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Amazon PPC Cost Breakdown: How Much Will You Pay in 2024?
1. Introduction
Amazon PPC (Pay-Per-Click) advertising has become an important tool for sellers to improve product rankings and boost sales. However, the Amazon PPC cost of running these campaigns has been steadily rising, making it important for sellers to factor these expenses into their overall business strategy.
Many sellers overlook the importance of calculating Amazon advertising cost when finalizing their product. They often consider the Amazon FBA fees, product costs, and shipping expenses but fail to account for the significant impact of pay-per-click expenses on their net profit.
By not including these costs in their calculations, sellers might end up with a lower net profit margin than anticipated.
To better estimate the net profit, it’s essential to consider all expenses, including advertising costs.
This approach helps sellers avoid surprises and plan their budgets more effectively, ensuring that their business remains profitable even as costs increase.
2. The 2.5x Rule of Amazon PPC Cost
One useful guideline is the 2.5x rule, which suggests that your target Amazon PPC cost should be approximately 2.5% of your product’s selling price. For example, if your product sells for $20, your target cost per click (CPC) should ideally be no more than $0.50 ($20 x 2.5%).
Let’s break this down further with a practical example:
Product Price: $20
Target CPC: $0.50 (2.5% of $20)
Conversion Rate: 10% (typical for many products)
Daily Target Orders: 30
To achieve 30 orders with a 10% conversion rate, you would need 300 clicks (since 10% of 300 clicks results in 30 orders).
Calculations:
Number of Clicks Required: 30 orders / 10% conversion rate = 300 clicks
Total PPC Cost: 300 clicks x $0.50 CPC = $150.
Therefore, to achieve 30 daily orders, you would need to budget $150 per day for your PPC campaigns based on the 2.5x rule.
However, it’s important not to rely solely on this rule. Proper data analysis and accurate calculations, which will be discussed in this article, are essential for managing your Amazon advertising cost effectively.
3. Factors Influencing Amazon PPC Costs
Understanding the factors that influence Amazon PPC cost is crucial for optimizing your advertising strategy. Various elements impact how much you pay per click, and recognizing these can help you manage your budget more effectively and achieve better results.
3.1. Competition
The more competitive a product or category is, the higher the cost per click (CPC) will be. In competitive categories or for popular products, sellers compete to secure higher positions in the search results, which drives up the Amazon pay per click cost. This competition often leads to increased bids as sellers vie for visibility.
3.2. Click-Through Rate (CTR)
The click-through rate is a crucial metric in determining Amazon advertising cost. It represents the percentage of people who click on your ad after seeing it. A higher CTR indicates that your ad is relevant to the audience.
Amazon rewards relevant ads with a better Quality Score, which can lead to lower CPC and better ad placement. Improving your ad copy and targeting can help increase your CTR.
3.3. Conversion Rate
Conversion rate is one of the most important factors that influence the Amazon PPC cost. It measures how many people purchase your product after clicking on your ad. The higher the conversion rate, the lower your PPC costs and vice versa.
For example, if you get 100 clicks and make 10 sales, your conversion rate is 10%. If your conversion rate doubles to 20%, you will achieve 20 sales on the same 100 clicks with the same PPC spend, effectively reducing your cost per conversion.
3.4. Bidding Strategies
There are three bidding strategies for Amazon Sponsored Product ads:
- Dynamic Bids – Down Only: Amazon automatically reduces your bids in real time when your ad is less likely to convert to a sale.
- Dynamic Bids – Up and Down: Amazon increases your bids when your ad is more likely to convert and decreases them when less likely.
- Fixed Bids: Your bids remain constant regardless of the likelihood of conversion.
- Rule-Based Bidding: A rule-based bidding system allows users to manually adjust campaigns by setting ‘if/then’ rules that automatically modify bids and keywords according to predetermined criteria.
Each bidding strategy affects your Amazon advertising cost differently.
3.5. Product Relevance
Amazon’s algorithm evaluates how relevant your product is to the chosen keywords. Products with higher relevance and quality scores can achieve lower CPCs. Ensuring that your product listings are optimized with appropriate keywords and high-quality images can help improve relevance.
3.6. Bid Amount
Your bid directly affects your CPC. Higher bids increase the chance of winning the ad auction but also raise the CPC. For instance, if you aim for the top ad position, you will need to bid higher, increasing the cost of advertising. Conversely, if you aim for a lower ad position, you can bid less and potentially reduce your Amazon PPC cost.
3.7. Ad Placement
Ad placement significantly impacts the Amazon PPC cost. Ads that appear at the top of search results (Top of Search, or TOS) have higher CPCs due to increased competition and higher conversion rates. More sellers compete for these spots, driving up the cost.
