Today I’ll be talking about the cost of paid advertising for eCommerce businesses and how they might translate for Amazon only eCommerce businesses.
Quite often when trying to establish a strategy the most difficult thing can be estimating performance especially in terms of cost
So it’s really useful when somebody like Andrew Youderian from e-commerce fuel publishes his yearly report of data collected from hundreds of of high performance e-commerce entrepreneurs and businesses – The State Of The Merchant Report 2019
Return On Ad Spend RoAS Statistics From The Report
Looking at Return on Ad Spend – which is Ad spend divided by revenue (not profit).
So if you paid $50 in advertising and generated $100 in revenue, that would be a 2 x return on ad spend as you generated 2 times as much revenue as you spent on Ads. (this doesn’t account for profit in any way)
So Facebook was surveyed at an average of 3.4 x RoAS
And a median of 3.0x RoAS – so there were some outliers in that data that skewed the average towards a higher RoAS – the median is a better demonstration of performance of the data set
Google came in at an average of 5.1 X RoAS – now we’re talking
But again, there must have been some serious high performing outliers in the surveyed companies as the median was at 4.0 x RoAS still better than Facebook
Then finally on to Amazon Ads at 4.6X RoAS average
And a 4.0 x median RoAS – once again, showing the presence of some high performing outliers skewing the average upwards.
Facebook and Google Ads Return On Ad Spend
So let’s talk about the Facebook Ads and Google Ads numbers for a second
These return on ad spend numbers are based primarily on e-commerce businesses with the three pillars of profitability being used – they have their own stores that their driving cold traffic to, retargeting warm traffic and then up-selling hot traffic in the loyalty pillar
So those numbers take into account high profitability campaigns and retargeting campaigns and low profitability if not loss making awareness and acquisition campaigns
If you’ve already listened to the Ezra Firestone three pillars of profitability for Amazon sellers episode you’ll know that as an Amazon Seller you don’t have access to the higher profitability pillars in the same way as e-commerce store owners and as a result can’t achieve the same levels of return on ad spend.
Where do Google and Facebook Ads actually appear?
If you’ve not done a tremendous amount of work with Facebook Advertising or Google Advertising, I might be doing you a disservice here in not going into more detail about the types of Ads I’m talking about.
When I say Facebook, I of course also mean Instagram – as Instagram Advertising is controlled under the Facebook platform.
But more than that, this will include Facebook messenger ads, in Facebook and Instagram stories, in mid-stream of videos, Facebook search, Ads on the Facebook Audience network – that’s right, you’ll get little display Ads when you’re on certain apps and websites that monetise their traffic with Facebook display ads – you’re seeing Facebook Ads when you’re not even on Facebook.
It’s less surprising to know it’s the same for Google.
Google have a display network of websites that show Ads for Google as well as Apps just like Facebook
There’s obviously top of search Ads, but that’s the very thin end of the wedge or tip of the iceberg.
There’s shopping ads in search
Shopping ads on YouTube
YouTube video Ads
So when I say Facebook Ads, I don’t just mean the one’s you see in your feed.
And when I say Google Ads I don’t just mean the top of search ads – there’s a WHOLE WORLD out there to go and waste a tonne of money discovering!
What These RoAS Numbers Mean For Amazon Sellers
Back to the numbers then and what those RoAS numbers mean for Amazon sellers
So maybe as an Amazon Seller, someone driving traffic to Amazon without access to the high profitability campaigns you’ll only really achieve 2x return on ad spend on Facebook ads for Amazon products As opposed to 3 or 3.4
So at a 3 to 3.4 RoAS you’ll be paying $9-10 per unit to sell a $30 product through Facebook Ads – with dialled in campaigns utilising the 3 Pillars of profitability
At 2 x RoAS you’ll be spending $15 per unit to sell a $30 product
Let’s convert that to Amazon Seller speak – ACoS
3-3.4 RoAS is 30-33% ACoS
2 x RoAS is 50% ACoS
On every sale
Realities are if you’re just running Awareness and Acquisition campaigns and not doing anything sophisticated to remarket or retarget in a scalable way, the RoAS will be even worse than 2 x
Google Advertising looks slightly better, but this is also where the 3 pillars will be getting deployed effectively by WooCommerce and Shopify Store Owners.
That 4-5.1 x RoAS (or 20-25% ACoS in Amazon Seller Speak) could easily degrade down to 3 x or 2 x as you have limited access to the “money making pillars” or “money making campaigns” that convert existing customers and extremely hot leads – instead you’re limited to hitting cold traffic, or at best warm audiences.
Amazon Advertising being 4 or 4.6 RoAS is interesting
That means that an ACoS of 22-25% is being achieved on the Ad Campaigns of the businesses in the survey – which is good (in my opinion, very good).
