Amazon Advertising Costs: A Breakdown of What to Expect

March 26, 2021
Posted in News
March 26, 2021 alex

Amazon Advertising Costs: A Breakdown of What to Expect

Amazon offers a range of advertising solutions for brands and sellers of any size to meet their marketing goals and grow their business.

Whether you are looking to drive brand awareness, increase engagements, boost sales, or improve brand loyalty, Amazon advertising helps you achieve measurable results.

In fact, studies have shown that Amazon ad campaigns are 41 percent more effective for driving brand awareness than cross-media campaigns that don’t include Amazon ads.

Of course, there’s one question most people have in mind before they start a new advertising campaign—“How much is this going to cost me?” 

The answer to that question all depends on what you want to accomplish and the strategy you use to achieve that goal. 

Understanding and keeping a close eye on the factors that impact cost will allow you to determine advertising effectiveness, achieve positive ROI, and increase profit from your Amazon ads.

If you are looking to get your campaign off the ground, this article will explain the basics of Amazon advertising solutions and the costs associated with different ad objectives, options, and strategies.

What Does It Cost to Advertise on Amazon?

Amazon uses a pay-per-click (PPC) and auction-based pricing model to determine advertising costs. Sellers can set the maximum amount that they are willing to pay when a shopper clicks their ad.

The cost of advertising on Amazon varies and depends on factors like your marketing goals, chosen ad type and placement, targeting strategy, bid, and budget. Beyond influencing the cost, these factors also determine the success of your advertising efforts and your profit margins. 

As you tell, while this looks like a simple question at first, it’s a lot more complicated than it seems. That’s why we’ll take this step-by-step to evaluate the factors that determine your advertising cost, starting with an in-depth look at how your marketing goals will affect your budget.

Marketing and Advertising Goals

Before you embark on your campaign, it’s essential to define your marketing or advertising goals. These goals will help you determine the best strategies, the type of ads, and the resources you need to achieve your goals. It also means that you can accurately measure the success of your Amazon marketing initiatives.

A basic marketing funnel has four stages:

  • Brand Awareness
  • Consideration
  • Conversion
  • Loyalty

For each of these goals, you’ll have a different set of objectives and will need to evaluate a different set of key metrics to determine your overall success.

A common mistake is failing to look beyond top-line revenue to find just how effective your campaigns are at each stage of the funnel.

Brand Awareness

Do you want to be a King or Queen of your Amazon category? Then your brand needs to be the first one that comes to mind when potential customers are looking to buy a product like yours. 

As you grow your business, you need to reach more and more potential customers and make them aware of your brand in order to maximize your audience. Establishing your brand as a trusted business instills confidence and makes shoppers more likely to convert at the lower end of the marketing funnel.

Consideration

There are millions of products on Amazon. You want yours to be on the short list when customers are weighing their options. Breaking down this larger goal, some of your supporting objectives would be to increase the number of times people engage with your ad and visit your product detail or Amazon store page.

Conversion

At the end of the day, it’s all about the bottom line. You’ve done the work to increase awareness and consideration, now it’s time for that work to pay off.

In this stage, you’re focusing on creating ads targeted at customers moving from the consideration stage to the buying stage or ads that increase sales.

Loyalty

For brands that sell replenishable items, there’s a huge opportunity on Amazon to encourage repeat purchases through Subscribe & Save. Also, if you sell a large catalog of related products, there’s potential to cross-sell those products to your existing customers.

This is the loyalty stage of the marketing funnel, and it’s where you can potentially drive a stable stream of recurring revenue for a small amount of ad spend.

Customers at this stage of the marketing funnel have already purchased from you and are familiar with your brand. That means you can shortcut the amount of time and money you’d usually invest instilling trust and confidence in your product through brand awareness and consideration campaigns.

Key Advertising Metrics for Measuring Your Results

Amazon provides a range of tools and reports to help sellers analyze their campaign performance and measure success. Once you’ve set your campaign in motion, you’ll get auto-generated reports from Amazon that provide insight into the sales data of your advertised products and the performance of your individual campaigns.

With these advertising analytics, you’ll get a bird’s eye view of your performance and identify successful tactics to increase conversions and optimize your campaigns.

