Amazon PPC advertising campaigns are an easy and most cost effective tool for boosting visibility and generating organic traffic. However, if left unchecked, PPC can cost you time, effort and lots of money.
One of the best ways to stop your PPC from running over budget is to calculate its actual cost as well as to know how much you can afford to spend on your advertising. Here is a helpful guide to help you quickly estimate your Amazon PPC cost so you will never run over budget again.
How to Calculate Amazon PPC Costs?
Prior to calculateing Amazon PPC Costs, you should first determine your profit margins. This will show you how much you can spend on PPC before going into negative ROI.
To do this, several factors must be considered:
- Retail Price
- Landed cost (this would include such things as manufacturing costs, packaging, shipping, customs duty etc. so all costs until you get your items to Amazon warehouse)
To calculate your gross profit margin , follow this simple formula:
Gross Profit = (Retail Price – Landed Costs )/retail Price X 100
For example, if I were selling a pair of sneakers for £35 with shipping costing £10 and additional fees of £5, then my landed profit would be £20 or 57%.
Gross profit margin = 20/35/100 = 57.1428
Once you have determined your gross profit margin, you can then move onto the next step, calculating your ACoS.
What is Amazon ACoS?
ACoS (Advertising Cost of Sale) is the metric used to determine the efficiency of your Amazon Pay-Per-Click advertising campaign.
To calculate your Amazon ACoS, divide ad costs by sales.
ACoS = Ad spend / sales
Again to use trainers as an example, if I ran an ad campaign that cost £50 and generated £300 in trainer sales to calculate the ACoS, I would divide 50 by 300, giving me a total of 0.17 or 17%
50 / 300 = 0.17
50 / 300×100 = 17% approximately
What is a good ACoS?
Although there is a lot to consider when determining what equates to good ACoS, as a general rule of thumb, ACoS should be no more than 25 – 35%. But of course, the lower the ACoS, the greater the profit.
Once the ACoS of your Amazon PPC advertising campaign has been calculated, you can then decide whether to scale up or down ad spending. To ensure that you are still making a profit, the ACoS must not surpass your gross profit margin. If it does, then advertising is costing more money than you are earning. The lower the ACoS, the lower the ratio between ad spend and sales revenue. So how do you bring your ACoS down on Amazon?
How to optimize your Amazon PPC Campaigns
Optimizing your Amazon PPC campaign is one way of keeping ACoS low. There are two main factors to consider when optimizing your PPC campaign, efficiency and demand. Improve both of these, and your PPC and ACoS will remain at their best.
Improve the Efficiency of your Product Page
A clear product page is the first step towards a better PPC campaign. A well-organized page gives an heir of professionalism and, if done correctly, can increase your Amazon Best Seller Ranking (BSR).
To achieve a professional page and become a top seller on Amazon, your page needs the following:
- A strong product title
- High-quality product images
- A clear, concise product description
Adjusting Bids on Amazon PPC Keywords
It is very easy to overspend on keyword bidding. The wrong strategy can lead to high ACoS, while an ineffective one can hinder the effectiveness of your campaign. That is why you need to find the optimal bidding price before adjusting your Amazon PPC keywords. Very much like becoming a top seller on Amazon, ad bidding is more of a science than guesswork. The core of determining an optimal bid boils down to this simple formula:
Bid = Max. Cost Per Click = (Ad Sales / Ad Orders) x (Ad Orders / Ad Clicks) x (Ad Spend / Ad Sales)
With the information this equation provides, you can set about adjusting the bids of your Amazon PPC keywords to an amount that helps to keep your ACoS in check.
Customer Feedback and Engagement
Another way to increase your Amazon Best Seller Rank is to engage with customers. Make them feel appreciated. A simple thank you or a polite email checking in on them goes a long way. By thanking customers, not only are they more likely to leave a positive review, they are also more likely to buy from you again.
Factors to consider when determining ACoS
In an ideal world, everyone’s ACoS would be 1%. But that is not always achievable, nor in some instances is it advisable. Depending on what stage your business is at and the goals you wish to achieve can drastically alter your ACoS.
The way you market products is vital in influencing your ACoS. The more money spent on Amazon Pay-Per-Click Advertising, the more revenue you need to generate to offset the cost.
There are two schools of thought when it comes to marketing: aggressive and prudent.
An aggressive marketing strategy sees high ad spends and an ACoS of around 50%. By pumping more money into ads, the theory is to generate more organic traffic, sales reviews leading to a higher Amazon Best Seller Rank. Short-term means running at a loss, but in the long term equates to greater visibility and more organic traffic, therefore becoming less reliant on Amazon PPC advertising. Such an aggressive strategy is adopted when launching a new product or brand.
A marketing strategy where the objective is to keep the ACoS as low as possible, typically 35% or less, a prudent market strategy allows for a more significant net profit by keeping ad spends low. Such a strategy is pursued by companies operating on a tight budget or who have run repeated PPC campaigns and refined their marketing strategy.
By quickly estimating your products’ Amazon PPC costs, you have the foundation of an effective PPC campaign. Knowing how much a campaign will cost, you can begin setting budgets and determining which scenarios will yield the lowest ACoS. With that in mind, remember that what equates ‘good’ ACoS depends on your personal goals and what stage your company is at.