Why Budgets Are Important When Using Amazon Ads

When sellers run Amazon advertising campaigns, their amazon budgets play a key role in the effectiveness of their ads. In order to have effective Amazon ads that drive the best results, sellers must manage their budgets.

Campaign budgets allow Amazon sellers to assign a cap on how much they want to spend on their Amazon PPC advertising. Setting budgets for individual ad campaigns helps protect sellers from accruing excessively high advertising costs, by efficiently allocating Ad Spend across all of their campaigns.

Sellers can also select budgets according to the profitability of each campaign. This is done when a seller sets the highest amount that he or she is willing to spend, and then that amount is allocated based upon the ad’s daily performance.

How to Set Up an Ad Campaign Budget

Setting up an ad campaign budget starts by:

Determining your ACoS.

Sellers must consider how much they can afford to spend on advertising their products. When sellers determine their ACoS, they know how much they need to spend in order to make a profit. By determining what their average cost of sale (ACoS) is, sellers will have a better understanding of how their budgets will work with it.

Consideration must also be given to the other factors that influence how much a seller can afford to spend on a campaign, such as FBA fees, manufacturing costs, and overhead. (A software tool like Entourage Margins can help sellers to know exactly where their Amazon business is bleeding money as they figure out their budgets.)

Figuring out the duration of your campaign.

Whether it’s a few days or a few weeks, sellers must take into consideration how long they want each of their campaigns to run. It will affect the budget. The goal is to ensure there is enough money in the campaign budget to run ads for the specific time period that a seller wishes them to run.

Discovering your default bid amount.

This is the amount a seller pays each time a shopper clicks on their ad (the cost-per-click). Default bids directly influence what potential cost-per-click could be in a campaign.

A high cost-per-click will consume daily budgets more quickly, not allowing for as many clicks (and therefore, potential sales). With a low cost-per-click, sellers have more room in their budgets to attract a greater number of prospective customers, which helps to increase profitability and lower ACoS. Setting the right default bid amount positions ad campaigns to be more successful.

Evaluating your return on investment (ROI).

Sellers should set up their budgets thinking about what they want to get in return from each of their campaigns. Reach, ranking, and sales will all impact ROI. Sellers need to find a good balance between spending enough to get as many eyes on their products as possible and avoiding overspending.

Choosing keywords.

Keywords impact the cost of an ad’s budget. Keywords affect the prospects that sellers reach, which impacts their conversions. Sellers want to ensure that they choose keywords that will drive valuable results for their businesses.

Types of Budgets in Amazon Advertising

There are two types of budgets a seller can set up in Amazon ad campaigns: Average Daily Budget and Fixed Daily Account Budget.

Average Daily Budget

The average daily budget for individual campaigns is the maximum daily budget a seller is willing to spend for each campaign. It is compulsory to set an average daily budget for each ad campaign.

To figure out an average daily budget, take the Daily budget x number of days left in the calendar month = Maximum expenditure per calendar month. The daily budget is an average value. If a seller's daily budget is not used up in one day, the unused budget will roll over to the following days.

Fixed Daily Account Budget

When sellers set up their advertising campaign, they have the option to set a fixed daily budget for the entire advertising account (Seller Central: Campaign Manager> Advertising Settings> Daily Budget Cap). This budget determines their total daily advertising spend for their Sponsored Products account.

In contrast with an average daily budget, this value is not an average, but a fixed value for the entire day. This means a seller’s total expenditure per day for their entire account will not exceed the value fixed here. This is a preventative measure that keeps sellers’ businesses from running up high costs on their ad campaigns. They no longer need to worry about overspending because they have set a specific limit.

A fixed daily budget will help sellers to track their budgets, while running their campaigns multiple days in order to gain more exposure for their products.

Guidelines For Setting Up Average Daily Budget for Ad Campaigns

Profitable Campaigns – As long as a seller’s campaign is profitable, he or she should not cap their budget on the account level. A capped daily account budget could result in the loss of potential sales if a seller’s ads stop running during the day.

Unprofitable campaigns – If an ad campaign is not profitable, restricting the budget is an inefficient method to improve the profitability of the campaign. To achieve profitability, sellers should optimize their campaigns via strategic PPC campaign structuring, keyword bid optimization, negative keywords, and by leveraging the available keyword match types. (PPC Entourage is an ideal software for accomplishing these tasks).

Recent Budget Updates From Amazon

Amazon Advertising offers a selection of advertising solutions, that include Sponsored Products and Sponsored Brands, which are accessible through a wide range of budgets. Amazon has recently released new updates to help sellers to be more efficient with their budgets.

Updates include:

Campaign level daily budgets

The daily budget amount is averaged over the course of a calendar month. On any given day sellers could spend less than their daily budget, or up to 10% more than their average daily budget. This updated system allows sellers to benefit from high traffic days.

At the end of the month, sellers will not spend more than the daily budget they’ve set, multiplied by the number of days in that month. Their invoices will be adjusted for any over-delivery, so that they will not be charged for any amount in excess of their monthly charging limit.

