Amazon is the Number 3 Digital Ad Platform in the US, just behind Google and Facebook. With a huge audience, a platform to actually buy from (unlike Google and Facebook) and a fairly safe environment for advertisers, Amazon dominates marketplace sites at Number 1. Strong growth organic growth pitches the forecast of ad revenues on Amazon at 12% in 2020. By that time, Amazon is set to have 7% of the market share of all US digital ad spending.
What does this mean for advertisements and ad spend? According to a late 2018 study, 80% of advertisers plan to increase their ad budgets on Amazon in 2019. 37% says they will spend 10% of advertising on Amazon, 24% says they will spend up to 25% on Amazon, and 20% says they will spend at least 50% of spend on Amazon. About 28% of advertisers who responded to the survey have an outsourced Amazon marketing arm.
What can you do to lower your costs, increase your revenue, and full proof your marketing spend? In the following blog posts, we’ll show you how to calculate and reduce your Advertising Cost of Sales, guide you through Amazon Marketing Services Cost-Per-Click rates, increase your ad revenue, use automation for your ad spend and give you tips on how to manage your overall marketing spend.
WHAT ARE AMAZON ADVERTISING COSTS?
First things first: How much should you be spending on Amazon Ads? How much does each cost? If you’re unfamiliar with Amazon Marketing Services, look to our How to Advertise on Amazon blog post.
Amazon Marketing Service houses Amazon’s Pay-Per-Click (PPC) search ads. These are probably the most popular, used by 86.5% of advertisers. These are the Sponsored Products ads, Headline Search ads (now called Sponsored Brand ads) and Sponsored Display ads.
Self-Serve ads are those that display on the search results pages from Amazon Marketing Services, and premium ads are display ads from Amazon DSP.
Each keyword or set of keywords have different costs. But the average Cost-Per-Click or CPC on Amazon is $0.35. Not all keywords are alike: some keywords have a higher ACoS than others.
WHAT EXACTLY IS THE ACoS?
For your ad spend, you’ll need to calculate your Advertising Cost of Sales, or ACoS. It will show how much you spend on an ad plus how much it resulted in sales. It should look like this:
ACoS = total ad spend ÷ total ad sales x 100
If your total sales were $965 and your expenditure was $241.25 x 100 you’ll get 25%. $241.25 ÷ $965 x 100 = 25%
So, you’ll have spent 1/4 on ads to make $1 of sales in the whole ad campaign. There’s your ACoS.
The ACoS metric is important because you’ll know the percentage of how you spent on ads per every dollar you make. It’s the typical way to measure your advertising success. It’s simple: a lower ACoS means there are more sales than spending, while higher ACoS means you’re spending a higher percentage more on sales. Therefore, it’s preferable to have a lower ACoS. A low ACoS is about 15-20%.
However, it’s not necessarily a bad idea either to have a high ACoS. It just depends on your products and your goals for advertising. A higher ACoS means more visibility for your brand because you’re spending more money for more ads. Hence, increased visibility will lead to dominating the niche market and will eventually lead to more profits later on. You can have a target of about 30%-40% ACoS.
Here’s how to know if you need a high or low ACoS:
Whichever you prefer, whether high or low, it’s best to set a target ACoS. The key is really to hit your target ACoS and maximize your ad spend, which we’ll go on to talk about later in this blog post. However, if you’ve just launched a product or want to gain exposure for a product, it might be okay to have a higher ACoS for awhile.
But before you can measure the profitability of the ad campaign, you must check your profit margins to see if you’ve broken even.
HOW DO YOU BREAK EVEN?
Your target ACoS and your target profit margin is your Break-Even point. The profit margin is net income divided by revenue or sales.
Profit Margin = Net Income / Sales
When you have a target profit margin and a target ACoS combined, you can calculate at which point you’ll break even. This break-even point is the point at which you’ll zero profit and zero loss.
Remember, an ACoS that is higher than your target ACoS but lower than your Break-Even ACoS may be profitable but can eat into your profits.
If you already have a target ACoS in mind, here are some ways you can reach your target:
Optimize bids for keywords and adgroups that are not gaining sales. Use keyword research tools such as Sellics to your advantage for this.
Enhanced Product Listing
Here’s everything to do with the Product Listing.
A/B Testing or Ad Testing
Run A/B tests for your ad groups for the ones you have running.
Find the best time to advertise
Research and create charts on the best times to advertise, such as time of day, the day of week, and month.
WHAT AUTOMATION DO YOU USE FOR YOUR MARKETING NEEDS?
Obviously, a lot of calculation goes into the marketing spend. Therefore, you’ll need the best automated tools for your advantage. We’ve compiled a list of tools for you from the best tech companies out there:
One of the best tools out there for hitting your target ACOS is AdBadger’s PPC Tool. They’ll take your conversion rate and target ACoS into account, help you bid, and reduce marketing spend. Prices vary according to the size of the company.
Here are AdBadger’s prices:
As an all-around tool, Precoro is great for purchase orders, onboarding vendors, and billing. But it also has a nifty spend analysis tool that can help you from overspending your marketing budget. You can trigger alerts for every time you overspend. Standard pricing for users is $6.50 per user per month. The next pricing, for “Power Users,” is $52 per month. You can contact Precoro for information about the next-up price, which is the enterprise plan.
A B2B Marketing Automation Tool, Pardot lets you do many marketing-related things such as CRM integration, email marketing, lead nurturing, lead scoring, and ROI reporting. It also has email and landing page A/B testing. This suite is the best for helping you shorten the sales cycles, and reach your target ACoS faster. Pricing ranges from $1,000 - $3,000 dollars, and comes with customer service.
Here are Pardot’s prices:
WHAT DO YOU WITH A MARKETING PROBLEM?
You contact MarketplaceOps, of course. We can help you with any part of the marketing spend, and all calculations and estimates to full proof the spend. And it’s not just that--we can work all-around with your Amazon brand to provide you with the best advertising, marketing, and procurement and fulfillment strategies.
We are a team of online marketplaces and e-Commerce experts who have been in the industry for many years. We’re willing to help you every step of the way. If you have more questions about our article or if you simply need help in starting or handling your Amazon business, just reach out to us by sending an email or clicking the link here.
We also have a Playbook in which we’ve forecasted The Future of E-Commerce. You can download this playbook anytime free of cost because we want to guide you throughout all of the upcoming eCommerce trends. In this vein, we also invite you to join us for our Webinar on January 23rd. All the dates for the upcoming webinars and the playbooks are available here.
We hope this blog post has opened your eyes to the ways in which you can calculate and reduce your Advertising Cost of Sales, navigate through Amazon’s Cost-Per-Click rates, increase your ad revenue, and use automation for your ad spend.