Rising Amazon PPC Advertising Cost is Your Biggest Threat: Here’s 5 Ways To Thrive

Just as you thought it is all sunshine and rainbows when you first started this new amazing opportunity called “Amazon FBA”, let me slap you with a serving of truth.

Amazon PPC cost have rose and will continue to rise. Life is already hard enough as it is for any Amazon seller right now.

We have seen the rise in sea freight costs as indicated by the Freights Baltic Index page, the rise in prices of raw materials for many of our products and the crazy tariffs that are still in place from the Trump era. (Biden administration, hello?)

However, none of these are even close to the looming threat that we will be discussing today. And that is the ever silent and increasing cost of Amazon PPC.

The single biggest threat to any Amazon business and for some, your daily livelihood is the rising cost of Amazon advertising.

Amazon Advertising Unit Is The Fastest Growing Income For Amazon

And Amazon loves this.

To see how much the increase have been, you simply just need to look at Amazon’s Q1 of 2021 earnings report to know why.

Advertising to no one’s surprise is Amazon’s fastest growing department comparing for Year to Year growth %. Even with the pandemic, Amazon’s online stores have only grown a measly 44% which pales in comparison to the 77% growth in advertising sales.

The next fastest growing unit are the third party seller services, which includes your FBA fees.

You have more sellers coming on board and competing with the same set of keywords and thereby, increasing overall bids on one hand, and more sellers are pumping in more advertising budget on the other hand.

This only points down to one conclusion: Amazon PPC cost will continue to increase at this rate.

And as what CNBC have stated that Amazon’s ads business grew at an “astonishing” pace.

For Amazon sellers everywhere, this can be described as a huge growth dampener.

In 2021, PPC Costs are up 50% and Rising

According to MarketPlace Pulse, the average cost of one click is $1.20. It was $0.93 at the start of 2021. That is an increase of about 50% on a year-over-year metric.

And in all fairness, my own personal PPC data does indicate the rising cost of PPC from 2019 till 2021. The ACOS have been creeping up steadily but surely for my own brands and the TACoS (Total Advertising Cost of Sales) have rose from a mere 5% in 2019 to 15% in 2021.

If you hear anyone who have reported that their PPC cost have gone down, let me assure you that they are an exception to the rule and is by no means the norm.

When Will Amazon Ad Prices Plateaued?

As Amazon Ads prices is a bid and is very much affected by demand and supply theory (I’ve finally applied what I studied in school!), the short answer is not anytime soon my friend.

We have seen a huge increase in new sellers coming onboard and this will drive demand for that ad unit up. There is only so many Sponsored post spot that is up by bid and by definition, it is a finite resources.

When the demand increases to fight for that finite ad spot, the price will continue to increase until an equilibrium is reached. The supply of ad spot have increased but, not fast enough.

So when will this Ad price reach an equilibrium? No one knows. It could be when the bulk of the new sellers got frustrated and quit Amazon FBA, thereby lowering demand or when Amazon begin to cannibalize more organic spots with ads on the first page thereby increasing ad coverage. That is also not good to those who spent resources attaining organic ranking!

Facebook ad cost did experience during COVID of 2020 but that’s only temporal and then it continue to raise again. The same can be applied to Amazon Ad cost.

One thing is for sure, don’t bet on Amazon ad cost to decrease anytime in the next few years.

5 Ways To Thrive Amidst Rising Advertising Costs

1. Know Your Numbers (TACoS & Profit Margin)

Let’s go back to business basics. Are you still profitable after a 15% TACoS? How about 25% TACoS?

Knowing your profit margin will then be key in determining how much you and how high of a bid you should allocate to your advertising budget.

Yes, the cost will be high, but at least you remain profitable for your business to expand.

If your TACoS for the past 3 months is 30% and your profit margin is also 30%, then no matter how glowing your revenue growth is, I am sorry to say that you are not making any money!

So knowing your numbers will be the difference between profit or closing the business.

2. Raise Prices Competively

Let’s face it. Your competitors are also facing the same roadblock of increasing costs.

And in order to stay in business, it can be worthwhile to raise your prices and pass on some of the cost to your customers.

The key to doing this well is to still be competitive in the market while raising prices.

3. Increase Your Profit Margin

You can still increase profit margin by decreasing your Cost of Goods Sold (COGS). In the midst of high sea freight prices and increased raw material cost, this one can be tricky to negotiate with your supplier.

If you are selling a product with a previous profit margin of 30%, perhaps you can source for a new product with a margin of 50%. That additional 20% profit margin will give you more flexibility and leg room compared to your competition. This leads to my next point.

4. Dare To Explore New Products

Even when all is doom and gloom, there will still be a silver lining in every cloud.

Perhaps you should forgo competing in a highly aggressively PPC blood bath with all the new sellers? How about going into a gated category where lesser sellers reside?

How about trying out oversized items that is against conventional wisdom that all the courses seems to teach?

Daring to explore new products with higher profit margin may very well save your business.

Survival of the fittest? More like survival of the most flexible.

5. Decrease your Advertising ACoS with Proper Optimization

Easier said than done, but I assure you a low single digit ACoS is possible.

Optimize your listing’s images or your listing copywriting to get your conversion rate to as high as possible.

Perhaps engage the service of tried and proven PPC optimization software like Perpetua for Amazon PPC optimization to decrease your TACoS automatically?

There are so many things that are still in your control to give your Amazon business as much advantage as you can possibly muster.

Conclusion

The pandemic have brought about a massive spike in ecommerce growth all over the world, but also a surge in Amazon PPC costs.

Even when all is doom and gloom, there will still be a silver lining in every cloud.

By employing these 5 methods, you are well equipped to navigate these treacherous road of rising PPC costs ahead.

There’s no better time to look at your Amazon business again and deconstruct it to understand what works and what doesn’t work anymore. The rule of the game have changed for Amazon businesses. It is no longer the survival of the fittest. It is the one who adapts the fastest that comes up at the top.