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Advertising on Amazon is becoming increasingly competitive as more brands and advertisers compete for customers. To succeed, brands need an effective PPC strategy. One of the most crucial aspects of a successful PPC strategy is determining an appropriate daily budget for your Amazon PPC campaigns.

In this article, I will be sharing our top 5 tips for helping you to set the best Amazon PPC campaign budgets for your business, and how to use them for maximum effect.

But before we dive in, let's cover some Amazon PPC budget basics.

What Is A Daily Budget In Amazon PPC?

An Amazon PPC daily budget allows you to set a limit on how much you want to spend on PPC campaigns.

There are 2 different types of budgets you can set up in Sponsored Products:

1. Average daily budget for individual ad campaigns (compulsory)

It is compulsory to set an average daily budget for each ad campaign. This is the maximum daily budget you’re willing to spend for each campaign

2. Fixed daily account budget (optional)

When you set up your advertising campaign, you have the option to set a fixed daily budget for each day. This applies to your entire advertising account.

By setting a fixed budget, you have more control over your budget. It can be used as a preventative measure that keeps your business from running up high costs on your campaign. 

Why Is It Important To Set An Amazon PPC Daily Budget?

  • Prevent Wasteful Spend: Setting a cap on your daily advertising budget prevents you from overspending on your PPC campaigns. Once your ad spend reaches the limit, your brand’s ad campaigns will stop running until the next day. 
  • Maximize Return On Investment: Setting an Amazon PPC daily budget allows you to allocate daily budgets based on the profitability of individual campaigns and optimize them to maximize the return on your ad dollars.
  • Budget Allocation: A fixed daily budget gives even greater control over budget allocation according to the profitability of each campaign.

Now that we have covered the basics, let’s dive into our top Amazon PPC budget setting tips.

Tip 1: Aim For 10% TACoS 

Let's start by answering the age-old question: how much should you spend on Amazon PPC? While there's no one size fits all answer, we’ve found that a good rule of thumb is to aim for an ad budget equivalent to approximately 10% of your total revenue. To put it another way, aim for a 10% TACoS.

Your Total Advertising Cost of Sale (TACoS) measures your advertising spend relative to the total revenue generated. To work out your TACoS, you simply need to divide your total advertising spend by your total sales revenue and then multiply it by 100.

As a metric, your TACoS provides a much more accurate picture of how your ad spend is performing compared to your ACoS. The problem with ACoS is that it is confined to measuring only your advertising efforts. It fails to measure the true value of your ad spend and how it impacts the overall performance of your business.

By using this 10% method as a guide, your budget increases at the same rate as your sales. It also helps to ensure that your budget never gets out of control.

Tip 2: Allocate Your Budget Across Sponsored Ads Formats

Next, you can start thinking about how you allocate your budget across the three types of Amazon Sponsored Ads:

Sponsored Products: Sponsored Products are the most popular ads on Amazon that promote individual products within Amazon search results to help you reach high-intent shoppers.

Sponsored Brands: Sponsored Brands boost brand awareness by showcasing your brand and product portfolio to help drive sales and product visibility. These ads send shoppers to your Amazon Stores page or a custom landing page on Amazon. 

Sponsored Display: Sponsored Display advertising helps advertisers reach relevant audiences across the shopper journey. Ad placements appear on Amazon and on external websites off Amazon.

We recommend dividing your ad budget across the customer journey, and therefore, by the different ad types to get the most out of your ad spend.

Allocate 75% To Sponsored Products

Sponsored Products ads cover the largest amount of paid real estate and are the easiest to set up. Sponsored Products ads also offer the largest volume in terms of click through rate and give new sellers the best opportunity to see a return on their ad spend.

Sponsored Products should be the foundation of your advertising strategy. They target the bottom of the funnel in the 'purchase' or 'conversion' stage. They drive customers directly to your product at the moment they’re intending to make a purchase. 

Allocate 20% To Sponsored Brands

Sponsored Brands ads are another important part of the marketing funnel. They are higher up in the funnel in the 'awareness' and 'consideration' stages. They generate awareness of your brand by highlighting an entire brand via product carousels or videos rather than individual items.

These ads allow shoppers to discover your products which in turn will drive conversions as your prospect customer goes farther down the funnel.

