The average Amazon advertising cost for sellers depends on the product, marketing approach, and budget. Amazon’s ad spend in 2017 reached 3.4 billion, and its entire ad revenue eclipsed $31 billion. The increased competition has driven up Amazon advertising costs considerably.
Let’s explore the average Amazon advertising costs by examining all of the options that contribute to that figure.
Top 6 Amazon Advertising Statistics
Here are the top-six statistics that sellers should be familiar with setting their average Amazon advertising cost:
- The average cost of sale (ACOS) ranges between 20-36%
- Advertising budgets should be 10 to 15% of total revenue.
- 74% of third-party sellers select Sponsored Product Ads.
- Amazon’s advertising cost growth rate has increased by 36.36% since January 2020.
- 64% of online shoppers begin their search on Amazon.
- Amazon’s advertising generates $31 billion in revenue every year.
How Much Does It Cost to Put Ads on Amazon?
The cost of putting ads on Amazon varies by product and brand recognition. A successful campaign can start with a daily budget of as little as $5 to $10, but $50 to $100 is a more reasonable figure.
Advertising on Amazon generally falls into one of two categories:
- Self-serve ads: These ads appear in search results as is typically seen on Google. They include a clickable link and a brief description.
- Premium ads: Appear as banners and sidebar ads. They offer far more customisation and include graphics.
In addition to the two categories of ads, a pay-per-click (PPC) Amazon advertising campaign involves some combination of the following three advertising options:
- Sponsored Brand Ads: These ads appear as banners in the search results. Sponsored brand advertisements offer advanced placements and have a higher degree of customisation. For example, the seller can include multiple product listings, videos, and custom logos. Sponsored Brand ads are ideal for targeting less specific keyword searches because they display several products that may reflect what the customer wants to purchase.
- Sponsored Products Ads: Sponsored product ads are the most popular form of Amazon advertising. The ads generally appear above the organic search results. Sponsored product ads have a smaller learning curve. With their ease of use and placement, sellers can convert clicks to customers rapidly. Like Sponsored brand ads, they are based on keywords but offer less customisation.
- Sponsored Display Ads: These ads can appear at the top or bottom of the page and in email advertisements. Unlike Sponsored Brand and Products ads, these ads are not based on keywords but on customer history. The data suggests these ads have a lower return on investment than the other two, but a seller can build their brand by placing products before customers on and off Amazon.
Measuring the cost of ads on Amazon can be best broken down into two distinct metrics.
- Average Amazon Cost of Sales (ACOS)
- Average Cost Per Click
To calculate the ACOS, divide the total amount spent on ads by total sales. For example, suppose:
- Total ad expenditures reached $1,000
- Total sales reached $4,700
- Results in an ACOS of 21.27% (1,000/4,700)
A lower ACOS rate results in a higher return on investment. ACOS varies by product and campaign but generally ranges between 20-36% of sales.
A new advertising campaign on Amazon should have an ACOS of around 21.17%. Setting a target ACOS assists in evaluating the overall effectiveness of an advertising campaign and inform bidding strategy.
The Average Cost Per Click is determined by dividing the total advertising budget by the total number of clicks. For example, suppose that the total ad expenditure is $1,000, and the total number of clicks is 1,200. The average Cost Per Click is 83 cents (1,000/1,200).
As with ACOS, a lower average cost-per-click rate results in a higher return on investment. Markets with highly competitive keywords have a significantly higher average cost.
When setting a bid rate for a cost-per-click campaign, budget plays a significant factor as the seller balances cost and volume. For example, suppose a seller’s advertising budget is $1,000. Their bid strategy will impact the volume of potential customers they may receive:
- A $2 bid rate results in 500 clicks maximum
- A $5 bid rate results in 200 clicks maximum
- A $10 bid rate results in 100 clicks maximum
There is some trial and error involved in attempting to maximise return. For example, if a seller is not receiving the maximum number of clicks, then their bid rate needs to be higher. Conversely, if the seller reaches the maximum number of clicks mid-way through the cycle, their bid rate should be lower. Ideally, a seller aims for the maximum number of clicks throughout the duration of the cycle.
It is important to remember that the average Amazon advertising cost is growing. We determine the ad cost growth rate on Amazon by comparing the average price over a set period:
- The average cost per click on Amazon in January 2020 was 88 cents
- The average cost per click on Amazon in January 2021 was 93 cents
This ad cost growth rate equates to a 5.68% increase year-over-year. In the first six months of 2021, the average Amazon price leapt again to $1.20. This represents a:
- 29% increase from January 2021
- 36.36% increase from January 2020
When establishing a budget, remember that the average Amazon advertising costs are variable, and consider the ad cost growth rate.
Increase in Amazon Ads Costs
Nearly 60% of Amazon sellers have concerns about the increase in Amazon ads costs. This concern is logical, as rising ad costs negatively impact return on investment. 45% of Amazon sellers report that managing their advertising strategy and budget is challenging as these costs continue to rise.
