Many sellers new to Amazon Ads wonder what the cost of Amazon PPC is. While it may not be straightforward to establish at the start, it’s important to know what determines your Amazon PPC cost.
Once you know what impacts it, you can then learn how to control it.
In this blog, we take a dive into how you can think about your Amazon PPC cost, how to measure it, and how you can lower it.
What is the cost of Amazon advertising?
To determine the cost of Amazon Sponsored ads and your Amazon PPC marketing, it is simply calculating how much you spend on a campaign i.e. ad spend. Therefore, your Amazon PPC Cost is generally whatever you can afford to spend.
However, when we look at Amazon PPC cost from the ground up, we can start to understand the underlying metrics that make up your campaigns to help determine: what you should spend. Once we understand these, we can look for ways to get the most out of your Amazon PPC marketing.
One of the core metrics to look at is Cost Per Click (CPC). This tells you how much an advertiser pays every time a potential buyer clicks on their ad. When doing CPC-based advertising like you do on Amazon this becomes an important metric for understanding your PPC marketing. For example, if you run an ad campaign and your ad gets clicked 10 times at $1 Cost per Click (CPC), your Amazon PPC Cost is $10.
Digging into these metrics, we’ll begin to see how metrics like CPC affect your overall Amazon PPC results, how you can improve your conversion rate to get more out of your Amazon PPC, and what permanent action you can take today to improve your Amazon PPC marketing long-term.
How to measure the cost of Amazon advertising and your efficiency?
The two most popular metrics for Amazon sellers are Advertising Cost of Sale (ACoS) and Return on Ad Spend (RoAS). Both are ratios of how much profit you made on your ad spend. Both are inversely related.
Both measure how efficiently your ad budget was spent.
They are great indicators of how well products, campaigns, and overall accounts are doing. Yet, they are fairly high-level and don’t always paint a clear picture of what you can do to adapt. As you drill down into more specific metrics, you can find out what you need to increase, decrease or change to optimize your ad spend.
How to set your Target ACoS?
The first step to managing and optimizing your advertising is setting your ACoS targets. This can be at an account, campaign, product, or ad level. The most straightforward way to set your target ACoS is by starting at your break-even ACoS. This is where your profit margin equals your ACoS.
This works as a maximum target as it ensures that you do not lose any money on the sale. There are some other valid reasons to set your ACoS here, especially when starting out.
Therefore, if you can determine your profit margin, you can set your maximum ACoS. You can use this as a benchmark and a red flag. Going higher than this over a long period of time signals that you need to either optimize your campaign or turn it off.
Once you have your Maximum ACoS, you can set your Target ACoS, a percentage that will be lower than the Maximum ACoS. Your Target ACoS will reflect the ideal profit you want.
Although, in some instances, advertisers let their ACoS bleed into their profit margins. For example, when launching a new product, advertisers could let the campaign run to build momentum for the product. This is because there is a decent-sized chance that this ACoS can improve over time as you get more clicks, conversions, and reviews.
More clicks lead to more data collection which helps optimize keywords and content. As you start to see cheap keywords turn in good results, or certain product traits constantly searched for, you can then adapt your targeting.
An improvement in conversions could lead to a better BSR. Generally, Amazon gives high-selling brands better Best Seller Ranks (BSRs) whether they used ads or not. This can be valuable as brands with good BSRs are often placed higher on the results page. This improved placement generally leads to a better Total Advertising Cost of Sale (TACoS), a metric that factors in organic sales into your overall costs.
Gathering reviews is another event that can warrant a high target ACoS. Reviews help build social proof and usually improve conversion rates. Conversion rates are another key metric to track when you want to get more out of your Amazon PPC cost.
It indicates the percentage of people who click on your listing that convert. A higher conversion rate usually means that your product is a good fit for the keywords you are targeting.
How to lower your Amazon PPC Cost?
There are several factors that could help you get more out of your Amazon PPC Cost.
To lower ACoS, we would need to either decrease the cost of our traffic at the top level or increase our revenue at the bottom level.
PPC experts have a major task when it comes to optimizing their ad campaigns. They do this in several following ways:
Run Manual campaigns
Amazon Ads offers a couple of ways to create campaigns; Auto and Manual. Running Auto Campaigns is quick to set up but it is costly.
Auto campaigns cast a wide net of keywords to target. While it could discover some profitable keywords, it’ll catch a lot of irrelevant ones. This usually results in higher ACoS.
Manual campaigns will usually have a lower ACoS if you have some PPC expertise. Manual campaigns can be more specific because it gives the user control over keyword/ASIN targeting. Moreover, Manual campaigns are more focused on keeping your ACoS low.
Target worthwhile CPC keywords
When we revisit the Amazon PPC Cost formula, a major objective is to manage your CPC. So should we strive for the cheapest click? Not necessarily. If you have a high CPC on a keyword, but a higher conversion rate, then you might lower your ACoS.
Amazon and other advertising platforms are auction based. This means if advertisers find better ACoS on certain keywords, they will bid higher until it goes above their target ACoS. This makes the keyword more competitive, increasing its CPC.
