Over the years, the cost of Amazon sponsored ads has steadily risen, posing a challenge for sellers looking to maintain healthy profit margins. Without a clear understanding of these costs and practical strategies to optimize them, you risk spending your entire profit on ads.
In this article, we’ll show you the essentials, from creating ad budgets to choosing competitive bids and, finally, how to optimize your Amazon advertising cost.
Amazon Advertising Cost Breakdown
Amazon advertising cost is simply the amount of money you spend promoting your products or brand on Amazon. You can measure it by looking at the following metrics:
- Ad Budget: The total amount allocated for running PPC campaigns on Amazon.
- Cost Per Click (CPC): The amount you pay Amazon each time a shopper clicks on your ad.
On average, Amazon advertisers pay around $0.81 for each click.
But this figure is only a baseline; your actual CPC may be higher or lower because the cost of clicks on Amazon ads varies depending on the marketplace and the competitiveness of your product category. - Advertising Cost of Sales (ACoS): The ratio of ad spend to ad sales, expressed as a percentage.
ACoS helps measure the effectiveness of your advertising campaigns in generating sales. - Total Advertising Cost of Sales (TACoS): Similar to ACoS, TACoS measures the percentage of your revenue spent on ads, but rather than just ad-driven sales, it also includes organic sales.
Since pay-per-click is the dominant way that Amazon charges for ads, many people focus on their CPC when analyzing their Amazon ads costs.
But while CPC is a significant metric, it doesn’t solely determine the cost of advertising.
For instance, even with a high CPC, if you have a high Conversion Rate (CVR), your ACoS might still be okay.
Before we discuss the best way to estimate your Amazon sponsored ads cost, let’s examine other factors that influence it.
Amazon Ad Types
In addition to marketplace and product category, another major determinant of your Amazon advertising fees is ad type.
This is because each ad type has its own unique cost structure and potential return on investment (ROI).
For example, some ads cost more per click, some have higher click-through rates (CTR), some have higher CVR, and others are more effective for brand awareness.
So, your ACoS may vary depending on which ad type you use.
Additionally, the cost of each Amazon ad type depends on several factors, such as the keyword you’re bidding on, your bidding strategy, and placement boosts.
Let’s look at the three major types of Amazon PPC ads more closely.
- Sponsored Products
These ads feature a single product and pop up on Amazon’s SERP as well as product pages. When clicked, shoppers are taken to your product’s detail page.
Here are some examples
So how much does Amazon sponsored products cost?
SP ads are charged on a pay-per-click basis, and you can start with as little as $1.
However, on average, sellers spend 85% of their total budget on SP because it offers the highest ROAS and is the easiest to set up. - Sponsored Brands
Unlike SP ads, these ads showcase more than just a single product; they display your logo, a headline, and multiple products.
They can also include a 15-30-second video showcasing your product.
Here’s an example:
SB ads are great for increasing brand awareness after seeing reasonable ROI from SP ads.
Compared to SP ads, sellers only spend a small fraction of their ad budget on them, usually 13%.
This is expected because SB ads are more expensive and yield lower ROAS. - Sponsored Display
These ads share similarities with both SP and SB ads. They feature only one product like SP but you can customize the image displayed and add a custom headline like SB.
Here’s an example:Another unique feature of SD ads is their ability to reach customers on and off Amazon based on shopping behavior.
This makes them effective for reaching shoppers who have viewed your products or similar ones before.
Despite all this, SD ads have been proven to generate lower ROAS than SP and SB ads.
On average, sellers only invest about 2% of their total budget in them.
Another unique feature of SD ads is their ability to reach customers on and off Amazon based on shopping behavior. | Ad Type | ROAS | Average Spend |
| Sponsored Products | High | 85% of total budget |
| Sponsored Brands | Medium | 13% of total budget |
| Sponsored Display | Low | 2% of total budget |
In summary, understanding each ad type’s cost and potential ROI and strategically allocating your budget can help optimize your Amazon advertising costs and improve overall performance.