Depending on your current advertising objectives, some of these metrics may be more important to you than others.

For example, you’ll probably hear a lot of people giving tips to lower your ACoS. While high ACoS is certainly something to watch out for in general, if your goal is to rapidly build sales velocity (like for a new product launch), you may be willing to spend a little more in order to get more sales.

That’s why having a clear vision of what you want to achieve, choosing the right metrics to measure that success, and knowing how to break down that data into insights are all key steps in the process of figuring out how much you should be spending on Amazon advertising.

Here’s a brief rundown of some of the key metrics you’ll want to know when it comes to Amazon advertising…

Reach: Total number of shoppers who have seen your ad on any screen or web page

Impressions: The number of times your ads were shown to potential buyers

New-to-Brand Metrics: Measure customers buying your product or brand for the first time on Amazon over the past year, which allow you to determine whether an existing customer or first-time customer made an ad-attributed purchase

  • Total new-to-brand purchases and sales
  • New-to-brand purchase rate
  • Cost per new-to-brand customer

Attributed Sales: Total product sales generated within one week of clicks on your ads (Campaign performance reports also provide data on the individual sales totals for both advertised products and other products.)

Advertising Cost of Sales (ACoS): Refers to the percentage of your revenue that was spent on advertising

  • Basically, this is a measure of advertising efficiency that tells you how much you spent to produce a sale.
  • You can easily calculate ACoS by dividing total ad spend by total sales. For example, if you spent $100 on your advertising campaign and earned $1000 in sales, your ACOS would be 10% (i.e., $100/$1000= 0.10).

Return on Ad Spend (RoAS): Refers to how much you earn for every dollar spent on advertising

  • While ACoS shows you how much you spend on ads for every dollar you make from sales, ROAS is the opposite.
  • RoAS is calculated by dividing the Total Ad Revenue by Total Ad Spend. Using the same example mentioned above, your ROAS will be 10:1 (i.e., $1000/$100).

Profit Margin: Refers to how much you have left after deducting your per-unit cost from your price

  • ACoS and RoAS alone aren’t enough to find the right advertising budget for your business. You’ll also need to consider how other factors impact your profit margin. This includes:
    • The cost of goods/manufacturing costs
    • Shipping cost and 
    • Amazon fees – Amazon FBA fees, referral fees, etc.

Clicks: The number of times shoppers clicked on your ad

Click-through rate (CTR): Measures the percentage of ad impressions that result in clicks

  • CTRs help marketers measure keyword relevancy for their ad campaigns.
    • A high CTR means that your advert is relevant to shoppers’ search terms and appealing to your potential customers.
    • A low CTR means buyers aren’t clicking your ad either because your campaign keywords are not relevant to your buyers’ search terms or your ad is not appealing to shoppers.
  • CTR is calculated by dividing clicks by impressions (i.e. CTR = Clicks ÷ Impressions).
Marketing Goal Objective Key Metrics
Brand Awareness Increase advertising reach to attract new customers to my brand
  • Impressions
  • Brand Recall Lift
  • New-to-Brand Sales
Consideration Make customers more likely to consider my product when they are weighing their options
  • Product Detail Page Visits
  • Store Visits
  • Ad Engagement 
Conversion Drive more sales for my product as efficiently and effectively as possible
  • Sales
  • Advertising Cost of Sales
  • Return on Ad Spend
Loyalty Drive recurring revenue by turning one-time buyers into loyal, repeat customers
  • Repeat Purchases
  • Subscribe & Save Sign-Ups

Types of Amazon Advertising: What Are Your Options, and How Much Should You Spend?

So, now that you have an idea of what you want to achieve and how you’ll measure those results, it’s time to consider your overall ad strategy. 

Amazon advertising has a number of self-service and managed service advertising solutions for sellers and brands, including:

  • Sponsored Product Ads
  • Sponsored Brand Ads
  • Sponsored Display Ads
  • Demand-Side Platform (DSP)
  • Amazon Audio and Video Ads

Depending on what types of ads you use and how you deploy them, your expected ad costs will change. With that in mind, let’s review the major types of Amazon ads and dig into how much they typically cost.

  1. Sponsored Product Ads (SPA)

What Are Sponsored Product Ads?

