Learn the best practice for PPC on Amazon in 2023 in our guide
The Amazon PPC Advertising Guide for 2023
Selling on Amazon can be competitive and complicated. With so much to learn and no shortage of jargon to get your head around, it can seem overwhelming — especially for new Sellers. But we’re here to help.
While you can’t reduce the competition, the right strategies can give you a competitive advantage. And with help from experts, you can cut through the complexity and build a successful business.
In this guide, we’ll explain everything you need to know about Amazon PPC advertising: what it is, why it’s important, and how you can improve your PPC spend.
What is Amazon PPC?
Amazon PPC is an advertising platform where Sellers run pay-per-click ads on Amazon to increase sales.
Through PPC advertising, Sellers pay Amazon to display their adverts when customers enter certain search terms. In fact, when you search for something on Amazon, the majority of products you see are PPC ad placements, with only a handful of organic search results among them. (Although, the better your PPC performs, the better your organic search performs too).
The importance of PPC
Amazon is a hugely competitive marketplace, with more than 353 million total products listed and 185,000 unique Sellers.¹ With these numbers in mind, not every product can be at the top of the first page of search results. You can’t rely on your products being found organically.
But the reason there are so many products and Sellers on Amazon is because there is so much demand. The buyers are already there, searching. You just need to find a way to get your products in front of them.
To give you an idea of the scale of this opportunity, Amazon has over 200 million Prime subscribers² and regularly hits over 2 billion website visits per month.³ In fact, 44% of people go directly to Amazon to start their product search rather than browsing for other options.⁴
Your goal as an Amazon Seller is to get your products seen by as many people as possible. An effective Amazon PPC advertising strategy is key to achieving this.
Types of PPC ad campaigns
You know what Amazon PPC advertising is and why it’s important. So how does it work?
There are three types of Amazon PPC ads: Sponsored Product Ads, Sponsored Display Ads, and Sponsored Brand Ads. Let’s take a look at what each one offers.
Sponsored Product Ads
Sponsored Product Ads allow Sellers to target customers with individual product listings when they enter a certain search term, category, brand, or ASIN (Amazon Standard Identification Number). Amazon charges you for this type of ad on a cost-per-click (CPC) basis, with two options for campaign management: automatic and manual (more on this later).
Sponsored Product Ads are the most popular type of PPC ads on Amazon. That’s because they are:
- The most versatile PPC ad option on Amazon, allowing you to target multiple stages of the buyer journey.
- Available to all Sellers on the platform — unlike Sponsored Brands and Sponsored Display Ads.
Sponsored Brand Ads
Similar to Sponsored Product Ads, Sponsored Brand Ads allow you to target both keywords and products. But that’s where the similarity ends. When shoppers click on one of these ads, they’re taken to a custom landing page or store, helping to drive sales and improve brand visibility.
Like Sponsored Display Ads, Sponsored Brand Ads are available only to Brand Registered Sellers. Due to this, they’re less popular than product ads but are growing in popularity all the time because they allow you to:
- Create personalized product detail pages that showcase your brand.
- Rise above the noise of search results pages.
Sponsored Display Ads
Unlike the other two options on this list, which both target specific search terms, Sponsored Display Ads target customers’ shopping behavior or interests. Amazon then displays your product ads to customers likely to be interested in buying them, both on and off Amazon’s website or app.
Introduced in 2019, Sponsored Display Ads are the newest option and are only available to Brand Registered Sellers. They can be very effective when done right, allowing brands to:
- Re-engage customers who viewed your product but didn’t purchase it.
- Target customers who have shown interest in categories relating to your product.
Automatic vs Manual campaigns
As a Seller, you can choose from two types of Amazon PPC campaigns: automatic and manual. Let’s take a look at what each offers and who they are best suited to.
For this type of campaign, you set your budget, and Amazon then automatically chooses the keywords based on criteria such as your product’s category, relevant keywords from your product’s description, competitor keywords, and related customer keywords. Bids are set per campaign.
Automatic campaigns are the easiest to deploy, with Amazon doing all the heavy keywording lifting for you. This makes automatic campaigns a good choice for new Sellers and PPC beginners — or for those who want to find new keywords alongside running manual campaigns.
With manual campaigns, you get to choose the keywords you want to bid on as well as the bid price. This allows for a more granular, precise, and strategic approach to product targeting, giving you a competitive advantage when done well.
This is the more commonly used campaign, usually by those with some experience or who know the keywords they want to target and why.
To yield the benefits of manual campaigns, however, it helps to have some PPC experience. Otherwise, you run the risk of losing money if your keyword strategy misses the mark.
