Learn Amazon’s price-per-click advertising approach, best practices, and how to properly calculate it to ensure profitability.
When sellers are researching products to sell on Amazon, one product expense that they sometimes neglect is advertising costs. Each seller must account for expenses such as unit costs, Amazon FBA fees, and shipping costs when calculating profitability – but what about the price of running PPC ads?
Advertisers must take advantage of this audience of ready-to-buy customers as more consumers prefer online buying to in-store shopping. Nearly three out of four consumers begin their product search on Amazon.com, which is a compelling reason for sellers and brands to learn how to use Amazon’s sophisticated advertising tools.
And it’s clear that vendors are taking advantage of these tools. Amazon is anticipated to earn over $31 billion in advertising revenue alone by 2022. However, as brands become more competitive, the cost of advertising on the network is rising. Indeed, 59 percent of Amazon merchants are concerned about rising advertising prices in 2022.
Despite these issues, lucrative PPC advertising on Amazon is still viable if you use the right price approach. It’s critical to understand advertising best practices, what ad expenses you’re up against, and how to calculate your cost-per-click to ensure your profitability.
Despite the fact that Amazon PPC campaigns aren’t as popular as Google AdWords or Facebook Ads (see the key contrasts here), the level of competition on Amazon is steadily increasing. More brands are leveraging Sponsored Marketing’s success to maintain their Amazon growth, while others are depending less on paid social ads to drive attention to their Amazon listings. If you’re a brand that uses Amazon PPC services, make sure you understand what’s causing the price increase and start planning how you’ll respond.
To easily navigate to the different sections of the guide, use the links below.
- Amazon Ads are Getting More Expensive
- Root Cause Behind Increased Amazon CPC
- How To Take Action
- Optimize Keywords
- Final Thoughts
Amazon Ads are Getting More Expensive
Most plugins on Amazon’s website and app are now available for purchase as advertising inventory. However, the amount of advertising in search results hasn’t increased in a long time. Because sponsored product results in search account for the majority of ad expenditure on Amazon, CPC has risen as more firms advertise there. Despite this, ad prices have risen across the board on Amazon.
Advertisement budgets from well-known brands are being directed to Amazon. As a result, they may compete for ad space despite growing rates, only to raise them even higher in the future. The same thing happened on the other two major ad platforms, Google and Facebook. Furthermore, aggregator organizations purchasing Amazon sellers are in a similar situation to established brands in that they, too, have large advertising expenditures and the potential to lose money on some purchases.
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Root Cause Behind Increased Amazon CPC
More Buyers Leads To More Sellers
In 2015, Amazon accounted for 60% of all online sales in the United States. According to more recent research, that equates to 1,000 new sellers joining various Amazon marketplaces around the world every day as they try to take advantage of the incredible growth. When there are more sellers, there are more listings competing for first-page results for popular search queries. This might be disastrous for firms that sell a big number of products on Amazon. As a result, we’ll see more companies turn to PPC ads to get their items in front of potential customers. And, as a result of this impressive growth, PPC costs are expected to climb across the board.
PPC Competition Is Growing—Daily
According to a survey, the number of vendors using Sponsored Products increased by over 100 percent globally in 2016. So, what does this imply for you? In other words, there are now twice as many other brands bidding on the same terms as you. And this will have a significant impact on PPC expenditures.
How? When a user searches for keywords on which you’re bidding, they’re essentially starting an auction. You and other sellers are competing to see who can pay the most to get that user’s attention. More sellers will result in more bids, which will inevitably drive up the winning price, just as they would in an auction for a sought-after vintage automobile or piece of artwork.
Amazon Is Changing Its Terms And Conditions
Amazon alters its terms and conditions on a regular basis to combat counterfeiters and scammers who try to take advantage of the search and PPC algorithms. This has had a recent impact on the legalese surrounding evaluations. As a result of these developments, the rate at which all brands—particularly new ones—have their products reviewed on Amazon has decreased. Suddenly, getting honest reviews and keeping up with more established vendors, who can have hundreds or even thousands of ratings, has become extremely challenging for these emerging brands.
You can find yourself in this situation: how do you compete with a brand in your category that has 500 reviews compared to your 25, even if your reviews are on average stronger? Reviews are the social signal that speaks about the quality of a product. They’re the most reliable way to develop trust in your brand on Amazon. To compensate for the decrease in review volume, several brands are increasing their PPC spending to stay ahead of the competition. This is especially true if a brand’s reviews are low in comparison to its competitors.
