A question we often get from clients is how to decide your Amazon Ads Budget. Deciding your Amazon marketing budget for sponsored advertising is an important question to answer for brands and manufacturers selling on Amazon. For new product listings and brands that are just getting started, advertising is essential for gaining traction and visibility. Existing brands can use an Amazon Ads budget to reach new customers and audiences that have not yet been exposed to your brand or reach shoppers at the moment they want to make a purchase. Failing to set a correct Amazon Ads budget strategy can leave your business without a clear sense of direction or resources required for selling on Amazon to be successful. This post will help you decide your Amazon Ads budget by offering a few different methods that your brand can implement including starting with a small budget and ramping up, calculate a percentage based on previous months’ sales, and set a budget based on company sales goals.
Start With a Small Amazon Ads Budget and Ramp Up
If you are just starting out with Amazon ads, it may be wise to implement the strategy of starting with a small set budget you are comfortable with, assessing the initial performance, and ramping up on successful campaigns and keywords. The benefit to this approach is that it allows you to make a small test to see how ads are performing without risking a lot of money. This strategy allows advertisers to improve or optimize performance over time by pulling Amazon Ads reports, adding or removing keywords, adding negative search terms, and adjusting campaign targeting. Once you lock on the campaigns and targeting that works for your business and goals, you can ramp up and spend more each month with the confidence that the increased money you spend will have similar performance based on previous earlier tests.
Amazon Ads Budget Based on a Percentage of Previous Month’s Sales
Another strategy for how to decide your Amazon Ads Budget is to select a percentage to apply to your previous month’s sales, to set your following month’s advertising budget. For example, if your company does $100,000 in sales for the month of November, and you have decided to spend 10% of your previous month’s sales as a budget. Your December advertising budget would be $10,000. The benefit to this strategy is that it is flexible and follows your sales as a guide. If your sales are trending upwards, you will continue to increase your Amazon Ads budget to match at a percentage basis of those sales. Inversely, if your sales are trending down, your following month’s advertising spend will be reduced. This strategy does have some issues including not considering seasonality of products or considering if you are out of stock which would cause a lower sales value. If this approach is implemented, it is important to take a step back and adjust based on those other considerations.
Decide Amazon Ads Budget Based on Sales Goals
The last method for determining how to select an Amazon Ads budget is to consider what your sales goals are, and adjust your Amazon Ads budget in order to meet that sales goal. The first step for this method is to decide a sales goal for a selected period of time, for example, let’s say your monthly sales goal is $100,000. One way to do this is to allow your campaigns to run and analyze the performance based on ACoS. If your ACoS is 20% (Every $20 you put towards advertising returns $100), then to generate $100,000 you may need to spend $20,000 to achieve that sales goal. This specific calculation does not consider the organic sales that occur without advertising but it does give you a ballpark figure to the potential amount you may need to spend to reach that sales goal.
Conclusion
In order to find success and reach your goals for selling on Amazon, it is important that brands and manufacturers implement a strategy for how to decide what your Amazon Ads budget should be. In this post we have covered several methods for approaching this topic including starting with a small budget and progressively increasing the ad budget, calculating a budget based on a prior time period’s sales, and determining an ad budget to achieve your desired sales goal. Each of these methods could be used as a guide for establishing an Amazon Ads budget strategy. Regardless of which budget strategy you use, it is important to continue to optimize and improve upon your campaign and keyword performance. Pausing keywords and campaigns or adding negative search terms that are ineffective will free up advertising spend towards the campaigns, keywords, and search terms that provide the best return. If you need help with establishing an Amazon Ads budget strategy, or any other questions related to Amazon Ads, please reach out to Goat Consulting using the contact us form below.