Are Amazon Ads Profitable? [Full Breakdown]

Are Amazon Ads Profitable? [Full Breakdown]

Are Amazon ads profitable? The answer is a resounding yes – but only if you are doing it right. You shouldn’t have a problem turning a profit if you are using Amazon ads, as long as you’re taking all the right steps, and you aren’t blowing your budget.  

We will go through some of the most important things for you to know and bear in mind if you want your Amazon Ads to be a consistent source of income. 

Are Amazon Ads Profitable? 

A resounding yes! As long as you do things right, Amazon Ads can be very profitable and lucrative. However, people often make mistakes with their ads and campaigns, which cause them to lose money. 

Below, we will go through the things you need to know in order to make sure that your Amazon Ad campaigns are profitable. It’s a lot easier than you might think. 

Click-Through-Rate

The click-through rate (CTR) lets you know the percentage or ratio of clicks an ad gets compared to the number of impressions it receives. This is critical to know if your ad is working and attracting customers or not.

Below is the average CTR for the three primary Amazon Ad types:

  • Sponsored Products – roughly 0.42%.
  • Sponsored Brands – roughly 0.38%.
  • Display Ads – roughly 1%.

Improving CTR

If your CTR is below the average mentioned above, take it as a sign that your ads are not, or are unlikely to be, profitable. You should implement changes and tweak aspects of the ads to make the necessary improvements. 

These improvements may include any of the following:

  • Keyword check (negative, phrase, exact, and board keywords)
  • Review the headline of your ad
  • Use high-quality images
  • Good, positive reviews
  • Use a competitive price

Cost-Per-Click

The cost-per-click (CPC) is the amount of money you pay every time someone clicks on one of your ads. This number is calculated using this formula = total ad spend / number of ad clicks. 

As an advertiser, you will bid for clicks with the goal of outbidding the competition around you. This will ensure that you get the most visibility, putting you in the best position to reach new potential customers.

In the US, the average CPC is $0.89, which is among the highest in the world! Many other countries, such as Italy, have CPCs that are less than half of that. 

Lowering CPC

You want to have a low CPC. This will help you have a higher ROI, and help you be more successful. 

To lower your CPC, you can try any of the following options:

  • Use long-tail keywords
  • Make use of negative keywords
  • Put out relevant ads
  • Test keyword variations 
  • Opt for “Fixed Bid” or “Bid Down” settings in your campaign settings

Conversion Rate

The conversion rate (CVR), refers to the instance when a customer makes a purchase after clicking on your ad. To calculate this, the following formula is used = the number of purchases/conversions vs the number of clicks on an ad. 

This gives sellers the potential to get higher sales because one conversion may be equivalent to selling multiple units, not just one. The average conversion rate for Amazon Ads is between 10-15%, which is higher than most other eCommerce platforms. Some platforms and industries have conversion rates of just 1-2%!

Remember that conversion rates will vary depending on the specific niche, with some being much higher than others. According to eComCrew, some conversion rates on the Amazon Prime Network can reach highs of 74%. 

Some things that impact the conversion rate are as follows:

  • Competitive pricing
  • Strong keywords used
  • Quality and number of product reviews
  • Good product descriptions 
  • Professional, high-quality images used

Improving CVR

You can increase your conversion rate, and therefore make your Amazon Ads more profitable, by carrying out the following suggestions:

  • Try to make your products eligible for Amazon Prime
  • Add pictures showing how the product is used
  • Do keyword research for titles and descriptions 
  • Add benefits of the product in the description
  • Encourage buyers to leave reviews
  • Monitor competitor prices to ensure yours are correct

Advertising Cost of Sales

Advertising Cost of Sales (ACOS) lets you know how much you spend on advertisements for every $1 of revenue you earn. Overall, this is an excellent way of figuring out how profitable your different campaigns are, and it is worked out using this formula = total ad spend/number of generated sales.

Recent figures show that ACOS has increased by around 7.5% when it comes to Sponsored Products. This suggests that things have become increasingly competitive in Amazon’s advertising environment

These numbers show us that the medium ACOS has increased to 35.6% from around 33% when it comes to ad revenue. As such, this means that there is an ad spend of around $0.35 for every $1.00 you get through sales.

Setting ACOS Targets

If you want to make sure that your Amazon ads are profitable, you need to set the right targets for ACOS. This means that you will need to:

  • Figure out your break-even point
  • Determine your profit target

You should be spending less for advertising than outlined in your ideal profit margin. That is, the money you have left over once all the general costs have been paid for (such as fees, shipping, salaries, etc.) It is crucial to know all the costs associated with the business. 

You may need to spend more money on advertising at certain points, and that’s normal. However, you should never be spending more on ads than you make and be losing money. 

How To Ensure Amazon Ads Are Profitable – Extras

How To Ensure Amazon Ads Are Profitable – Extras

Below are some crucial things to take note of if you want your Amazon Ads to be profitable. Many of these have been mentioned in the above points, but we’ve added everything to this list to make things easier for you:

  • Boost brand awareness
  • Advertise outside of Amazon
  • Algorithm experimentation 
  • Pay attention to keyword research
  • Make sure existing listings are optimized
  • Use sponsored product ads properly
  • Take note of sales velocity
  • Restructure your budget
  • Continuously optimize campaigns
  • Note your PPC sales ratio
  • Analyze trends

Final Thoughts 

Amazon Ads are profitable if you are doing them right. There’s no arguing that. However, it’s getting to that point where you know what you are doing that can be challenging.

To recap, here is a full list of things you can do to ensure that your Amazon Ads are profitable. The first four are crucial to ensuring that you are not losing money in ad campaigns, and they are things you will need to work hard on to consistently approve.

The rest of the points may have been mentioned throughout the article, but for clarity, we’ve added them here, too. These will all play a major role in making your Amazon Ads profitable.

Here’s the full list:

  • Improve your CTR
  • Lower your CPC
  • Improve your CVR
  • Set ACOS targets
  • Boost brand awareness
  • Advertise outside of Amazon
  • Algorithm experimentation 
  • Pay attention to keyword research
  • Make sure existing listings are optimized
  • Use sponsored product ads properly
  • Take note of sales velocity
  • Restructure your budget
  • Continuously optimize campaigns
  • Note your PPC sales ratio
  • Analyze trends
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