Putting three of your products at the top of an Amazon SERP can be incredibly effective but because their goal is to drive brand awareness they can also be costly. So it is sensible to limit your ad spend on this ad type, at least when you start using Brands ads for the first time.

Allocate 5% on Sponsored Display

Sponsored Display ads work differently to Sponsored Products and Sponsored Brands. With views targeting, these ads promote the most relevant product that has the highest chance of conversion. 

This type of ad engages shoppers on and off of Amazon, and should be considered only as part of an advanced PPC strategy. 

Sponsored Display ads also have a Cost per Mile (CPM) model instead of a Cost per Click (CPC) model which can make performance confusing for beginners. CPM is a pricing model where you pay a certain amount for 1,000 impressions, or the number of times your ad appears.

Tip 3: Use the 80/20 rule

The 80/20 rule, also known as the Pareto Principle states that 80% of output or results come from 20% of input or action. 

When it comes to Amazon PPC, you may be surprised to learn that it's not unusual for 80% of your sales to come from 20% of your keywords. This is where you should focus your ad budget so you can capitalize on as many opportunities to drive sales as possible.

You can download a Search Term Report to find the proven keywords that convert into sales:

  • Go to the ‘Measurement and Reporting’ tab in the Advertising Console
  • Select ‘Reports’
  • Select ‘Create report’
  • Select ‘Campaign type’ (in the below example, we are selecting ‘Sponsored Products’)
  • Select ‘Search term’ for ‘Report type’
  • Select ‘Daily’ for ‘Time unit’
  • Select ‘Last 30 days’ for the ‘Report period’
  • Select ‘Run report’
  • Click ‘Download’

When it comes to identifying your best-performing keywords, admittedly, this is somewhat arbitrary. But as a general rule of thumb, you are looking for search terms with multiple sales (we recommend a minimum of 3 for new accounts, more for aged accounts) at an above-average Click-Through Rate (CTR). 

Your CTR is the percentage of people that see your ads and click on them; it indicates how relevant your ad is to a shopper’s search query. The average CTR on Amazon is 0.4%, so you can use that as a benchmark.

To do this, simply Sort and Filter your Search Term Report report by 7 Day Total Sales. This will identify the search terms that convert the best.

4. Have A Separate Ad Budget For Product Launches

As you launch new products, you want to allocate dedicated budgets for the launch of each new SKU. You don’t want to tap into your existing budget allocations because you'll end up spreading your ad budget too thin and taking away precious ad dollars from established campaigns will hurt the overall performance of those SKUs.

5. Use Budget Rules

Amazon sellers can now set campaign budgets in advance using two types of budget rules for Sponsored Products. Budget rules help reduce manual effort spent on adjusting budgets. 

The two types of budget rules are:

  • Schedule-based rules allow you to set budgets in advance for specific dates and shopping events such as Prime Day. The rule will increase the campaign budget by the percentage you specify during the date range you set in the rule or during the special event selected. 
  • Performance-based rules allow you to set rules to increase your campaign budgets when your campaigns meet a certain performance threshold using metrics such as advertising cost of sales (ACOS), click-through rate (CTR), and conversion rate (CVR). 

There are several benefits to using budget rules. They include:

  • Improved sales opportunity: You can use budget rules to help prevent high-performing campaigns running out of budget and reducing the likelihood of missing out on sales.
  • Better budgeting: Amazon will provide recommended budgets based on historical shopping activities to help you ensure your campaigns have sufficient budgets for important shopping events.
  • Plan budgets in advance: Setting budget rules help you plan and set campaign budgets in advance for high traffic and sales events.
  • Reduce manual effort: You can save time by setting budget rules that automatically increase campaign budgets instead of manually adjusting campaigns.

Final Word

By setting a budget for your Amazon PPC campaigns, you are protecting yourself from incurring high advertising costs. Additionally, ensuring you allocate those ad dollars to what’s actually working, means you are putting your budget where it matters. That way you can finally feel confident your ad dollars are working hard for you. 

Follow these top tips and you’ll be well on your way to getting the level of your Amazon PPC spend right. 

If you need help with your Amazon PPC, you might want to consider working with an Amazon Advertising agency like Sponsored Profit.  Schedule a call with us to see how we can help you get the most of your Amazon Advertising.

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