In contrast, placements on Product Pages (PP) and Rest of Search (ROS) typically have lower CPCs due to less competition.
3.8. Seasonality and Market Trends
Demand fluctuations during peak seasons or trending periods can impact CPC. For example, holiday seasons like Prime Day or Black Friday often see increased competition, resulting in higher CPCs and increasing the overall Amazon advertising cost. Planning your campaigns around these trends can help you optimize your budget.
4. Calculating Amazon PPC Costs - Step-by-Step Guide
When launching an Amazon PPC campaign, it’s crucial to carefully plan and calculate your budget to ensure you’re investing wisely. By following these steps, you can create a detailed and effective budget tailored to your specific needs.
4.1. Selecting High-Relevant Keywords
The first step in building an effective Amazon PPC cost strategy is selecting high-impact keywords that are highly relevant to your product. Use tools like Helium10 to find the most suitable keywords for your campaign. Create a list of the top 15 keywords you will target in your Amazon PPC campaigns.
For example, if you’re selling eco-friendly water bottles, your high-impact keywords might include “reusable water bottle,” “eco-friendly bottle,” and “BPA-free water bottle.”
4.2. Calculating Your Conversion Rate
Conversion rate is a critical metric that directly affects your Amazon advertising cost. It represents the percentage of customers who make a purchase after clicking on your ad.
Here’s the formula:
Conversion Rate = (Conversions / Clicks) * 100
Let’s break it down into two scenarios:
Scenario 1: Existing Products
If you’re already selling a product, there are several ways to calculate the conversion rate:
- Amazon Business Reports: Go to Business Reports from the Reports menu in Seller Central. Review your sales and traffic data, and look for the “Order Item Session Percentage” row, which represents your conversion rate.
- Brand Metrics: This tool offers insights into the top and median conversion rates for your category. If you’re launching a new product within an existing category, this is an excellent way to estimate your conversion rate. Access it by going to Seller Central’s campaign manager and selecting “Insights and Planning.”
Scenario 2: Entering a New Niche
If you’re entering a new niche, estimating the average conversion rate can be challenging but necessary for budget planning.
Product Opportunity Explorer (POE): Use this tool to analyze search terms and products data. To calculate the conversion rate:
- Navigate to the “Growth” tab in Seller Central and select “Product Opportunity Explore“.
- Search by Keyword or ASIN and select the relevant niche.
- Download the “Search Terms” and “Products” data as shown in image below.
- In the “Products” sheet, sum up the “Niche Click Count (Past 360 days)” of all the products appearing in the sheet.
- In the “Search Terms” sheet, find the “Click Share” and multiply it by “Total Niche Click Count (Past 360 days)” from the step 4 to find “Total Clicks” for a specific search term.
- In “Search Terms” you will see two columns I) “Search Conversion Rate (Past 360 days)” and, II) Search Volume (Past 360 days). Now multiply the values of these columns and you will get “Total Purchases” for a search term.
- Finally, use the formula: Conversion Rate = (Purchases / Clicks) * 100 to estimate the conversion rate for each search term, and then calculate an average conversion rate.
- For instance, if the total purchases are 500 and the total clicks are 5,000, the conversion rate would be: Conversion Rate = (500 / 5000) * 100 = 10%
This estimated conversion rate can then be used for your PPC cost estimates.
Product Opportunity Explorer Interface
Products Data
Search Terms Data
4.3. Determining CPC for Your Keywords
Once you have your keywords and conversion rate, the next step is to determine the cost per click (CPC) for each keyword. You can use Helium10 Cerebro to reverse ASIN the top competitors and find the suggested bid range for your keywords.
For instance, if the suggested bid range for “reusable water bottle” is $0.80 to $1.20, you could use an average CPC of $1.00 for your calculations.
4.4 Projecting Daily Sales
Daily sales are the number of orders required to rank for a specific keyword. Helium10 provides a metric called “CPR 8-Days Orders,” which indicates the number of sales needed over eight days to start ranking for a keyword.
For example, if “reusable water bottle” has a CPR of 100, you need to generate 100 sales over eight days to rank. This breaks down to approximately 13 sales per day:
Daily Target Orders = CPR / 8 = 100 / 8 ≈ 13 orders per day
4.5 Estimating Daily Clicks
To estimate how many clicks you need to generate these 13 target orders, use the formula:
Daily Clicks Required = (1 / Conversion Rate) * Target Daily Orders
Using the earlier example with a 10% conversion rate:
Daily Clicks Required = (1 / 0.10) * 13 = 130 clicks per day
4.6 Calculate Daily Keyword Budget
With all this data in hand, you can now estimate the daily PPC cost for a specific keyword. Use the formula:
Daily Keyword Budget Required = Daily Orders * (1 / Conversion Rate) * CPC
Continuing with our example:
Daily Keyword Budget Required = 13 orders * (1 / 0.10) * $1.00 = $130/Day
This means you would need a daily budget of $130 to achieve 13 orders per day for the keyword “reusable water bottle.”