Sponsored Product Ads are PPC ads that help sellers get their product listings in front of shoppers searching for similar products. With this ad type, buyers will discover and purchase your products that appear on product pages or in shopping results.

An advantage of this ad type is that it doesn’t look like an ad, aside from a small “Sponsored” tag at the top of the listing. It fits perfectly into relevant search results and helps to enhance shoppers’ experience (rather than distract from that experience).

Because of this, Sponsored Product Ads are versatile and can be used to achieve a range of marketing goals such as:

  • Driving traffic to product listings
  • Generating sales
  • Launching new products
  • Clearing excess inventory

Who Can Use Sponsored Product Ads?

Sponsored Product Ads are self-service ads that you can manage yourself or hand off to a trusted Amazon advertising agency or consultant. 

SPAs are available for anyone selling on Amazon, including vendors, professional sellers, brands, agencies, book vendors, and Kindle Direct Publishing (KDP) authors.

How Much Do Sponsored Product Ads Cost?

The minimum budget for self-service SPAs on Amazon is $1, and because they’re so versatile, their cost-per-click can be anywhere from a couple cents to a few dollars depending on the level of competition in your niche or for a particular placement.

Sponsored Product Ads are the backbone of Amazon advertising. They’re able to support most advertising goals and can be extremely profitable if you know how to use them. This versatility is why most Amazon experts will argue for putting about 70% of your total ad budget into SPAs.

If you’re just getting started, SPA will likely be the only ad type you use, and it’s a good idea to master it before you move on to Sponsored Brand and Sponsored Display Ads.

2. Sponsored Brand Ads (SBA)

What Are Sponsored Brand Ads?

Sponsored Brand Ads (formerly known as Headline Search Ads) help sellers boost brand visibility and showcase their range of products.

Historically, SBAs have featured prominently at the top of related search results, but over the last few years, Amazon has expanded potential placements to include spots at the sides or bottom of the search results page or on a product detail page.

These self-service ads for marketers and brands appear in shopping results and feature a custom headline, your brand logo, and selected product portfolio.

Based on where a shopper clicks on an SBA, they could be redirected to a few different across Amazon. If someone clicks on your brand logo, they’re redirected to your store or landing page. If they click on a product in the ad, they’re redirected to that product’s detail page. 

Sponsored Brand Ads are great for any business that wants to grow brand awareness and build a bigger customer base.

If you have an emerging Amazon business, SBAs can help improve brand recognition to build confidence in your audience.

On the other hand, if you have an established brand, Sponsored Brand Ads can help you retain buyers and increase brand loyalty. Sending customers to your store creates an opportunity for them to find additional products that they may be interested in. This is especially great for brands that have a catalog of closely-related products.

If you choose to use SBAs, you’ll want to keep a close eye on your number of first-time sales and the total new-to-brand revenue you generate from your ads. You can find these figures in your campaign reports.

Who Can Use Sponsored Brand Ads?

Sellers, vendors, agencies, and book vendors can all use SBAs. However, your brand MUST be brand registered with Amazon.

How Much Do Sponsored Brand Ads Cost?

With Sponsored Brand Ads, you can set a lifetime campaign budget of anywhere between $1-$20,000,000, and the minimum bid for a Sponsored Brand Ad is $0.10.

Sponsored Brand Ads, in particular, tend to be highly competitive, which generally makes them more expensive than Sponsored Product Ads. Like other Amazon PPC ads, advertisers bid the maximum amount they are willing to pay when shoppers click an ad for their product, so you need a competitive bid in order to win the auction.

After all, it isn’t cheap to feature three of your products at the top of search.

That’s why Sponsored Brand Ad spend shouldn’t make up the majority of your budget and should be used strategically to get the most value from your ad dollars.

3. Sponsored Display Ads (SDA)

Image Credit: Amazon

What Are Sponsored Display Ads?

Unlike SPAs and SBAs, Sponsored Display Ads can pop up all across the internet—not just on Amazon! They can appear on the Amazon home page, shopping result pages, product detail pages, and third-party websites and apps.