A seller’s advertising budget on Amazon and profits are not always correlated. For example:
- Health and Household products had the most significant ad spend, but the lowest return on investment
- Electronics had the second lowest ad spend, and the highest return on investment
Despite this, 32% of sellers on Amazon planned an ad spend increase the following year. This response is also logical for the following reasons:
- Advertising on Amazon is highly competitive: Amazon’s advertising business generates $31 billion in revenue, ranking it behind only Google and Facebook.
- Amazon has the consumers: 64% of consumers began their product search on Amazon in 2021, besting Google, Walmart, and Facebook.
Amazon Sellers’ Preferred Ad Type
Sponsored product ads have been the most popular among Amazon sellers over the previous four years. They are the ads of choice for 74% of third-party sellers. Seller preference for sponsored product ads stems from their simplicity: they do not require brand registration.
However, they have lost ground as a percentage of advertising dollars in each of those years. Sellers have steadily turned to Sponsored Brands Ads. For example:
- Sponsored Products constituted 90% of ads by sellers in 2018, and Sponsored Brands accounted for 10%
- Sponsored Products constituted 83% of ads by sellers in 2019, and Sponsored Brands accounted for 16%
- Sponsored Products constituted 80% of ads by sellers in 2020, and Sponsored Brands accounted for 18%
- Sponsored Products constituted 77% of ads by sellers in 2021, and Sponsored Brands accounted for 20%
We’re seeing an Amazon ad spend trend wherein sellers consciously chose to divert their advertising budget from Sponsored Product Ads and toward Sponsored Brands Ads over the last four years. As a result, advertisement dollars on Sponsored Products Ads decreased by 13% in that period. In contrast, advertisement dollars on Sponsored Brand Ads doubled to 10%.
While establishing a brand with Sponsored Brand Ads may have a long-term value, their return on investment decreased in 2021.
- Amazon consumers prefer Sponsored Products advertisements, with a 68% return on investment in 2021.
- Amazon consumers demonstrated an aversion to Sponsored Brands Ads as they posted a -41% return on investment in 2021.
This could also be an anomaly. Sponsored Brand Ads yielded a higher return on advertising spend for the first seven months of 2021. In fact, the 30-day return on advertising spend on the three main types of Amazon ads through July 2021 were as follows:
- Sponsored Brand Ads: $6.28
- Sponsored Product Ads: $4.85
- Display Ads: $1.81
How Much Should I Spend on Amazon Advertising?
There is no single answer to this question. Initially, an Amazon PPC budget reflects a percentage of revenue, typically 10-15%. Ultimately, the competitiveness of the market and immediate goals will determine how much sellers spend.
Until sellers build brand awareness and rise organically through search engine rankings, a PPC campaign is the best way to spend Amazon advertising budget. PPC campaigns allow products to immediately reach the coveted space at the top of search results.
As a jumping-off point, sellers can follow a 75-20-5 ad budget allocation. In this scenario:
- Allocate the Amazon advertising budget as follows: 75% on Sponsored Product Ads, 20% on Sponsored Brands Ads, and 5% on Display Ads.
- Focus on advertising top-performing products – no more than the top 20%.
- Study the data and know the breakeven ACOS point for each type of product as categorised by Amazon’s Standardised Identification Number.
This general rule of thumb fits the goals of many sellers. However, sellers’ priorities may differ. For example, if the primary aim is to build brand awareness rather than sales, allocating more money towards Sponsored Display Ads makes sense.
To determine the viability of a budget, run a share of voice analysis. At its core, this lets sellers know how competitive the market is for their selected keywords.
Are Amazon Ad Campaigns Worth It?
Yes. Customers looking to make a purchase flock to Amazon. 64% of consumers begin their online product searches on Amazon. Amazon ad campaigns put products in front of those customers. This leads to a higher conversion rate than sellers are likely to experience on another platform.
Campaign profitability depends on ACOS. The data indicates that Amazon ad campaigns have become more competitive. For example, the median price of ACOS on Sponsored Products Ads rose 7.5% in 2022, reaching 35.06%.
The rise in ACOS reflects the fact that 70% of visitors to Amazon never click past the first page of results. Thus, having a product appear on the first page of results is critical to attracting these customers and achieving a higher conversion rate.
Amazon’s algorithm takes into account the click-through rate. Products with more clicks rank higher in search results.
The average Amazon advertising cost depends on the product, brand, and individual goals. Sellers should measure costs against the ACOS and represent 10-15% of revenue. An Amazon ads campaign places the product on the same platform where 64% of online consumers start their product search.
Perhaps the most shocking stat we uncovered is that Amazon’s advertising revenue is a whopping $31 billion. On this ultra-competitive e-commerce platform, seller success requires an effective advertising strategy.