However, this isn’t taking into account the likely 15% commission that’s being paid on each item – which is in essence a “traffic tax”
So you add the 15% to the 22-25% and you get 37-40% ACoS (if we’re comparing apples with apples here for Facebook and Google Ads)
So translating back to compare now with RoAS that’s 2.5-2.7 x for Amazon Ads…
Or for a $30 product, that’s $11-12 per product in traffic cost.
But – the Amazon Ads DON’T require you to be using the “3 pillars of profitability” in the same way Google and Facebook ads to to drive profit through remarketing and loyalty campaigns.
Paid Advertising IS An Expensive Traffic Source
Those numbers are interesting right?
They should certainly help you establish a benchmark when thinking about your traffic strategy and what types of traffic are affordable and scalable for your business
Another thing the report covers is the year on year increase in Cost Per Acquisition of 19% for Facebook Ads, 16% for Amazon Ads and 10% for Google Ads
If the cost comparisons didn’t have you scratching your head, then the ad cost increase probably should. The implications of these levels of cost increase are huge, not over the next decade, but even over the next year or so.
Add to that the fact that over an approximate 2 year period from July 2017 to July 2019 the share of Amazon Pageviews that came from sponsored ads tripled from 4% to just shy of 12%
That also helps to explain the double digit growth in advertising cost per acquisition for Amazon Ads.
This is why I believe the biggest risk to Amazon centric eCommerce businesses isn’t trade tariffs or terms of service enforcement’s and changes – it’s the rising cost of traffic. Like the frog being boiled to death because the imperceptible danger of increasing heat.
The eCommerce stores outside of Amazon have the ability to make Facebook and Google and other platforms like Pinterest and TikTok and the new emerging platforms LAST LONGER than a pure Amazon Seller – as they have access to the higher profitability pillars and campaigns.
So they’ll be making profitable sales for a while after your off-Amazon Paid Ads become economically crippling.
And it’s a level playing field ON-Amazon between you and the eCommerce stores who choose to sell both ON and OFF Amazon.
Time To Engage The Strategic Brain
This information should have your strategic brain humming
Waiting for things to get worse probably isn’t the answer.
You’ll be glad to hear it’s not all doom and gloom by the way.
I’m a strong believer when it comes to business you need to be seeking ways to turn adversity into opportunity.
And the good news is, there are some lower cost traffic sources that can be tapped into over and above straight up paid advertising.
I’ll leave you with a final thought before closing out the episode.
Where’s All That Ad Spend Going?
As I mentioned, Google isn’t JUST advertising on Google – it’s advertising on “partner sites” in it’s display network, sites which GOOGLE pays to place ads on.
The same goes for Facebook, they’re paying their Audience Network partners to place ads on their apps and websites.
The money is flowing from you, the one trying to promote your product, to Google and Facebook, then it’s flowing into websites and Apps across the web.
You may well have guessed it by now, but Amazon Affiliate websites typically also run Google Ads – they generate revenue not only be referring people to Amazon, but also by showing Ads to visitors – in many cases a LOT of money.
I know of one “small player” who monetises using “display ads” who generates over $40,000 in revenue per month – that’s almost $500,000 a year in advertising spend that’s flowing from you, to Google and on to a website – who ultimately just publishes content and places Ads inside the content.
So while Google and Facebook are growing fat through Ad Spend – so are the publishers, digital magazines and Affiliate websites who also monetise with Display Ads.
Imagine cutting out the middle men and just running your own ads on your own site?
Imagine creating one of these sites and being able to monetise it not just by promoting your own products, but also by promoting high end products in display advertising?
And like that, we’ve turned adversity into opportunity.
I’m not saying jump from one to the other, I’m saying think about the power in the combination of being an eCommerce retailer who “owns the ads” and “owns the traffic”
It’s not just a source of traffic – it’s another source of revenue. Your traffic source, the website could be “self-liquidating” – cost you nothing, but drive your sales.
I find this really exciting, as I feel we’re on the cusp of a revolution in the business models – not just an incremental change, but something big.
So I’ll leave you with that thought for now!
Summary Of The External Traffic For Amazon Sellers Podcast Episode
Today I wanted to highlight the true cost of a traffic strategy that relies purely on Paid Traffic and to highlight the fact that Amazon Ads are only part of the traffic cost when selling on Amazon.
We’ve covered the cost of paid traffic for Amazon sellers and compared RoAS, ACoS and ultimate cost per unit for Google, Facebook and Amazon Ads. So if you’re thinking about how to promote amazon products on Facebook using paid advertising, this should have prompted you to think “how much will this cost and is this affordable” before diving in head first.
We’ve also briefly covered the types of Ads and places you can find them – some might have surprised you.
Then finally I summarised why I believe rising traffic cost is the biggest risk to an Amazon Centric eCommerce business and how you might think about things differently to switch that adversity into opportunity.
If you like the show then please do show your appreciation by heading on over to iTunes and leaving a review, it would very much make my day!
Until next time, my name is Ashley Pearce and this has been the External Traffic for Amazon Sellers podcast brought to you by futurestatemedia.com
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