Next, we’ll examine the technicalities of how your ad budget is spent.
How Does Amazon Bidding Work?
To advertise on Amazon, sellers must compete for Amazon’s limited ad placements. They participate in an open auction where they place a bid to show their ads and the highest bidder gets the placement.
This is known as bidding.
It’s important to know that setting your bid to $0.70 doesn’t mean you will always pay $0.70 per click. Your CPC may be lower, depending on what the next highest bidder has chosen.
For example, if they’re bidding $0.50 per click, you will only pay $0.51 per click.
It may also be higher if you are using a dynamic bidding strategy that allows Amazon to adjust bids for you.
Additionally, using placement boosts can significantly increase your Amazon cost per click.
Having said that, let’s look at what the two types of bidding entail.
Manual Bidding
Manual bidding involves manually changing bids to hit a pre-set target ACoS.
We usually recommend using your current ACoS if you’re trying to increase sales. But if you’re trying to reduce ad costs, targeting 5% less than your current ACoS is advisable.
Manual bidding can be done using two methods: RPC and rule-based bidding.
To use RPC bidding, multiply your ACoS target by your earnings per click to determine your ideal CPC.
For example, if your target ACoS is 35% and you earn $6 per click on a keyword, your ideal CPC would be $2.10 (0.35 * $6.00).
RPC bidding gives you a predefined way of changing bids, so it eliminates guess work.
It is also effective for hitting a target ACoS as long as you have enough data.
Alternatively, you can set rules that guide how much to bid with rule-based bidding.
An example of rule-based bidding is “if ACoS exceeds X amount, decrease bids by Y amount.”
While rule-based bidding is more advanced and difficult to learn, especially for beginners, it offers flexibility and is particularly useful when RPC bidding doesn’t align with your goals.
Automatic Bidding
With automatic bidding, you’re still aiming for an ACoS target; the only difference is you don’t have to go through the pain of manually changing bids.
You just input your target ACoS, and the algorithm takes care of the rest.
Automatic bidding is more accurate than RPC bidding and simpler than rule-based bidding because it tailors bidding strategies to each account based on historical data and requires minimal effort.
But it requires trustworthy software.
At AiHello, we developed our own software and it currently manages over 5,000 accounts.
To use it, simply select your target ACoS and the algorithm will adjust your bids based on keyword performance.
The AiHello software also ensures that your ads appear for relevant keywords at all times with little or no supervision.
This is why new sellers and seasoned sellers who want to save time and make more money love it.
How to Determine Your Amazon Ads Budget?
Now that we’ve explored the different factors that influence Amazon advertising costs, let’s dive into how you can predict or set your Amazon ads budget.
There are two major ways to do this:
- Set a target TACoS
To set your monthly Amazon ads budget, you can start by choosing a target TACoS.
For example, if you want your advertising costs to be around 15% of your total revenue, you can use this percentage to calculate your monthly ad budget.
But if you don’t have a clear picture of your total revenue at the outset, you can set a budget by multiplying expected tacos with expected revenue.
To estimate your potential revenue, you can use Helium 10’s black box to get an average of how much your competitors are selling.
The closer your competitors are in terms of reviews, price, and sales velocity, the more realistic your estimate will be.
Additionally, we recommend setting your TACoS target based on the stage you’re in and continuing to spend as long as you’re within this range.
We usually expect a 50%+ TACoS for new products and 10-15% TACoS for mature products.
These are average figures, not advice, and they vary by category.
As you start running ads and generate actual sales data, you can adjust your budget to align with your performance metrics.
Here’s what setting your budget based on TACoS looks like in practice:
If your expected total revenue is $10,000 and your TACoS target is 15%, you would multiply $10,000 by 0.15, giving you a $1500 budget.
- Leverage CPC and CVR
Another approach to determining your Amazon ads budget is to estimate your cost per customer acquisition (CAC) using CPC and CVR.
