Recent data reveals that advertising on Amazon in the USA has become more expensive, with a 50% increase in the average cost of advertising from $0.78 in 2020 to $1.21 in 2021. This trend has continued into Q3 of 2022, with a 4% and 5% increase in CPC for Sponsored Brands and Products ads. Additionally, the majority of Amazon merchants (59%) expect CPC to continue to rise in the coming years.

However, there are still effective ways to make PPC advertising on Amazon a profitable investment despite rising costs. This article explains the reasons for the increase in Amazon CPC and provides practical tips for optimizing keywords and ad campaigns to reduce ad spending and increase profitability. Whether you are new to Amazon advertising or looking to improve your strategies, this article offers expert insights and actionable strategies.

Factors Driving the Increase in Amazon Ads CPC

The cost-per-click (CPC) for Amazon ads has been steadily increasing, and there are several factors at play for this trend.

• Firstly, more and more brands are shifting their advertising budget to Amazon, as it is a leading global e-commerce platform with a massive user base of 2.4 billion monthly visitors. Additionally, Amazon’s CPC is lower than other platforms, such as Facebook and Google, with a global average CPC of just $0.75. This has attracted established brands with large budgets to bid high on keywords, securing a top spot on the search page and driving up the average CPC.
  

• Secondly, despite Amazon’s growth in the number of sellers, the ad space on the platform has remained limited, which has led to intense competition for ad space and an increase in CPC. This is especially true for Sponsored Product ads on the search results page, which is a highly sought-after spot for brands.
  

• Thirdly, smaller brands often find themselves at a disadvantage on Amazon and are willing to sacrifice profit margins to secure ad space and make their products more visible to potential buyers. This has resulted in an increase in the average CPC on the platform.
  

• Finally, the mobile-first shopping behaviour of customers has significantly impacted how Amazon sellers advertise and reach customers. On the Amazon mobile app, sponsored ads are integrated into search results, making it harder for customers to distinguish between paid and organic listings. Moreover, limited real estate on mobile means that only a small number of ads are visible on the search page at any given time. As a result, brands and sellers bid high on keywords to secure the top position, thereby increasing CPC further.
  

Overcoming the issue of rising CPC and reducing advertising expenses – what approaches can be taken?

In order to compete and gain more awareness in the modern e-commerce market, many sellers are investing large sums of money in Amazon advertising. Due to their lesser finances, small firms are finding it harder to compete as the market becomes more cutthroat. It’s critical to keep in mind that bidding competition affects the cost per click (CPC) for Amazon Advertising. The possibility of a price drop is low as more sellers compete on Amazon and keep spending money on advertising. Instead of waiting for a price reduction, several campaign optimisation strategies can help reduce ad spending.

Here are strategies that can be employed to combat rising CPC and lower advertising expenses:

1. Focus on high-performing ASINs

One effective strategy is to only focus on high-performing ASINs. Running ads on your top-selling variations can reduce ad spending on Amazon. This strategy works particularly well if your listings have child ASINs. By focusing on just one top-performing variation, you avoid wasting ad budget when multiple ASINs compete against each other for ad placements. This can ultimately lead to a lower ACoS (Advertising Cost of Sale) and increased efficiency for your ad campaign.

For example, if you’re selling shoes in different sizes and colours, instead of running PPC ads for all variations in the same ad group, focus on just the top-selling size and colour combination and run dedicated ad campaigns for that variation.

2. Pause bids on underperforming keywords & increase bids on high-performing keywords

Pause bids on underperforming keywords & increase bids on high-performing keywords: Audit your ad campaigns regularly. Identify keywords with an ACoS higher than the target ACoS. Pause bids on these keywords to reduce wasted ad budget. On the other hand, increase bids on keywords with an ACoS lower than the target ACoS to increase sales.

For example, if your target ACoS is 25%, and you’ve identified the keyword “natural face cream” with 73% ACoS and “organic face cream” with 19% ACoS, pause bids on the first keyword to avoid overspending, and increase bids on the second to get more sales out of the ad budget.

Additionally, monitoring your search of voice (SOV) or top of the search impression share (TOS). This metric tells you how often your ads appear at the top of the search results compared to your competitors. If your SOV is low, it means that your ads are not appearing frequently enough, which could be due to low bids or poor ad relevance. By increasing your bids on high-performing keywords and improving your ad relevance, you can improve your SOV and increase the visibility of your ads, potentially leading to more clicks and conversions.

Conversely, if your SOV is high, you may be overspending on certain keywords and could benefit from lowering your bids to reduce ad spend while still maintaining a strong presence at the top of the search results.

3. Use Negative Targeting

Another strategy is to add low-converting search terms to negative targeting to stop ads from appearing on these keywords. Audit the search term report from your campaigns to identify search terms having good impressions but low CTR and zero sales, high ad spend, and zero sales or high clicks but zero sales. Add these search terms as negative targeting in your campaigns. It reduces irrelevant ad clicks and spending.

4. Prioritise brand and long-tail keywords.

To reduce ad spend and improve conversion rates, incorporating long-tail keywords in ad campaigns can be an effective strategy. These keywords are specific search phrases with lower search volume but higher relevance to users who are closer to making a purchase.

Here are some pointers on how to utilize long-tail keywords in your Amazon advertising campaigns to reduce ad spend:

• Long-tail keywords are unique search phrases that have lower search volume but are highly targeted towards buyers further down the conversion funnel. By using these keywords, you can make your ads more relevant to users, which can lead to higher conversion rates and lower ad spending.

• There are several ways to extract relevant long-tail keywords. You can review the search term report from automatic campaigns to identify keywords with three or more words that have good sales. Alternatively, you can look at Amazon’s auto-suggest keywords or use tools like Brand Analytics or Amazon Pi to find long-tail keywords.

• Reverse ASIN tools like Brand Analytics can also help you find long-tail keywords with good search volume and relevance from competitors’ listings.

• By targeting brand keywords, you can reduce ad spending as these keywords generally have a relatively low CPC. Additionally, people who search for your products with brand keywords are more likely to make a purchase, so targeting them with brand keywords can lead to quick sales.

5. Track the organic position of keywords

To optimize your ad spend, it’s important to monitor the organic ranking of your high-performing keywords. As your products’ organic ranking on these keywords improves and you receive more organic sales, gradually reduce ad spending without compromising traffic or sales.

One way to track organic search visibility (SOV) is by using Amazon Pi, which provides insights into your product’s organic ranking on relevant keywords. By monitoring your product’s SOV, you can make informed decisions about adjusting your ad spend and targeting efforts.

In Conclusion

To summarize, the cost-per-click (CPC) for Amazon ads has been steadily increasing due to factors such as increased competition for ad space, the popularity of mobile shopping, and larger brands with bigger budgets bidding high on keywords. However, there are still effective strategies that sellers can employ to reduce ad spending and increase profitability, such as focusing on high-performing ASINs, pausing bids on underperforming keywords while increasing bids on high-performing ones, and using negative targeting. By implementing these strategies and regularly auditing ad campaigns, sellers can optimize their Amazon advertising and make it a profitable investment, despite rising CPC.

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