Therefore, to beat the competition you cannot always win on CPC. Competitors are often looking at the same keywords you are; and raising those prices. This is when you add the conversion rate into the ACoS equation. Conversion rate is unique to your business, if you can get a good conversion rate, you can begin to wedge competitors out of high CPC keywords.
Based on our earlier equation, if CPC is $1 and our competitor has a conversion rate of 10%, their cost per conversion is $10 if their break-even price is $11, they probably can’t go much higher. As a business with the same break-even price, but with a conversion rate of 15% you can simply wedge them out of the keyword. Raise the CPC by bidding up to $1.50 and maintain your profitable cost per conversion of $10.
To optimize further, you can find instances where CPC on a keyword is cheaper at a specific time of the day. However, identifying those requires PPC tools and automation.
Pick the right bidding strategy
When creating a campaign, Amazon Ads provides some high-level strategy controls.
For a conservative approach, advertisers select Dynamic Bid—Down Only. This allows Amazon to lower your bid if a click is unlikely to convert.
For a more aggressive approach, advertisers pick Dynamic Bid—Up and Down. This allows Amazon to raise or lower your bid depending on how likely a click will convert into a sale. This strategy works well if advertisers are confident in their high-converting campaigns.
Whereas, the fixed bid strategy removes the dynamic element and keeps your bids the same. Advertisers use this when they want to test for a consistent bid.
Picking the right strategy is crucial to control your ACoS. You can either go aggressive or conservative, depending on if it keeps your ACoS under your benchmarks or the Target ACoS.
Types of Ads
Amazon offers a few options when it comes to types of ads; Sponsored Products (SP), Sponsored Brands (SB), and Sponsored Display (SD) Ads.
While all have their pros and cons, SP is more popular than other types of ads as it is more cost-effective. SP targets products that usually have higher conversion rates. Whereas, SB has a goal to increase brand awareness and is less focused on conversions. Meanwhile, SD is popular if you want to retarget or re-engage your customers. According to DataHawk, among the three types of ads, SP had the highest conversion rate and lowest ACoS in 2022
Although, what performs better for your campaign depends on your product, brand, or category. It is all about testing your campaign performance on your strategy. Continuous campaign optimization can help achieve your Target ACoS.
Increase Conversion Rate through content
If your content is not compelling and doesn’t convince shoppers, your ACoS will be higher. To maximize your campaign optimization impact, you need to improve your conversion rate through best content practices
The conversion rate is the percentage of customers who buy your product when they visit your page. You can improve your conversion rate by focusing on the following:
- A+ Content helps you tell a better brand and product story.
- Optimizing product titles enables using keywords that resonate with your audience.
- Bullets can be used to pinpoint solutions through features and benefits.
- Better visuals such as images and videos give you an opportunity to show what the product looks like and what it can do.
- FAQs help answer questions that customers have about your product to remove any possible doubts or cater to objections.
- And to provide some social proof, more positive reviews can help build trust with your product and brand.
While no amount of content can change how well your product functions, humans rely on their intuition in buying situations as well. That means having high-quality content, social proof, and a recognizable brand matter. Building these things should lead to a better conversion rate, improving the outcome of all the clicks you pay for.
Increase the Average Order Value
As noted in the ACoS formula, Average Order Value (AOV) plays as significant of a role as conversion rate. Fortunately, there are ways for sellers to increase the value of their orders.
For example, brands can offer wholesale prices for a bundle of toothpaste. This increases the price of the product. By doing this, you lessen the reliance on the other two variables in our ACoS equation and as result can get more out of your Amazon PPC cost. Simply put, you are getting more revenue per sale so you can pay higher CPCs and have lower conversion rates to make that sale.
To get more out of your Amazon PPC, find ways to increase value while staying competitive. Bundles work well in Consumer Packaged Goods (CPG) such as food, cleaning products, and health supplements. Though, there are other strategies you can employ depending on the category.
In some cases, bundling value can be a good strategy to incentivize a customer. Getting 3 tubes of toothpaste for $6 sounds a lot better than one tube for $2.50. Especially, when these goods are always needed by consumers and have a long shelf-life.
Putting it all together
While there is a lot that goes into determining the Amazon PPC cost, maximizing your ad spend through ACoS and its underlying metrics should be your goal.
Revisiting the ACoS equation can help you identify the metrics you need to work on. You can use our ACoS calculator tool to find your Target and Maximum ACoS.
Once identified you can start optimizing your campaigns, keywords, and ad types for more affordable traffic while updating content and increasing AOV to get more out of that traffic.
Once you start to view your campaigns through this lens, testing your campaign becomes significantly easier. If you’re still finding it difficult to meet your target ACoS or get the most out of your Amazon PPC costs, you can automate campaign optimization. Automation lets AI optimize the underlying metrics for you.
Learn more about the best way you can automate ad campaigns and measure what brings you the most return. Talk to one of our eCommerce experts, and get a walkthrough of our platform. Schedule a Demo today!