Starting a business online has never been easier. You probably have a friend, partner or even elderly neighbour selling on Amazon. Just about everyone is getting involved but is it really as simple as it seems especially with today’s economic climate?
One of the most fundamental elements to owning a business is getting your products out there through advertising. In the good old days, you had to spend a lot of money to advertise because the main platforms were TV or radio or some giant billboard. But now we have the internet, which has made everyone’s life dramatically better, assuming they have the WIFI’s passcode.
The big problem however is that the cost of Amazon’s PPC has steadily increased over the years. So, why is something that used to cost as little as $0.02 now become so expensive?
The most obvious reason that’s contributing to the cost of PPC is the change in spending patterns. Now that more and more consumers are shopping online instead of in-store (likely a result because of the pandemic and lockdowns), this high demand has taken its toll on Amazon entrepreneurs, and in particular the cost of PPC. In fact, many enterprises are questioning whether to stay on Amazon or to look elsewhere when it comes to advertising. The other heavyweight in advertising is Google however their PPC ads are even more pricey, sometimes even three times more expensive than Amazon.
While business is certainly booming and that’s not a bad thing, it does mean that the average cost for advertising on Amazon has been dramatically increasing. The demand for advertising has increased so much that it’s actually faster than ad inventory, making advertising prices higher than ever before.
Back in 2020, the average cost of PPC was $0.85 then fluctuated as low as $0.70 in early May when the pandemic disrupted supply chain disruptions and put many people’s life on pause. This caused brands to run out of stock, giving them no reason to advertise at all. However, the cost rose again around mid-September and then reached three distinctive peaks during Prime Day in October, Black Friday and Cyber Monday. In essence, when there is a big day that encourages spending, the cost of PPC dramatically increases to reflect it. But it’s not just the U.S market where advertising prices have changed, the same trends seen in the U.S have also been visible in Japan and Europe.
Another reason why PPC prices are so high is likely due to Amazon changing widgets on the website into paid-for advertising inventory. Though it hasn’t increased the number of ads in search results for some time, it does make things super annoying for us entrepreneurs. As more brands advertise on Amazon, the PPC has risen as there is more ad spend for sponsored product results. Honestly, will anyone ever find our products on Amazon anymore?
Well-established brands are also contributing to the cost of PPC on Amazon. These big companies come with big budgets, which means that they can afford to compete for ad space, which only further makes the cost of PPC increase too. This also happened with two other leading ad platforms, Google and Facebook.
Advertising has also affected customer acquisition costs (CAC), which is the transaction fee Amazon charges for every sale. Brands typically pay a CAC price for every order which was usually 15% but since advertising has become more frequent, it’s now 20% and is likely to go up even more. For some enterprises with a tight budget, this may well be too much for their business or very much a make or break moment.
So while PPC is currently expensive, the cost can fluctuate depending on specific days or current events around the world. With any business, facing challenges and creating solutions is endemic to their success.