Amazon ads have the potential to bring brands to higher levels of revenue generation and visibility, but knowing how to properly manage your Amazon ad spend can be confusing. You may wonder:
How do I become more efficient with my Amazon advertising dollars?
Am I spending too much on Amazon ads? Should I be spending more?
The first important data point in determining how well you are spending your advertising dollars is to look at…
The Organic to PPC Ratio reveals how many sales you’ve made organically*, versus through Amazon advertising.
It is desirable for this ratio to be in the seller’s favor, ideally in the 80% organic-20% PPC range.
For example, if a seller had $207,024 in sales (79% organic / 21% PPC), that would be a good ratio.
Sellers get into trouble when the organic to PPC ratio is reversed (20% organic / 80% PPC). It indicates that those sellers are spending a lot of money overall to get sales, bleeding profits from their businesses.
When managing Amazon ad spending, use the 80% – 20% principle to guide you in figuring out if your ad spend is eating too large of a chunk of your business’ profitability.
* (Organic sales are sales from unpaid traffic – existing shoppers on Amazon that find your listings without clicking on advertisements.)
The next important data point for consideration is…
For example, if a seller had a TACOS** of 9.42%, this means that the overall margins of the account are being impacted by 9.42% in regards to the seller’s ad spend.
Generally speaking, this number should fall between 6% – 12%. (For those sellers with high margin accounts, these numbers could conceivably fall between 15% – 20% and be acceptable.)
If a seller’s numbers start to climb above these ranges, their advertising costs are significantly impacting their profit margins.
On the flipside, if the overall ad spend margin impact is below 6%, it could mean the seller is leaving money on the table…not taking full advantage of all of the opportunities and advertising tools available for advertising their brand and products to online shoppers on Amazon.
When considering the overall ad spend margin impact in your business, ask yourself these questions…
** (True ACoS)
After identifying the overall profitability of your advertising account, you should look at…
Expect all of your SKUs to have different organic to PPC ratios due to a number of factors such as each SKU having a
different organic keyword placement, or some SKUs may be more mature, with higher organic visibility and a wider variety of keywords, while other may be new SKUs listed for the first time.
You want to know what your organic to PPC sales ratio is on a SKU-by-SKU basis, because you want that number to be as close to the 80 – 20 guideline as possible.
If you’re having trouble calculating the Organic to PPC sales ratio on a SKU-by-SKU basis, consider taking advantage of a free trial of Entourage Margins, which automatically calculates this for you and also provides a detailed analysis of various margin impact metrics.
The next step is to…
This allows a seller to discover which SKUs have a high ad spend margin impact and which have low ad spend margin impact.
Ask yourself these questions…
Continuing from there, take a look at…
The overall budget allocations for these accounts are approximately: Sponsored Products 70%, Sponsored Brands 20%, and Sponsored Display 10%.
Finally, sellers should…
Following these guidelines will help you to be more efficient with your Amazon advertising dollars. Our Mission at PPC Entourage is to give every seller the practical tools that are needed to…