How Much Should I Be Spending on Amazon Advertising?
Does the thought of setting an Amazon advertising budget send you into a spiral of uncertainty? Friend, you’re not alone.
Many sellers wrestle with the same questions. Is my budget too high? Too low? How do I connect my spending to actual results rather than blindly throwing money at campaigns?
The good news is, the right budget isn’t a guessing game. With a strategic framework, you can craft an ad spend that aligns with your goals, product lifecycle, and market dynamics. Here’s a step-by-step guide to help you nail it.
Define Your Advertising Goals (aka what are you trying to achieve?)
Your budget starts with a question that sets the stage for everything - what do you want to achieve with your Amazon ads?
Think big, focus sharp, and get crystal clear on your objectives. Why? Because your goals are the compass for your spending strategy, dictating exactly how much to invest and where to channel it for maximum impact.
Here’s a breakdown of common goals and how they’ll shape your budget like a pro:
Launching a Product
For new products, visibility is everything. Be prepared to invest more at this stage to gain momentum. Prioritise pushing key keywords and explore automatic campaigns to refine your targeting.
BUT! This should go without saying but just in case, don’t start your ad campaigns until you have at least a few reviews against your listing. Otherwise, you’ll be sending stock to a listing that has no social approval and you’ll be wasting budget.
Brand Awareness
If your focus is on building recognition, allocate a larger share of your budget to high-impression campaigns, such as Sponsored Brands or Sponsored Display ads.
These aren’t necessarily tied to immediate sales but help place your products in front of shoppers.
Increasing Market Share
Similar to brand awareness, but here you are actively looking to take sales from your competitors. In this instance, you will need to increase you aggression and appetite for advertising, with a keen eye on your TACoS which may sit at around 30%..
Profitability (ROAS)
If profitability is your north star, a leaner budget focused on high-performing keywords and tightly controlled ACoS (Advertising Cost of Sales) is key.
Clearance or Liquidation
For excess inventory, keep costs minimal while ensuring ads target buyers who are likely to convert. Your aim is to turn stock into cash, fast.
Each goal comes with unique spending demands. The key here is to not try to do it all in one go - narrow your focus and build campaigns that support one clear objective.
Explore Budgeting Methods (Which one is the right one for you?)
There’s no universal formula for how much you should spend, but there are solid methods to guide you. Here’s a breakdown of popular budgeting approaches:
TACoS or (more simply put) Percentage of Sales
A straightforward way to set your budget is to allocate a percentage of your total sales. Depending on your strategy this might range from 10% through to 30% of your target revenue. For product launch or marketshare goals, then you might be looking at the higher end of the range. It might seem like a lot but know that over time, if your running your campaigns properly, then this should scale down to 5-15% over time.
For example, if you generate £8,000 in monthly revenue, you might spend £400-£1,200 on ads. This method is simple and scales with your revenue but doesn’t account for product lifecycle or specific goals.
Target ACoS
Work backwards from profitability by calculating your break-even ACoS. If your product profit margin is 30%, aim for an ACoS of 30% or lower. This method ensures you’re balancing ad spending with profitability.
Competitive Analysis
Researching competitors’ ad spend can offer insights into your category’s market dynamics. Tools like Helium 10 or Jungle Scout can help benchmark their spending.
Remember, though, that blindly copying competitor budgets often backfires - always tailor decisions to your profit margins and goals. Also remember, Helium10 and Jungle Scout are often guestimating the figures of competitors, so it is not always 100% accurate.
Value-Based Budgeting
This approach revolves around how much you’re willing to pay for each acquisition. If you know your maximum cost per customer is £10, work out how much traffic and conversions you need to stay profitable within that cap.
These different methods aren’t mutually exclusive - feel free to mix and match to create a plan customised to your business.
Align Your Budget with Your Product’s Lifecycle
Not every product gets the red-carpet budget treatment all the time - and for good reason!
Where your product stands in its lifecycle can majorly shake up how much you’ll need to invest. A fresh launch? Big spending for big impact. A mature product? Time to fine-tune the spend. Aligning your budget with the lifecycle keeps your strategy smart and your money working harder!
