Advertisers spend billions of dollars each year on Amazon to boost overall sales, reach more customers, increase brand awareness, and thus earn more revenue. The number of advertisers on Amazon are increasing each year which makes Amazon advertising more competitive and tougher.
To be successful in Amazon pay-per-click (PPC), advertisers and sellers must come up with a professional and tested Amazon PPC campaign Budget.
In this article, we will be looking at the right strategies to decide the best budget for your Amazon PPC campaigns.
Understand How Amazon Spend Your Total Budget
A daily Amazon PPC Campaign Budget allows advertisers/sellers to put a cap on how much they will spend on their PPC campaigns. When setting up a new campaign, you must set a daily budget for all the campaigns.
The daily budget varies from seller to seller and campaign to campaign depending upon the goal and strategy of the seller. We will look at different factors ahead but let us first understand how Amazon spends our daily budget.
Maximum total expenditure for a campaign is calculated over the calendar month which is your total daily budget X the number of days remaining in the calendar month. For example, you create a PPC campaign on 6th January with a daily budget of $30. The total budget for the last remaining days of the month will be $780 (26 days remaining [including Jan 6th] x daily budget).
This budget will be spread across the month, not daily. If your spend for any day is less than $30, let’s say you spent $20 on any day, the remaining $10 will be added to the remaining days’ budget and can be spent to evenly spread the daily budget across all days of the month.
2 Amazon PPC Budget Situations
In Amazon PPC campaign budget come in 2 types. These are:
- Average Daily Budget For Each Individual Campaigns (Campaign Level)
- Fixed Daily Account Budget (Account Level)
Average Daily Budget For Each Individual Campaigns
This is the same budget as we discussed in the previous section. When creating a new ad campaign, we choose a daily budget for the campaign.
Amazon tries to spend all of our budgets daily on different keywords and ASINs (product targeting). If the total spend is less than the daily budget, the remaining budget will be added to the remaining days of the month and will be spent on other days. As mentioned above.
This allows your money to roll over the month and not spend all your total budget in a single day. It ensures a balanced relationship between your daily budget and the total spending. You can allocate the budget by looking at the profitability of individual campaigns.
Fixed Daily Account Budget
Unlike the daily average budget for individual campaigns, you can set up a fixed daily account budget for the entire account. This ensures you do not spend more than your budget disrespect of average individual campaign budgets.
As your total spend is reached to your fixed daily budget cap, all your campaigns are stopped until the next day.
You can find this at: Campaign Manager > Advertising Setting > Daily Budget Cap
Factors to keep in mind while deciding the budget
Now, you have an understanding of the basics of Amazon PPC Campaign Budget, here are some factors to take into account when deciding the budgets for your campaigns.
Identifying your ACOS
Learning about your ideal ACOS is the phase that you should start before creating any campaign. ACOS is the advertising cost of sale, it is basically how much cost you can afford advertising your product. Your ideal ACOS is calculated after knowing your product cost, FBA fees, taxes, etc.
When the ACOS is higher for any ad campaign, it tends to be less profitable because we are spending more to generate a single sale. If the ACOS for any ad campaign is low, the campaign should be more profitable as we spend less money to generate a sale.
Here is an example of how you can calculate your ACOS. For example, you are selling a Kitchen Knife, and the following are the numbers:
- Selling price – $30
- Cost of the product – $10
- FBA fees – $8
- Other costs – $3
- Profit per unit sold – $9
The total profit made on every unit sold on each kitchen knife is $9 which is calculated by doing simple math on the profit margins. The profit margin in percentage will be calculated as:
- Profit margin = Profit Per Unit / Selling Price
- Profit margin (in percentage) = $9 / $30 = 0.3 or 30%
So, the profit margin is 30%. This shows us that we can spend up to $9 on advertising to stay profitable, which is 30% of the total sale made.
This is the reason that it is important to play with these numbers before thinking about budgeting and other strategies for the ad campaign.
Understand your CPC
Let us understand this factor with an example but before going on that example check the definition of the term CPC which is commonly used in Amazon advertising.
Cost per click (CPC) is a paid advertising term where an advertiser pays a cost to a publisher for every click on an ad. CPC is also called pay per click (PPC). CPC is used to determine the costs of showing users ads on search engines
When you create an Amazon ad campaign for a kitchen knife, Amazon suggests bidding $1 to be shown at the top of the search results or on the first page. It is not necessary that you will be charged $1 for every click but this is the suggested bid by Amazon. You will be charged according to the top advertiser for that product.
If your CPC is high, i.e., you are charged higher with every click, you should give enough budget to the campaign to generate enough clicks and leads.
With a high CPC, you will get fewer clicks and spend the total daily budget. With a low CPC, you will have enough room to get more clicks and more sales in the same budget
Therefore, it is necessary to analyze your CPC checking the suggested bid when creating the ad campaign.
Duration of the campaign
Deciding this factor also comes before creating a campaign. These basic steps help you a lot in understanding how your campaign will be performing and what budget should you set.
Will you only run the campaign for only a month, or you will not be setting the end date for the ad campaign?
Decide the above before creating a campaign. As this will help you figure out your Amazon PPC campaign budget. If you want to run an ad for only a month, decide on a budget that will allow your campaign to run for at least a month.
Make sure you have enough funds available to run the campaign for a month. The average daily budget will help you spread the total budget for the month to divide for each day.
What should be your Amazon PPC budget?
After learning the above concepts, you now will have a greater understanding of different factors and calculations which are necessary to perform before you think about your ad campaign budget.
The default bid amount suggested by Amazon will help you get an estimate of the expected CPC (i.e. the cost per click) you will be charged by Amazon. For example, If you get a sale after every 5 clicks, you will spend $5 if the CPC is $1.
The duration of the campaign and the daily average budget provides you an easy and organized way to spread your budget across all the total days of ad running.
Once you have all these factors in mind, you will have a big picture of the estimated total budget you should spend in a certain period and become profitable.
Limit your Campaign Keywords
It is advisable always to choose a handful of valuable keywords for your campaigns. Many sellers/advertisers make the common mistake of dumping large amount of keywords
Choosing a lot of keywords will spread your budget across too many keywords, and your clicks and sales for different keywords will spread too thin.
Not getting enough data, you will not learn which keywords are useful and which you should put as negative.
Start with 10 – 20 keywords and scale your campaign as you grow. The budget spent on a handful of keywords will provide you useful data in a short period of time which helps you make your ad campaign profitable.
Hence, based on the above a useful equation for your campaign budget would be as follows:
Daily Budget (Campaign) = Number of Keywords or Product Target x Est. CPC
The above equation will allow for just enough budget for all keywords/ASIN in the campaign to get enough impressions/clicks. By gathering enough impressions/clicks Amazon can gather enough data about your product and start properly optimizing your campaign.
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