To get started, use Amazon’s suggested bids to get a glimpse of your average CPC and multiply it by 1/CVR to get your cost per customer acquisition (CAC).
Then multiply that by your predicted units sold (through ads).
Here’s an example:
Let’s say your estimated CPC is $1.50, and your CVR is 5%.
To calculate your CAC, you first find the reciprocal of your CVR, which is 1 divided by 0.05, giving you 20.
Next, multiply your estimated CPC by the reciprocal of your CVR:
$1.50 CPC * 20 (1/CVR) = $30
So, your CAC is $30.
Now, if you predict that you’ll sell 100 units through ads, you can estimate your ad spend by multiplying your CAC by the predicted units sold:
$30 CAC * 100 units = $3000
Therefore, based on your estimated CPC and CVR, you would spend approximately $3000 on ads to sell 100 units.
Finally, if you want to skip the maths and estimate things faster, get access to our Amazon PPC cost calculator. It’s the same one our PPC experts use.
How to Optimize and Reduce Your Amazon PPC Cost
By now, you probably realize that having a low budget or a low CPC is not the same as being profitable.
If your budget is too low, you’ll lose ad sales and organic rank, so your TACoS is likely to increase.
And if your TACoS is too high, it might mean the revenue you make won’t cover your advertising costs.
High TACoS is something you want to fix unless you’re a new seller or you’re currently more interested in market share than net profit.
To fix your TACoS, you need to either increase your organic sales without increasing ad spend by an equivalent amount or lower your ACoS without bringing down your organic sales.
Let’s look at some ways to do this:
- Optimize Your Listing
An optimized listing increases your CVR and ultimately leads to a lower TACoS.
For example, one of our businesses had only done $5k in sales when they signed up for AiHello.
When we analyzed their account, we saw opportunities for improving their conversion rate that they weren’t maximizing.
So we dived right in and improved their listing content, SEO, and PPC.
On the listing side, we inserted high-volume keywords in the product title, uploaded more attractive images and A+ content, optimized the bullet points, and added misspells and low-volume keywords as backend search terms.
The result? They 4X’d their revenue in 2 months.
After (Month 1 – January 2024):
After (Month 2 – February 2024):
Here are some key things you must do to make the most out of your product listings:
A. Add 1 – 3 relevant keywords and important details to your product title.
Here’s a good example:
B. Use images to showcase your product attractively and persuade people to buy it.
Here are some good examples:
C. Use your product listing’s bullet points to convince customers to buy by focusing on your product’s benefits.
Here is a good example:
D. Use clear images and compelling text in your A+ content, and keep it on brand.
Here’s a good example:
- Keyword Harvesting
Keyword harvesting is another way to increase your ROAS and reduce your TACoS.
It involves analyzing your search term report to find high-performing keywords so you can spend more money on them and less on unprofitable ones.
We used this strategy to add 100+ new keywords to a client’s account and grew their sales from $10k/mo to almost $40k/mo.
To harvest keywords, download your search term report for the past 30 days and add it to a Google Sheet.
Next, identify search terms that have produced at least 1 conversion.
Then create manual campaigns with them using different match types.
You can also negate search terms that have spent the product’s AOV without generating sales.
Doing this at least once a month will ensure your campaigns contain mosty high-performing keywords that can increase your sales and lower TACoS.
While you can harvest keywords manually, it takes time, especially for a large catalog.
This is why many sellers use AI tools like AiHello to automate the entire process.
AiHello automatically extracts new keywords from your auto, broad, and phrase campaigns without the stress of reviewing search term reports.
These keywords can then be inserted directly into manual campaigns in all match types.
To get started, simply select the campaign you wish to harvest from and connect it to the manual campaign where you want the keywords to be added.
Once set up, AiHello will add dozens, or hundreds of new keywords automatically to your manual campaigns each month.
It can also negate wasteful search terms that have spent more than the product CAC without generating sales.