To keep products top-of-mind, brands use SDAs to reach potential customers across multiple channels using auto-generated ad creative that prominently features their product along with elements of Amazon’s own branding (like star-rated and the recognizable “add-to-cart” button).

In addition to off-Amazon placements, another key advantage to using SDAs is their audience targeting capabilities:

  • Audience Targeting: Promote your product to audiences whose Amazon shopping behavior makes them prime candidates for buying your product.
    • Remarketing:
      • Views remarketing: Retarget audiences who have previously viewed your product detail page or your competitor’s product detail page.
      • Searches remarketing: Reach audiences who have searched for products similar to yours.
      • Purchases remarketing: Re-engage audiences who have bought from you in the past. (This is highly-effective for consumable items.)
    • Interests: Deliver ads to shoppers with certain interests or shoppers who are viewing certain products on Amazon.
  • Product targeting: Put your product in front of shoppers who have browsed your or your competitors’ products or related categories.

Who Can Use Sponsored Display Ads?

Sponsored Display Ads are available to vendors and professional sellers who have enrolled in Amazon Brand Registry and agencies whose clients sell products on Amazon.

How Much Do Sponsored Display Ads Cost?

Sponsored Display ads are bought either on a CPM (cost per thousand impressions) or CPC (cost per click) basis, so marketers can control how much they spend. Sponsored Display Ads are retail aware, so you won’t waste ad spend showing ads for products that are out of stock.

When you begin a Sponsored Display Ad campaign, you’ll set your bid and budget. You can bid as little as $0.02, and you can set your budget as low as $1.00.

For most sellers, SDAs make up the smallest percentage of their overall ad budget.

4. Amazon Demand-Side Platform (DSP)

Image Credit: Amazon

What is Amazon DSP?

Amazon DSP is a programmatic advertising platform that lets advertisers reach potential customers on- and off-Amazon. Plus, it’s the only programmatic ad platform that uses Amazon’s own consumer data to help you target audiences of past browsers and shoppers or even build lookalike audiences similar to your customer demographics.

Amazon has an untold amount of customer data, and Amazon DSP lets you tap into that to reach your next customer wherever they are online.

Who Can Use Amazon DSP?

Whether you sell products on Amazon or not, you’re eligible to use Amazon DSP.

How Much Does Amazon DSP Cost?

Typically, Amazon’s DSP managed-service option requires you to put down a minimum monthly investment of $35,000 in ad spend.

However, if you work with an Amazon-accredited DSP agency (like CANOPY Management), you can often get started with DSP at a lower monthly commitment. For example, at CANOPY, we work with clients to run highly-effective DSP retargeting campaigns starting at just $5k/month.

5. Amazon Audio and Video Ads

What Are Amazon Audio and Video Ads?

Amazon Audio and Video Ads are another great way to reach customers outside of the Amazon shopping platform. 

Whether your potential customers are watching TV, listening to music on the way to work, or using their Amazon Echo, your ads will be there.

With Amazon Audio Ads, you can extend your brand reach beyond the screen with audio ads that show up wherever shoppers are listening to Amazon Music’s free ad-supported tier across desktop and mobile devices as well as Amazon’s FireTV and Echo:

With Amazon OTT (over-the-top) and online video ads, marketers can engage and showcase their brand to unique audiences across Amazon owned and operated sites like Twitch, IMDb.com, devices like Fire TV, and across the internet. 

OTT (over-the-top) video ads appear before, during, or after OTT content like premium streaming content, TV shows and movies on IMDb TV, live sports and news, and across broadcast and network apps. Shoppers cannot skip the ads, and so they are typically viewed until completion. 

Online video ads typically appear in both out-stream and in-stream formats across apps and browsers, tablets, mobile, and desktop devices. The video formats include:

  • In-read/in-article video
  • In-feed video
  • Video in-banner
  • Interstitial video

Who Can Use Amazon Audio and Video Ads?

You can buy Audio or Video Ads whether you sell products on Amazon or not.

Audio Ads are NOT self-service ads, so you need to work with an Amazon ad consultant to access them. Video Ads can be purchased through Amazon DSP, which, as we mentioned, has self- and managed-service options.

How Much Do Audio and Video Ads Cost?

These types of Amazon ads aren’t cheap!