But, before we run through these, the key thing you need to keep in mind is that on Amazon, unlike places such as Google or META, if you get conversions on the back of your advertising, Amazon will reward you by improving your organic search position. This means, over time as your sales increase and your organic position improves, you will be less reliant on advertising and your TACoS should improve.
That said, here’s what to consider:
Launch Phase
Launching a new product demands a significant, upfront investment to secure visibility and build momentum.
This often means allocating a larger portion of your budget to sponsored ads aimed at high-volume keywords, running automatic campaigns to uncover additional opportunities, and even incorporating brand awareness campaigns to ensure potential buyers know your product exists.
This level of spend is crucial to stand out in competitive marketplaces and achieve the traction you need to drive early sales success. As above, this might mean investing up to 30% of your target revenue to get the momentum you need, with the view that it will decrease over time to 10-15% as you move through the different cycles.
Growth Phase
Now that your product is picking up steam, shift your budget towards scaling. Efforts here should zero in on refining performance data to bid on winning keywords and categories. You should be able to afford to gradually increase your budget as your product builds market share.
Maturity Phase
At this stage, it’s all about efficiency. Invest in maintaining visibility while keeping TACoS in check. Retargeting past buyers or leveraging long-tail keywords can help ensure profitability.
Decline Phase
When sales slow, prioritise liquidation campaigns. Your goal at this point is to sell down stock while minimising ad spend. Focus on narrow targeting that appeals to highly relevant buyers (for example, the bargain hunters out there.)
Matching your ad spend to lifecycle demands prevents you from underinvesting when a product needs a push - or overspending when it doesn’t.
Factor in Market Conditions and Seasonality
External factors play a huge role in the effectiveness of your ad spend. Three major considerations are seasonality, market competition and economic climate.
Seasonality
Seasonality plays a huge role in ad spend strategy, and the key to mastering it is preparation.
Start by researching a content calendar tailored to your niche. Map out peak shopping periods, like Black Friday or major holidays, and adjust your spending accordingly.
For example, if you sell outdoor furniture, plan for heavier ad investment in spring and summer when demand surges. During slower times, like winter, scale back to conserve your budget.
A content calendar helps you stay proactive, ensuring your campaigns are perfectly timed and finely tuned to your audience’s buying behaviour.
Competition
Pay attention to competitor activity, particularly if you share a niche. If competitors ramp up their bids during certain periods, you may need to tweak your strategy to stay competitive.
But please just be cautious - getting baited by the green-eyed monster into overspending will drain your profits!
Economic Climate
Watch for shifts in buyer behaviour - whether inflation leads people to spend less or a surge in e-commerce drives up demand. Align your ad strategies with the broader context.
Build a Budget with Limited Data (read: starting from scratch!)
If you’re just starting out or don’t have a lot of historical data, budgeting can feel even messier. Here’s how to make it work:
Start Small and Scale Up
Begin with a modest daily budget, say £10-20 per campaign, while gathering data. Gradually increase spend as you identify your high-converting ads and keywords.
Focus on Keyword Research
Invest time (and money) early on in identifying strong keywords. This will improve your targeting and maximise the return on every pound spent. Your auto campaigns will help with this, but you’ll need to monitor the most effective keywords and move them into specialised campaigns and negate them from these.
Diligently (and Patiently) Monitor
Closely watch metrics like CTR (Click Through Rate) and TACoS. The key is to adjust swiftly if something isn’t working.
Take this phase as a learning process rather than expecting instant magic. Test, tweak, and build confidence in your numbers over time.
Monitor Your Budget and Adapt as You Go
Amazon ad budgeting isn’t something you set once and forget. It’s an ongoing process of analysis and adjustment. Regularly review campaign performance by monitoring key metrics, such as sales, ROAS, ACoS, TACoS, and CTR.
Use these insights to shift your spending towards winners and pull back from underperforming keywords or campaigns. Scheduling regular audits - either weekly or monthly - ensures you always keep your finger on the pulse.
Let’s Round-Up
Determining how much to spend on Amazon advertising starts with clarity - clarity on your goals, product stage, and market conditions.
By refining your approach through testing and tracking, you’re taking the guesswork out of budgeting and setting your business up for smarter, more effective ad campaigns.
Take the next step by checking out our article, Am I Wasting Money on My Amazon Ads?, and unlock even more insights into optimising your ad spend!