Amazon will notify sellers when their campaign reaches its daily budget.

(For example, if your budget is $100 and you receive $75 worth of clicks on the first day, you could receive up to $125 worth of clicks on the second day. This would bring your total spend over two days to $200, which averages to $100 per day.)

Portfolio level budget cap

Amazon Portfolio helps sellers to manage and track their Ad Spend in Sponsored Products and Sponsored Brands ads, by offering a way to create custom groupings for those types of campaigns.

Ad Spend can be controlled easily for multiple campaigns so that sellers are not tracking and updating them individually. Sellers can ‘calculate their budgets according to selected campaigns,’ which permits them to see the budgets for their campaigns so that they know what they’ve spent on them previously. It is a convenient guide for setting a new budget in a new portfolio.

Sellers also have the option to use Smart Portfolio Budgets to leverage Amazon's AI to calculate budget distribution for them, and to prevent them from running out of budget.

In addition, sellers now have the ability to set Portfolio level budget caps. This feature is not available for Sponsored Display ads.

The Sponsored Products daily budget cap

This is an optional setting that controls how much all of a seller’s active Sponsored Products campaigns can be spent per day in aggregate. Sellers can access this setting under the Advertising Settings tab in the campaign manager.

Pro Tip: If you are not sure what to set for a daily budget across Sponsored Products campaigns, then you can leave this blank and set a separate budget for each campaign.

The Sponsored Brands Lifetime Budget

Sellers also have the option to use a lifetime budget for Sponsored Brands campaigns.

The lifetime budget is the total amount that a seller is willing to spend on one campaign for as long as it runs. Once their campaign has reached the lifetime budget limit, it will stop running ads. The minimum amount you can set for a lifetime budget is $100.

Sellers will be charged periodically during their campaigns until the campaign’s entire lifetime budget is spent. Budgets are spent as quickly as possible, and the budget will not be paced throughout the day. This means that a smaller budget could be spent in a few minutes if there are a large number of shoppers interested in a seller’s advertised products.

Pro Tip: You can't switch between a daily budget and a lifetime budget after you have selected one when setting up a campaign. To change your budgeting method for a Sponsored Brand, copy your campaign and create a new one.

Out of Budget Notifications

Notifications are provided as a seller’s campaign(s) reach their budget.

When a budget is reached, Amazon will send the seller an email notification that a campaign is out of budget. For daily budgets, Amazon also provides this notification in the campaign manager. If a seller chooses to, they can increase the budget and the campaign will continue to be shown to potential customers. For daily budgets sellers’ budgets will reset at the start of the next day, at which point their ads will continue running.

The information in a budget notification may not match what the seller sees in the campaign manager. Budget notifications are an account alert, while the information displayed in the campaign manager reflects campaign reporting that may take additional time to process.

Pro Tip: When you receive a notification, check to make sure which budget has been reached. If a portfolio budget or Sponsored Products overall budget has been reached, you will need to adjust those caps to allow your campaigns to continue running.

New Report Available

This is a new report available to download (also available inside of the dashboard), that permits sellers to view a number of different metrics related to their budgets.

The new report shows current budge, average time in budget, range of estimated missed Impressions, clicks and sales. This report provides sellers with better information about how to properly allocate their budgets so that they make sure they have adequate budgets for campaigns that are performing well, so that the budgets for those campaigns can be uncapped. The report is not currently available to all sellers.

Pro Tip: If you are on a steady budget and want to keep things organized, remove budget from other campaigns and add them to the winners.

Budget Rules Now Available

Budget rules allow sellers to set rules to increase daily budgets for shopping events and help reduce manual effort spent on adjusting their campaign budgets. Sellers use budget rules to ensure that their high-performing Sponsored Products campaigns don’t run out of budget, and to plan campaign budgets in advance for holidays and sales events.

Schedule-based rules allow sellers to set budgets in advance for special events such as Prime Day or based on a custom period. The rule will increase the campaign budget by the percentage a seller specifies during the date range they set in the rule or during the special event selected.

Amazon will recommend events based on the products in a seller’s campaign when Amazon anticipates more demand and a need for an increased budget. If a seller removes or updates products from a campaign, Amazon will not remove the rule, but the recommendations might change.

Sellers can set multiple rules for a campaign. If more than one rule satisfies their set conditions, then Amazon will apply the rule with the highest budget increase. For example, consider a campaign “Running Shoes for Q4,” which has two rules set:

  1. Increase budget by 20% from November 1 to November 30, and
  2. Increase budget by 100% on November 27 (Black Friday).

When Amazon evaluates the rules on November 26, Amazon will implement a 100% budget increase for November 27.

The importance of determining your budgets when using Amazon advertising campaigns can’t be overstated. Proper budget allocation is one of the most important cornerstones upon which every successful Amazon business is built.

In Part 2 of Amazon Budget, we will cover How to Use Budget Across the Customer Buying Cycle.

Entourage: Software to Scale Amazon Ads and Results Driven Management.

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