Advertising on Amazon: how much should you spend?

When you make the decision to sell your products on Amazon, it’s not enough to pair great sales copy with eye-catching photography on your product pages. Consumers need to be able to find your products, which means your launch campaign needs to get into Amazon’s A9 algorithm — the system it employs to rank and display available products. This algorithm focuses on two factors to generate results: a product’s sales velocity and the product’s stocking status. The fastest and most efficient way to make the algorithm work for you is to advertise your products on Amazon. This is called the “Flywheel Effect.” But where do you even begin on this enormous  E-commerce site that took in more than $15 billion in ad revenue in 2020? What advertising strategy should you use to meet those goals? And most importantly, how much should you spend on advertising on Amazon?

What kind of advertising is available on Amazon, and how much is it?

Amazon Advertising offers sellers a wide range of advertising possibilities. Most ads show up within the framework of Amazon’s website or app. Let’s start with sponsored ads, where the word “sponsored” falls right in front of the ad placement. If you have a small budget for Amazon advertising, these are the easiest ads to focus your budget on. There are four core types of sponsored ads you can run:

1. Sponsored Product Ads
   These are the number-one tactic to make your product discoverable. They use keyword targeting to place your product in the consumer’s search grid.
2. Sponsored Brand Ads
   Also located on the search grid but falling at the top of the page, these ads allow for more creativity, including adding a logo, your own short headline, three product pictures, or three brand store categories.
3. Sponsored Brand Video Ads
   These fall in the middle of the search grid and capture attention on an otherwise static page. Make sure your video is impactful without audio because few people will click to listen.
4. Sponsored Display Ads
   The most common placement for sponsored display is at the bottom of product detail pages. They can target keywords, ASIN numbers, connected categories and more.

Amazon Advertising also offers Demand-Side Platform (DSP) ads, which can run on and off platform. They can be traditional web banners or automated to display a dynamically generated ad specific to the user. DSP comes at a greater cost and has a somewhat large minimum buy, but we can leverage lower minimums through our partners. The real power of DSP lies in its targeting capabilities. With one campaign, you can target brand loyalists, in-market shoppers, competitor’s shoppers and shoppers who browsed your products but didn’t purchase.

Another option is Over-the-Top (OTT) ads. These are video ads that run on Amazon’s various media devices and sites, like Kindles, Firesticks, Twitch and IMDB TV. They can be used to generate awareness. While they come at the highest cost and feature a sizable minimum buy, they can greatly increase your brand’s awareness with Amazon shoppers.

Every company is different, so every Amazon advertising budget is different.

The breadth of Amazon Advertising's offerings should be seen as a complete marketing funnel. But there is no launch campaign formula that dictates which client should spend what and where. A successful Amazon Advertising strategy is dictated by price point and category opportunity, as well as the client's advertising assets (especially when it comes to video).

Instead of looking at a launch campaign in terms of actual budget dollars, it’s better to consider the campaign’s Advertising Cost of Sales (ACoS). Depending on the client, an initial ACoS could be well over 60%. The ultimate goal is to use this to get your products embedded in Amazon’s A9 algorithm rather than make an impressive, immediate profit. We refer to this as “getting the flywheel moving.” Once your Amazon business is running smoothly, you can start moving toward an optimized campaign where a high-selling item’s ACoS is closer to 5 to 10%.

Once you’ve reached optimization, 5 to 10% of your sales should be reinvested into Amazon Advertising. This is where your best Return on Advertising Spend (RoAS) occurs. The metrics involved in ACoS and RoAS are extremely important in determining how effective a campaign is currently and how it should be adjusted to meet goals. Eventually, you’ll be able to use the same budget for advertising more effectively.

Ready to start advertising on Amazon?

With a team of experts, powerful partnerships and access to invaluable tools (like AI that can raise or lower an ad bid based on your objectives), we at Sales Factory help our clients effectively navigate and employ the complete arsenal of advertising options offered by Amazon. Together, we can devise the most effective strategy for advertising your product on Amazon from the initial launch to a fully optimized campaign.