For example, if your benchmark is set at 1.7 and your cost per customer acquisition is $5, AiHello will automatically negate any keyword that spends $8.5 ($5 x 1.7) without making a sale.
- Dayparting
Dayparting lets you adjust bids during specific periods to boost sales and lower your Amazon advertising costs.
This is especially useful for products in categories that do better at certain periods of the day or week.
For example, if your product’s sales decrease and advertising costs go up on weekends, you can automatically reduce bids during the weekends with dayparting.
We used this strategy to decrease a client’s ACoS from 30% to 22.66% in 4 months.
To get started, you need to first identify hours of the day when your sales are highest.
Analyzing your business reports can help you pinpoint these. We suggest using 5-20 days’ worth of data for accuracy.
Once you’ve identified your peak hours, navigate to the campaign manager to choose the campaign you want to use dayparting for.
Next, select “budget rules” and add a schedule-based budget rule to optimize spending during the peak periods you’ve identified.
You can also manually pause/unpause campaigns during peak/non-peak hours.
The main limitation of this method is that the data you get is for the whole account, and each product might have its own high-performance hours.
So while one product might do great on weekends, another might do better on Mondays at 4 pm.
To really know when each product sells best, you’d have to check its individual sales history, and that’s difficult.
Additionally, setting budget rules for all your products one by one can take a lot of time, especially if you have a large catalog.
But AI tools like AiHello can solve these challenges.
AiHello tracks relevant metrics such as ACoS, CPC, and CVR on an hourly basis using Amazon Marketing Stream at a product level.
Using this data, it adjusts bids intra-day for optimal ad performance.
This automated approach ensures maximum budget efficiency across your entire catalog, costs you less time, and eliminates the stress of manually setting up budget rules for each product.
- Focus on Profitable Products
This strategy is built on the popular rule that 20% of efforts produce 80% of results.
So instead of promoting your entire catalog, you concentrate on maximizing the potential of the top 20% of products that generate 80% of your revenue.
This sounds counter-intuitive but it’s how we grew one of our businesses from $60k/month to $250k/month and reduced the ACoS from 45% to 20%.
Before we started working with them, they were spending $25k/month on a mix of profitable and unprofitable ASINs.
Once we took over, we grew their ad spend to $50k/month,, $46k of which went to a single ASIN.
This ASIN had the best reviews, CVR, and search volume – much higher than many of the other products combined.
It was also spending only 20% – 30% of the budget yet producing 80% of total sales, so we went all in.
Today, the ASIN does multiple 7 figures in sales.
Here’s how you can use the same strategy to increase your sales and reduce your TACoS:
Go to business reports and order all your ASINs by sales.
Then list the top products that together produce 80% of your revenue.
Next, go to the “products” section in the campaign manager to check their sales and spend contribution.
You need to identify ASINs that have higher sales than spend contribution.
Then use Helium 10 to see how much their top 5 competitors sell. This will help you determine whether or not these ASINs have the potential to grow.
Once you discover a high-performing ASIN—where top competitors are selling at least 2-5 times more than you, invest more money into it.
- Get More Reviews
Positive reviews can improve your CVR, leading to more sales and lower TACoS.
This is because they increase trust and help shoppers decide to buy your product faster.
For example, one of our newly launched products went from $0 to $12k in sales at a 26% ACoS thanks to reviews.
We enrolled it in the Amazon Vine program immediately after we launched, and we didn’t run a single advertising campaign for it until we had gotten more than 20 reviews.
This increased our conversion rate and helped us avoid the super high ACoS sellers experience when running ads for a new product.
In addition to signing up for the Amazon Vine program, you need to offer good products and customer service to get as many positive reviews as possible.
Wrapping Up
Mastering the optimization of Amazon advertising costs is a fundamental step toward maximizing the ROI of your ad spend.
By applying the practical tips shared in this article, you’ll be well-equipped to efficiently handle the cost of Amazon advertising and ensure that your investments yield the best possible ROI.