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Rising Platform Competition
Online advertising pricing is mostly determined by supply and demand, just like any other business market. Because ad costs are determined through auctions, your CPC is directly related to the number of competitors you’re bidding against and how high they’re prepared to offer. As a result, a rise in platform competition is the most likely reason for a drastically rising CPC. What’s behind the dramatic increase in digital ad competition? COVID-19 is most likely the catalyst. In the year 2020, the global pandemic radically altered the globe. We relocated our personal and professional lives online as a response to widespread lockdowns. Businesses rushed online to adapt to this shift in consumer behavior, while marketers shifted cash from traditional to digital media. Without a doubt, digital is currently the lowest-risk and highest-return advertising channel.
Rising Personalization Capabilities
Quality Score is another important component in deciding your CPC. The Quality Score is a calculation that takes into account the projected click-through rate, ad relevance, and landing page experience. Quality Score is directly influenced by the CPC ad auction. If the Quality Score of your competition improves, so will your CPC. As a result, if your CPC is growing, it’s likely that your competitors are offering a more relevant ad campaign. And personalization is the key to a more meaningful ad experience.
Instead of utilizing a one-size-fits-all advertising strategy for your whole client base, personalization implies generating distinct ad campaigns for each audience category. Personalization should be applied throughout the advertising process. Ads should speak directly to the interests and pain points of the audience segment, and post-click landing sites should complement the story.
Rising Customer Expectations
The entire online advertising ecology is well-balanced. Audience expectations change as advertising technology advances. Post-Click Automation, for example, uses machine learning to assist advertisers to deliver the most relevant material to each potential customer, improving the user experience. As a result, users’ expectations change, raising overall standards.
Quality Score, which rates an ad’s quality and relevancy in relation to a certain search, is closely related to customer experience. As a result, advertisers who do not adjust to greater customer expectations will see their Quality Scores drop and their CPC costs rise.
How to Take Action
Prioritize your best SKUs
If you have a lot of variations on a product, one fast approach to optimize your Amazon ACOS is to just market the best-selling one. The extra sales generated by advertising the popular ones will frequently offset a reduction in sales of less popular ones. If this sounds like it could apply to you, give it a shot and see how it goes.
Pause keywords than overspend ad budget
You’ll need to put a stop to these right away. Even if they appear to be relevant, they aren’t going to cut it for you. Perhaps you’ll reconsider giving them another shot in the future. But for the time being, just halt them. Bulk File is the best source of data for these keywords.
Optimize keywords slightly over break-even
From break-even to >80% ACOS, these keywords have the ability to offer you sales at a low cost. To create a coefficient that you may use to discover an acceptable bid limit for these keywords, For a certain keyword, divide your actual ACOS by your intended ACOS. After that, you divide your existing offer for this keyword by the coefficient. This manner, you’ll keep some sales, but at a more or less acceptable ACoS.
Analyze the effectiveness of your current keywords
Finally, look for keywords that didn’t result in any sales (i.e., no Amazon ACOS) but did result in clicks. If a term received 15 or more clicks but no sales, you were either extremely unlucky or made a terrible keyword choice. Whatever the cause, you can take care of it later. Put these keywords on hold for the time being.
Increase bid for high performing keywords
After you’ve dealt with the unsuccessful keywords, you should focus on the ones that are doing well. Increase your bids for keywords with a high ACOS to increase sales. The coefficient we calculated earlier in the essay is used for this. Because your coefficient will be less than one this time, your new bid for these keywords will be greater than your existing one. As a result, your adverts should appear higher in search results.
Test keywords without many impressions
Unlike keywords with a large number of impressions but a low CTR, keywords with a low number of impressions could still be beneficial if the bid was raised.
Give them bids that are as high as your best-performing ones. Give them a week or two to prove themselves. You can simply halt them if they continue to display poor impressions or click-through-rate. However, if they start displaying clicks and conversions, you’ve discovered another small diamond to add to your PPC collection!
Sponsored Products’ rapid growth and rising PPC expenditures are actually excellent news for companies because it implies the system has been shown to perform time and time again. You’ll be setting up your brand to outperform the competition and take advantage of the new PPC landscape by knowing the landscape, using the proper strategies, and forming strategic relationships.