What are the different Amazon advertising budgeting methods, and which one is best?
Budgeting for Amazon advertising can feel like a puzzle you’re scrambling to solve, especially with so many options on the table. Choosing the right approach is critical - not just for staying within your financial limits but for ensuring your campaigns actually deliver results. The right budgeting method can mean the difference between wasted spend and a powerful, ROI-driven ad strategy.
To help you find your footing, we’ll break down the most common Amazon advertising budgeting methods, the pros and cons of each, and how to decide which one is best suited to your business needs.
Understanding Your Business Goals
Before jumping into specific methods, it’s essential to get clear on one thing: your business goals. What you’re aiming to achieve with your ads should guide how you allocate your budget. Are you trying to boost brand visibility? Maximise profit margins? Launch a new product? Each of these goals has a direct influence on how and where your money should be spent.
For some campaigns, you might prioritise high impressions and visibility, meaning you’ll spend more aggressively. For others, a focus on efficiency and return on investment (ROI) could require a more conservative approach.
Foundation in place?
Let’s get into the specifics.
Percentage of Sales (Simple and Straightforward)
The percentage of sales method is exactly what it sounds like - you set your ad budget as a percentage of your monthly or annual sales.
Pros
Easy to calculate and implement.
Aligns ad spend directly with revenue.
Useful for companies with predictable sales trends.
Cons
Doesn’t account for potential profitability.
Can stunt growth if past sales are used as a rigid benchmark.
Example
Imagine your monthly sales average £50,000, and you decide to allocate 10% of revenue to advertising. Your budget would be £5,000 per month.
When it Works Best
This method is ideal for sellers with steady, predictable sales or for those focusing on brand growth without obsessing over precise profitability.
Target TACoS (Focusing on profitability)
Target Total Advertising Cost of Sales (TACoS) revolves around setting your budget based on a target percentage of ad spend to sales revenue. The goal? To ensure your ads are generating profit after expenses, with a view to how they are also influencing your organic sales
Pros
Focuses on profitability and ROI.
Works well for campaigns centred on established products.
Factors in other levers you are using (promotions, price, delivery promise) to boost your sales, as your organic sales performance.
Cons
Requires accurate tracking of sales data and profit margins.
Requires regular monitoring of sales and ad spend to make sure you stay within your target range - so there is also a risk you may overshoot.
Can feel overwhelming for sellers unfamiliar with metrics like break-even TACoS.
Example
If your product has a 40% profit margin, and you want to hit break-even TACoS, you’d set ads so that ad spend stays below 40% of sales generated.
When it Works Best
This approach shines with established products where profitability is the primary focus. Sellers aiming to optimise rather than experiment often gravitate towards Target TACoS.
Competitive Analysis (Benchmarking your spend)
With competitive analysis, the focus shifts to understanding how much your competitors are spending and using that as a benchmark for your own budget.
Pros
Helps you understand where you stand in the market.
Useful when targeting competitive niches or launching new products.
Cons
Competitor data can be challenging to obtain accurately.
Risk of overspending just to ‘keep up’.
Tips for Research
Competitor tools like Helium 10 or third-party data can offer insights into keywords your competitors are bidding on or estimates of their ad spend. While not perfect, these insights provide a starting point for competitive benchmarking.
When it Works Best
This method is useful when entering highly competitive markets or when launching a product. It gives you perspective on what level of spending is necessary to remain visible.
Value-Based Budgeting (Cost per acquisition)
Value-based budgeting calculates your budget based on how much you’re willing to pay per customer acquired, also known as Cost Per Acquisition (CPA).
Pros
Focused on customer acquisition cost rather than raw spend.
Helps you align spend with customer lifetime value (CLV).
Cons
Requires precise tracking and analysis of CPA and CLV.
Can be too data-heavy for businesses without robust analytics.
Example
If your average CLV is £200, and your acceptable CPA is £50, you can set your total ad budget based on how many customers you want to acquire. For 50 customers, the budget would be £2,500.
When it Works Best
This method is particularly effective for sellers who track customer lifetime value and aim to acquire customers cost-efficiently.
Choosing the Right Method for You
Selecting the best budgeting method comes down to your unique business priorities. Here’s a framework to help you decide:
Clarify your goals. Are you focused on profit, growth, or market positioning?
Consider your product lifecycle. New products may require aggressive spend, while established ones lean towards profitability.
Assess your data. Do you have enough figures to calculate CPA or ACoS properly?
Evaluate your risk tolerance. How much are you willing to invest based on uncertainty?
A Quick Comparison Table
| Method | Pros | Cons |
|---|---|---|
| Percentage of Sales | Easy, revenue-linked | Limits growth, ignores profitability |
| Target TACoS | Profit-driven, good for ROI | Requires precise tracking |
| Competitive Analysis | Industry awareness, useful for launches | Risk of overspending |
| Value-Based Budgeting | Focus on customer acquisition | Data-intensive |
Combining Budgeting Methods
There’s no rule that says you can’t mix methods to suit your needs. For example, you might start with a competitive analysis during a product launch before transitioning to Target ACoS once the product is established. Likewise, a blend of percentage-of-sales for stable sales and value-based budgeting for new customers could strike the perfect balance.
By experimenting with a hybrid approach, you can balance short-term campaigns with long-term cost effectiveness.
Final Thoughts
Amazon advertising budgeting doesn’t need to be a guessing game. By understanding your objectives and the available methods, you can create a budget tailored to your specific needs. Whether you’re targeting profitability, growth, or competitive positioning, the key is to track, adapt, and refine your strategy regularly.
Test these methods, measure your results, and don’t be afraid to adjust as you learn what works. A carefully planned budget will ensure you grow your business sustainably.