Suggested reading: To find out more about the pros and cons of automatic and manual PPC campaigns, take a look at our article: Amazon PPC Automatic Campaigns vs Manual: Which Is Better?
Understanding your key metrics
So now we know what PPC is, how it works, and how to use it, it’s time to look at some of the key metrics that help us understand PPC success.
Each business is unique, with different customers buying products at different times. By tracking key metrics, you can make sense of all your data relating to customer purchasing patterns. Let’s take a look at two of the most critical PPC metrics to understand and track: ACoS and CVR.
Conversion rate (CVR)
CVR measures the percentage of customers that have clicked your ad and gone on to buy a product. It’s a critical metric when it comes to PPC advertising success because it tells you whether customers are doing what you want them to do.
If your CVR is low, your ACoS will skyrocket, which will hit your bottom line. Your CVR also provides context around what’s working well and what isn’t. A high CVR shows that your products and product-related content are resonating with customers, while a low CVR suggests there’s room for improvement.
Bear in mind that CVR will differ from product to product. For example, you’ll naturally get lower CVRs for products that:
- Are in highly competitive categories
- Are very expensive, e.g. luxury clothing or jewellery
- Should last a very long time, e.g. home furniture
Suggested reading: ACoS and CVR aren’t the only key PPC metrics to consider — there’s click-through rate (CTR) as well. For more information about key PPC metrics, take a look at our article: 5 Critical Amazon Advertising and PPC Reporting Metrics.
Advertising Cost of Sales (ACoS)
ACoS is a simple-but-effective metric that compares the amount of money you spent on a PPC campaign to the amount that the campaign has generated for you. In other words, it tells you how much you are spending to make a sale.
ACoS is calculated by dividing advertising costs by advertising revenue and then turning the sum into a percentage. So, for example, if you spend £50 on a PPC ad campaign and earn £100 from it, your ACoS would be 50%. The lower the ACoS, the better, because that means you are spending less in relation to your earnings.
Understanding ACoS is key to understanding how your PPC campaign is performing. While ACoS typically ranges between 10-40%, there isn’t a specific number that represents a good ACoS. Rather, a good ACoS depends on various business-specific factors, including:
- Your industry.
- The size of your company.
- Campaign frequency.
- Your profit margin.
Identifying your break-even ACoS
By identifying your break-even ACoS — i.e. the point where ad revenue matches ad spend — you can understand at what ACoS percentage your business starts making money. To calculate your break-even ACoS, you need three data points:
- Revenue — the income you earned from selling your products
- Cost of goods sold (COGS) — how much it costs to create, build, or make your products
- Gross profit — your revenue minus your COGS
To get your profit margin, you then divide your gross profit by your revenue. Let’s look at a simple example. If your revenue is $100 and your COGS is $40, your gross profit is $60. Now, you divide your gross profit ($60) by your revenue ($100) to get your profit margin: 0.6, or 60%.
So, in this example, if you want to break even with your PPC ad campaign, your ACoS cannot exceed 60%. To make a profit from your PPC ad campaign, you need an ACoS of less than 60%. The lower your ACoS, the more profit you are making from your campaign.
Setting your target ACoS
Once you know your break-even ACoS, you can set a target ACoS. There are different ways to do this depending on your business strategy and whether you want to maximize sales, impressions, or profit. Here are some key points to consider:
- No two products are the same, so it makes sense to set your target ACoS per product rather than across your whole business.
- Focussing blindly on a lower ACoS could cost your business in the long run.
- If you are willing to play the long game, you could go aggressive and spend more than your break-even ACoS to build a customer base with a stronger customer lifetime value (CLV). What you’d lose in the short term would be repaid in the long term through CLV.
Suggested reading: For a deeper dive into all things ACoS, check out our article: An Amazon ACoS Strategy Guide for 2022.
Use Nozzle analytics to boost your PPC campaigns
Amazon keeps its data close to its chest, making it difficult for Sellers to make smart choices about how to market their products through PPC campaigns. After all, you can’t effectively use or set metrics if you don’t know the information you are basing them on.
This is where Amazon analytics tools like Nozzle can help. Nozzle brings all that hard-to-find information together and transforms it into actionable insights, including:
- Metrics such as ACoS, CTR, and CLV
- Purchase analysis, helping you understand the effectiveness of your PPC advertising campaigns
- Purchase interval analysis, helping you to understand when to target customers with PPC ads
The result is a smarter, more effective, and more profitable approach to Amazon PPC advertising. If you’d like to see first-hand how Nozzle can transform the way you sell on Amazon, you can sign up for a free trial today.