For a vast majority of Amazon FBA sellers, the cost of pay per click (PPC) ads is a mystery that needs unraveling. 34% of marketers believe PPC is one of the most effective marketing tactics but usually the most difficult to utilize.
Understanding how PPC bids play a role in Amazon’s overall algorithm is key in accurately predicting future profits and helps your products gain maximum exposure.
Thanks to Seller’s Choice PPC Management solution, you can leave the hard work to us - or, have a read through this article to see what’s involved in optimizing your PPC bids to take your FBA store’s profits to the next level.
The Cost of Amazon Pay Per Click
Amazon’s PPC always depends on the highest bidder. Each seller submits the maximum they are willing to pay for per click on their ad. The highest bidder wins the highest ad position, but will only pay $0.01 more than the following bid.
Amazon will never charge you more than your maximum bid, though sellers should never bid more than they are willing to pay for a click. At the end of the month, Amazon adds up all of your PPC ad costs and withdraws the sum from your total ad threshold. The total cost remains under your control - meaning you choose how much you want to spend for a click at any time.
The minimum daily budget for ad spending is $1.00, but Amazon recommends a minimum of $10.00 to ensure your campaigns are shown throughout the whole day.
If you’re sponsoring a product, the amount you enter is the average daily amount you are willing to spend over a calendar month. If this is, for example, $100 a day, you might accumulate up to $3,100 worth of clicks in a month (assuming 31 days).
If sponsoring your brand, the amount you enter is the maximum daily amount you are willing to spend for each day and doesn’t roll over to the next day.
How To Estimate Amazon Pay Per Click Cost
Along with a generous PPC bid, targeting the right keywords is hugely important for getting Amazon to display your ad as the most relevant to a customer search.
In order to estimate the most appropriate PPC bid, you can use this formula:
Bid = Product Price x Target ACoS x Conversion Rate x (1+40%)
The ACoS (Advertising Cost of Sale) is a key metric used to measure the performance of your Amazon Sponsored Products campaigns, indicating the ratio of ad spend to targeted sales. It is calculated like this: ACoS = ad spend ÷ sales.
The conversion rate will vary for each keyword you choose, so you should just get started and experiment with different variations. Later on, you can adjust your bid according to the keywords that give you the most conversions and the best rates.
To lower the ACoS for a keyword, lower the bid. If you want to raise the ACoS for more traffic, raise the bid.
If you lower your bid, your visibility will also decrease and if you continue lowering it, you may lose traffic altogether. If you have a really low conversion rate, PPC will not be profitable.
To find your conversion rate, you’ll need to hit your target ACoS by bidding appropriately. You can do this as an aggressive strategy to beat out competitors and get initial sales and reviews so that your store stands out as relevant. Later on, you can bring down your ACoS to something more sustainable like 10%-30% to tick over.
If you’re on a tight budget, bid low. However, if you find you are running out of funds early in the day, eliminate the keywords that are depleting most of your budget unless they are resulting in lots of sales. If you need help with keywords, an SEO optimization tool ensures every page of your store is keyword-optimized for organic visibility and engagement.
The 2.5 Rule
Another formula for estimating Amazon PPC costs is the 2.5 Rule.
Assuming that your product is priced between $18-$30 and a typical conversion rate for this amount is 10% (meaning it takes on average 10 clicks to make a sale), your target ACoS is 25% of your sales price. So, when researching keywords for your Amazon PPC ads, a keyword shouldn’t cost more than 2.5% of the product price.
The long version of the formula looks like this:
PRICE x 25% = Target ACoS
Target ACoS / 10 Clicks = 2.5%
Amazon PPC Costs = 2.5% of Total Sales Price
But to save time, you can keep to this simple formula:
PRICE x 2.5% = Your Target Amazon PPC Costs
Even simpler than this, just multiply your product’s price by 0.025 and you’ll have your target Amazon PPC cost.
Key Benefits of Amazon PPC
One of the greatest benefits of using Amazon PPC is that you are not just paying for clicks - you are generating the impressions. This is a great thing because impressions stay in the memory of customers and they’ll remember your product when an occasion presents itself to buy. Here are just some of the key benefits of adding Amazon PPC to your FBA store:
Your products will rank higher. PPC gives your product visibility on Amazon’s home page and is an immediate option for prospective customers.
Buyers are targeted. PPC ads show up as relevant ‘sponsored’ options next to the customer’s targeted search.
PPC campaigns have global visibility. Sponsored posts get millions of global views instantly, maximizing your product’s chance of a sale.
In-depth reporting helps you adjust your PPC accordingly. Amazon offers an in-depth reporting feature that helps sellers to measure and optimize their PPC campaign using the right combination of keywords and bid recommendations.
PPC displays on multiple devices. As well as desktop, sponsored products are shown on all Amazon Apps via mobiles, smartphones, and tablets.
No activation costs or subscription fees. Registering for Amazon’s PPC campaigns do not require any activation costs or subscription fees.
Reasons to Give Amazon PPC a Go
You may be reading this article and thinking ‘my store makes pretty good sales already, so why should I even bother with PPC?’
Well, as we all know, nothing is a given on Amazon. One day you could be raking in the $$$ and the other, someone who’s done their research will gain a competitive edge on the market you’re targeting. For this reason, you might want to consider running PPC campaigns to boost your store’s profile and of course, sales. For most FBA sellers, increasing sales in a key component of a long-term business strategy for growth.
Running PPC campaigns also increases organic rankings of highly competitive keywords that otherwise may not be visible without sponsorship. Not only will a PPC campaign bring in more sales, but it’ll also ensure a first-page result that’ll increase the organic ranking of your keyword over time.
The more you run PPC campaigns, the more brand awareness is created for your products and new launches. Products that gain the most sales are automatically placed at the top of search results, increasing sale potential and customer trust. In order to safeguard and protect top rank positioning in Amazon searches, most top-ranking brands run PPC campaigns as a way to keep competitors at bay.
If you find that a PPC campaign isn’t financially viable for your store right now, you could consider trying them seasonally when sales are organically at their highest. Christmas is, of course, a month that brings in the most dollars for retailers, followed by other seasonal holidays and trends like Mother’s Day and Halloween, etc. Running a PPC campaign at this time is not only a great way of increasing visibility, but could boost your profits significantly.