Now, apply this method to calculate the PPC costs for the top 15 keywords you selected. By summing these daily costs, you can estimate your total monthly budget required to rank for these keywords.
Keep in mind that these are estimates; actual costs may vary due to fluctuations in CPC, search volume, and competition.
5. Advanced Strategies to Reduce Advertising Cost
In the competitive world of Amazon, reducing your Amazon PPC cost is essential for maximizing your return on investment. By employing advanced strategies, you can effectively lower your costs and improve the overall performance of your PPC campaigns.
5.1. Implement Conversion Rate Optimization (CRO)
Optimizing your conversion rate allows you to generate more sales without increasing your ad spend. Here’s how you can enhance your product listings to boost your conversion rate:
- Improve Product Images: High-quality images, especially the main image, can significantly increase your click-through rate (CTR). Make sure your images are clear, detailed, and professionally shot.
- Optimize Product Titles: Craft titles that are concise and keyword-rich, ensuring they are appealing on both desktop and mobile, as most shoppers use mobile devices.
- Amazon Vine Program: For new products, enrolling in the Amazon Vine Program can help gather initial reviews, which are crucial for improving your conversion rate.
- Amazon Brand Story and Premium A+ Content: These elements can enhance your product page’s appeal, boosting conversion rates by up to 15%.
- Focus on Product Quality and Feedback: Continuously improve your product based on customer feedback to enhance your ratings and, subsequently, your conversion rate.
5.2. Long-Tail Keyword Targeting
Long-tail keywords are highly specific and often less competitive, which means they have a lower cost per click (CPC). By targeting these keywords, you can reduce your Amazon advertising cost and increase your chances of ranking well.
For instance, instead of targeting “water bottle,” you might use “insulated stainless steel water bottle” to reach a more specific audience with less competition.
5.3. Refining Bidding Strategies
Amazon offers three bidding strategies for PPC campaigns:
- Dynamic Bids – Down Only: Amazon automatically lowers your bid in real-time when it’s less likely to convert to a sale. This strategy helps control costs.
- Dynamic Bids – Up & Down: Amazon increases or decreases your bids based on the likelihood of conversion. While this can drive more sales, it often results in a higher budget spent, so it’s best used during the launch phase.
- Fixed Bids: Your bids remain constant, giving you more control over CPCs and budgets.
- Rule-Based Bidding: This strategy allows you to set specific rules that adjust bids based on various performance metrics. It’s particularly useful for automating bid adjustments to meet your ACOS or ROAS targets.
If your Amazon PPC cost is too high, consider switching to “down only” or “fixed” bids to better manage expenses.
5.4 Negative Keyword Targeting
Negative keywords are an effective way to filter out irrelevant traffic and reduce unnecessary ad spend. Regularly analyze your search terms, ideally once a week, to identify and exclude terms that are driving costs without conversions.
Implementing negative keywords can significantly lower your total advertising cost of sales (TACoS), sometimes by up to 50%.
5.5 Performance-Based Bids Adjustment
Regularly adjust your bids based on the performance data of your PPC campaigns:
- Prioritize Conversion Rates: Increase bids for keywords with high conversion rates and reduce or negate those with lower conversion rates.
- Adjust Budgets Accordingly: Allocate more budget to well-performing campaigns while reducing budgets for underperforming ones to optimize overall PPC efficiency.
By implementing these strategies, you can effectively manage and reduce your Amazon pay per click cost, ensuring that your advertising efforts are both efficient and profitable.
5. Conclusion
Amazon PPC cost management is key to achieving profitability and growth.Carefully select impactful keywords, monitor conversion rates, and employ campaign bidding strategy that bring in maximum performance.
Regularly analyze your PPC campaigns through bulk file and search terms reports to gain insights into data. Implement PPC weekly data analysis to track performance trends and fine-tune your advertising campaigns.
The key to success in Amazon PPC is experimentation. Launch new campaigns while pausing underperforming ones to maximize the effectiveness of your PPC efforts.
By focusing on strategies that enhance campaign performance, you can lower your total advertising cost of sales (TACoS) and ultimately boost your profits.
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About Ecom Brainly
Ecom Brainly – A Full-Service Amazon agency that focuses on Sustainable Growth and Profitability for Our Partners (clients).
We been selling on Amazon since 2017 and has had to adapt for every change that Amazon has made along the way. Amazon is an ever changing marketplace and Ecom Brainly has his team ready to handle any and every challenge.
Is your brand having challenges with growth, profitability, advertising, reporting etc – If yes, please contact us today!
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