goal for Amazon Ads comes down to this: drive as many sales as possible for little or no cost i.e. close to break-even.
Of course, there are exceptions to this. For example, when you are (re-) launching a product, you’ll need to run your ads above break-even as you try to gain visibility and ranking.
Conversely, when you are preparing your business for sale, you might decide to run your ads below break-even as you try to generate as much profit as possible.
As a guide, here are three key considerations to bear in mind when it comes to setting your PPC budget:
1. Don't fall into the ACoS trap!
Most Amazon sellers obsess over their Advertising Cost of Sale (ACoS). ACoS is your total ad spend divided by your total sales. In short, it shows how much you spend on ads to gain a dollar from attributed sales.
As I said in last week’s blog post, for many, it is the ultimate measure of the performance of an Amazon PPC campaign.
But while ACoS is important, if it’s the only metric you focus on, you’ll miss out on opportunities that could generate more sales and revenue.
Here’s an example. Let’s say you spend $1 on PPC and generate $100 in sales. Nice, right? This would give you a crazy low ACoS of 1% and a gross ad revenue of $99. Happy days.
But what if you increase your ad spend to $100, and in turn generate $1,000 in sales. While your ACoS has increased to 10%, you now generate a gross ad revenue of $900!
Which would you prefer?
2. PPC is an Investment - Not a Cost
How much is a page 1 ranking worth on your main keyword? When asked this same question, many sellers quote figures in the thousands.
So consider this. If you would be prepared to pay thousands of dollars for that much-coveted top of page one position, why not adopt this same mindset when it comes to your advertising budget?
Driving consistent sales volume and velocity through targeted keywords with your advertising will improve your organic ranking over time, and generate organic sales in addition to PPC sales to grow your overall revenue.
The key is to focus on optimising your campaigns to break-even ACoS or better, then gradually scale up your budget to increase visibility, organic rank and sales at little or no cost.
3. Spend as much as possible - on profitable ads
The average Amazon business will spend somewhere between 7.5% and 15% of their sales revenue on marketing, and more when they are just starting out.
The great thing about Amazon PPC, unlike outdated marketing strategies like free giveaways to get a short-term ranking boost, is that it can be measured with a clear Return on Investment (ROI).
Your ROI is your profit. When you can see exactly how much it is costing you to acquire a sale, you can continually optimize your campaigns to improve this.
The amount you spend to advertise your product will influence your ROI.
If your ads are running at break-even or better i.e. profitable you should be spending as much as possible on those ads. Anything less, you are essentially leaving money on the table, just like the example earlier demonstrated.
Don’t be afraid to spend money to make money. If every $1 you spend on ads is producing $10 in sales, you probably want to spend as many dollars as you possibly can.
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