Amazon Audio Ads are sold on a cost-per-thousand-impressions basis (CPM) and require a minimum budget of about $25,000, and if you work with Amazon’s DSP management team for your video ads, you’ll have to spend at least $35,000.

Again, you don’t necessarily have to work with Amazon for Amazon DSP management services. Amazon-approved agencies like CANOPY Management can offer a lower minimum spend to get you started.

Setting an Advertising Budget

Your advertising budget, simply put, is the maximum amount of money you want to spend on your campaign. Again, this should be backed by a clear marketing goal and strategy.

While some brands spend hundreds of dollars every month, others invest thousands of dollars. On average, brands who launch sponsored ad campaigns with a budget of at least $5 increase sales by up to 140% attributed to advertising compared to businesses who set budgets lower than $5.

Before you set your budget, think of the results you want to achieve, how much you can spend, and the campaign duration.  If you’re going to achieve positive results, you should set budgets that fit your unique business needs and expected campaign results.

Understanding Amazon Bids

Your bid is the amount you are willing to pay to have buyers click on your advertisement. Amazon Advertising allows marketers to use dynamic bidding or fixed bidding or bid based on ad placements. 

Dynamic Bidding

When you choose automatic or dynamic bidding, Amazon automatically adjusts your bid based on how likely your ad is to convert. These dynamic bidding options are split into two categories:

  • Dynamic Bids – down only: Amazon will automatically decrease your bids by up to 100% if the algorithm decides that your ad is less likely to convert.
  • Dynamic Bids – up and down: If it determines that your ad will likely convert, Amazon will raise your bid in real time by up to 100% for 1st page, top-of-search placements and by up to 50% for other placements. Similarly, Amazon will lower your bids if they are less likely to convert. 

Fixed Bidding

If you choose the manual or fixed bid, your bid will remain as exactly what you select, and Amazon will not dynamically adjust it based on likelihood of conversion. What you see is what you get.

Bid By Placement

Amazon allows sellers to bid for specific ad placements, including the top of the search results page, product page, and rest of the search results page. 

  1. Top-of-Search is the most competitive spot. Your ads will appear on the first page and top row of search results. 
  2. Product Page placement means your product will appear on product detail pages, add-to-cart pages, “Sponsored Products Related to this Item,” and other placements.
  3. Rest of Search refers to other placements after Top of Page, including subsequent pages. 

You can adjust your bids for these placements up to 900%. For example, if you choose Top-of-Search with a $1 bid and apply a 50% adjustment, Amazon will increase your bid to $1.50 to give you the Top-of-Search placement.

So, What’s the Best Bid Strategy for Amazon Sellers? 

Dynamic bidding (down only) can help you save money at times when your ads aren’t likely to convert. If you’re testing a new campaign or if you want to reduce ad costs, chances are that this bidding strategy will be your best bet.

When it comes to Amazon’s other dynamic bid option (up and down), you should be careful. While you may want to try it out for especially competitive markets, it’s very easy to overspend for so-so results with this bidding strategy. That’s why it’s essential to keep a close eye on your bids if you choose this strategy.

For manual bids, Amazon will apply your bid to placements whether they will convert or not. The downside of this strategy is that you may end up overpaying for just a few clicks. 

How Do Targeting Options Affect Advertising Cost?

Advertisers use Amazon keyword or product targeting to determine where their ads appear. Your chosen targeting options influence where your ad’s placement and the shoppers who will see (and hopefully, click!) on your ad.

Based on the keywords or products you want to target in your Amazon advertising strategy, your costs will change.

Keyword Targeting 

Keyword targeting allows advertisers to choose keywords related to their product to determine which search queries they may appear for.

Let’s take a very basic example of this idea. If you’re selling a phone case, selecting the keyword “phone case” means your ad will appear in search results and detail pages when a customer searches for a product with the search term “phone case.”

Now, there are other considerations like keyword match type that will influence how Amazon matches your chosen keywords to a customer’s search queries, but this is basically how keyword targeting works.

Successful keyword targeting campaigns help to drive impressions, ad clicks, and sales. If you don’t use the relevant, profitable keywords, you may get fewer clicks and conversions. On the other hand, if your keywords are irrelevant to what the shopper is looking for, you’re likely to waste ad dollars without conversions. 

The targeting options available to your business depend on your ad campaign type. Keyword targeting is available for Sponsored Brand and Sponsored Product Ads.

At CANOPY Management, we research all relevant keywords,  popular search terms, and the best keyword match types to help you drive conversions and achieve your advertising goals.

Product Targeting

Product targeting allows you to engage audiences that are searching for  products or categories that are similar to yours.

This targeting option lets sellers target products or categories individually or target a combination of brands or categories in the same ad campaign. You can select categories, brands, and ASINs that are relevant to your ad.

Product targeting is available for Sponsored Brands, Sponsored Products, and Sponsored Display campaigns.

Automatic Vs. Manual Targeting

While configuring your campaign, you’ll be faced with yet another choice—Manual vs. Automatic Targeting.

So, what’s the best strategy to achieve your desired results?

Automatic targeting means that Amazon automatically chooses where your ads appear. Many advertisers use this targeting strategy to research relevant, high-converting keywords and ASINs.

Once they gather this information, they’ll transfer high-performing keywords and ASINs into manual campaigns for better control over their advertising results. That’s because manual targeting gives advertisers more control over their targets, bids, and ad spend.

What’s the Ideal Cost-Per-Click (CPC)?

Cost-Per-Click (CPC) refers to the average amount you pay every time shoppers click on your ads. It is calculated by dividing the amount of money spent on ads by the number of ad clicks.

Amazon PPC works as a “second-price” auction. That means you’ll never pay over $0.01 more than the next highest bidder. For example, if you bid $5 and the next highest bid was $2.00, it means your PPC would be just $2.01, not $5. Like any auction, the price you are willing to pay may be higher or lower than what the next bidder wants to pay for the same keyword/placement.

Whichever advertiser is willing to pay the most is the one who wins. Whether or not that bid is actually worth it is up to you to figure out.

Although the highest bidder has a higher chance of winning the auction, you should aim to have a lower CPC because it directly translates to a higher return on ad spend (ROAS).

So, now comes the tricky part… Everybody wants to know how much they should be paying per click on Amazon. They want to know the magic number that will result in the best bang for their buck.

Unfortunately, that’s not realistic. 

What’s the best average CPC for your brand?

While the average CPC on Amazon as a whole is $0.71, your own average CPC may look much different.

Like we mentioned earlier, advertising cost is not static. It depends on your niche’s competition level, your own targeted profit level, and your campaign budget.

Bidding wars are common in competitive industries or for competitive keywords. That competition will naturally drive up the price for keywords and placements.

That’s why you may need to go far above and beyond to win the bid.

And competition isn’t the only thing that matters…

Most of us don’t have unlimited ad budgets. While having a higher budget means that you can afford to play in highly competitive markets, most of us need to figure out an effective way to stretch a budget to achieve realistic results.

How much you have to spend will determine your ideal keyword and bidding strategy, which will affect your CPC.

That’s why there’s no one “correct” answer to this question. It all depends on your business and what you want to achieve.

An Amazon ad management agency, like CANOPY Management, has the expertise to evaluate your account and figure out how much to bid in a given campaign and how to make that spend go farther to achieve your unique business goals. An experienced ad specialist can help you develop a PPC strategy that will work best to maximize your budget and deliver significant results.

Wrap Up

There you have it—a beginner’s guide to Amazon advertising costs.

Because Amazon offers such a wide range of advertising solutions and options to help marketers boost product visibility and grow sales, there are many different variables that will impact your Amazon ad spend. 

These costs aren’t static. They depend on factors like marketing goals, chosen ad type, targeting, bids, and budget. 

Your budget should change to match your marketing goals as the needs of your business evolve. At different times, you’ll need different outcomes from your ad campaigns, including…

  • Lower overall advertising costs
  • Improved product visibility and sales
  • Increased profitability

That’s why it’s vital to continuously track and make adjustments to your ad campaigns and make sure they’re consistently delivering the right results at the right cost.

CANOPY Management is here to help you do just that. If you’re struggling to manage your Amazon ad budget, then partner with our team of Amazon insiders and experts to help you achieve (and exceed) your Amazon goals.

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