Amazon advertising costs are increasing, making it more important than ever to manage ad spend wisely. In 2024, the average cost-per-click (CPC) on Amazon rose to $0.98, with peaks reaching $1.14 in June. Total ad spending hit $17.29 billion in Q4 2024, up 18% from the previous year. Despite spending more, many sellers are not seeing a good return on investment.
Smaller brands are feeling the pressure even more, spending 127% more on Sponsored Products and 146% more on Sponsored Video ads than larger companies. In November 2024, Amazon ad spend jumped by 32%, yet many campaigns did not perform well.
This is why you need to understand how to calculate wasted ad spend on Amazon as a seller. Identifying where your money is being wasted helps optimize campaigns and improve sales without overspending. By analyzing ad performance and adjusting budgets effectively, businesses can get better results and stay competitive. And with strategic planning, you can identify inefficiencies and redirect your spending to achieve impactful results.
This blog delves into the process of calculating wasted ad spend on Amazon and offers actionable insights to help you refine your advertising campaigns for better results. Letโs get started.
What is Wasted Ad Spend?
Wasted ad spend refers to the segment of your advertising budget that fails to deliver meaningful returns. Tackling wasted ad spend is a crucial step in improving your Advertising Cost of Sales (ACoS) and enhancing the overall effectiveness of your campaigns.
Common causes include inadequate keyword targeting, suboptimal bidding strategies, irrelevant ad placements, or insufficient budget oversight.
1. Inadequate Keyword Targeting: When the selected keywords are overly broad, unrelated, or fail to align with the audience's search intent, ads can reach the wrong viewers. This often leads to clicks that don't result in conversions.
2. Suboptimal Bidding Strategies: Excessively high bids might drain your budget without adequate returns, while very low bids can reduce ad visibility, leading to missed opportunities. Striking the right balance is critical to optimizing ad performance.
3. Irrelevant Ad Placements: Displaying ads on platforms, pages, or locations that don't resonate with your target audience can hinder engagement and negatively impact your return on investment.
4. Insufficient Budget Oversight: Without consistent monitoring of key performance indicators like ROI or ACoS, ad budgets might end up being spent on less effective strategies, leading to wasted resources.
Why Calculating Wasted Ad Spend Matters
For those managing advertising budgets, every dollar invested holds significant value. Itโs not solely about short-term profitabilityโitโs also about maintaining the flexibility to reinvest in effective strategies, explore new opportunities, and drive business growth. By closely analyzing ad spend allocation, you can:
- Improve ROI: Redirect resources from underperforming areas to high-performing campaigns.
- Refine Targeting: Sharpen your focus on connecting with the right audience.
- Support Business Growth: Unlock capital for expansion, innovation, or scaling.
Even seemingly successful campaigns can harbor hidden inefficiencies. Regular evaluations ensure youโre maximizing the potential of every advertising dollar and achieving optimal results.
Step-by-Step Guide to Calculate Wasted Ad Spend
Hereโs a practical, data-driven process to calculate wasted ad spend in your Amazon PPC campaigns. This approach is tailored for clear & actionable insights.
Step 1: Pull Your Search Term Report
The cornerstone of this analysis is the Search Term Report, accessible via Amazonโs Advertising Console. This report provides a breakdown of the exact customer search terms triggering your ads, accompanied by performance metrics such as clicks, spend, and sales.
How to Access It:
- Log in to your Amazon Seller Central or Advertising account.
- Navigate to โMeasurement & Reportingโ > โSponsored Ads Reports.โ
- Choose โSponsored Productsโ (or other relevant ad types), select the Search Term report type, and set the time unit to โSummary.โ
- Define your desired date range, then generate the report.
Why Itโs Important:
This report reveals exactly where your ad spend is allocatedโboth effective expenditures and potential inefficiencies.
Step 2: Identify Key Metrics
To pinpoint wasted spend, prioritize these critical metrics in your report:
- Clicks: The total number of times a search term triggered a click.
- Spend: The amount spent on those clicks.
- Sales: The revenue attributed to those clicks.
- Conversions: The number of orders resulting from those clicks.
Export the report into a spreadsheet for more accessible analysis and deeper insights.
Step 3: Define โWastedโ Spend
Not all non-converting spend should be written off as wasteโsome clicks contribute to brand awareness or pave the way for future sales. That said, itโs essential to establish a clear threshold for identifying true inefficiencies in your ad spend.
Key Considerations:
- High Clicks, No Conversions: Search terms with a significant number of clicks (e.g., 12-15 or more) but no resulting sales are strong indicators of wasted spend.
- Statistical Significance: Evaluate a search term's performance against your campaignโs average conversion rate. For example, if your typical product converts at 33% and a term has generated 30 clicks with no sales (where you would anticipate roughly 10 conversions), it is likely contributing to wasted spend.
Step 4: Calculate the Waste
Now itโs time to analyze the data:
- Filter Your Data: In your spreadsheet, focus on search terms with high spend but minimal or no sales.
- Sum the Spend: Add up the total cost associated with these underperforming terms.
- Quantify the Impact: Calculate the percentage of wasted spend by dividing the total waste by your overall ad spend.
Example Calculation:
- Total PPC Spend: $10,000
- Search Term A: 20 clicks, $50 spend, 0 sales
- Search Term B: 15 clicks, $30 spend, 0 sales
- Search Term C: 10 clicks, $20 spend, 1 sale (low ROAS but acceptable)
Wasted Spend: $50 (Search Term A) + $30 (Search Term B) = $80
Percentage Wasted: $80 รท $10,000 = 0.8%
While this example suggests a modest inefficiency, many accounts experience wasted spend in the range of 20โ30%. Identifying and addressing this waste can significantly enhance your advertising performance.
Steps to Reduce Wasted Ad Spend
1. Analyze Current Campaigns Review Amazonโs advertising reports for metrics like impressions, clicks, conversions, and ACoS to identify inefficiencies.
2. Identify Underperforming Keywords Use search term reports to find high-cost, low-conversion keywords. Pause or adjust them to cut waste.
3. Adjust Bidding Strategies Refine bids based on performance data. Consider automated tools for real-time bid optimization.
4. Optimize Targeting Review ad placements to ensure relevance. Use Amazonโs targeting tools to focus on high-converting audiences.
5. Take Action
- Add negative keywords to exclude wasteful terms.
- Lower bids or pause low-ROAS keywords.
- Reallocate the budget to top-performing campaigns.
Efficiently managing these steps can help streamline ad spend and boost campaign performance.
Tools and Metrics for Identifying Wasted Spend
Several tools and metrics can help you identify and reduce wasted ad spend on Amazon:
- Amazon Advertising Reports: Use these reports to analyze campaign performance and identify areas of inefficiency.
- Search Term Report: This report provides insights into the keywords driving traffic to your ads. Use it to identify underperforming keywords and adjust your strategy accordingly.
- ACoS: Monitor your ACoS to ensure your ad spend is generating a positive return. A high ACoS indicates wasted spend and requires optimization.
Best Practices for Maintaining Optimized Amazon Ads
To maintain optimized Amazon ads and minimize wasted spend, follow these best practices:
- Regularly Review and Adjust Campaigns: Continuously monitor your campaigns and make adjustments based on performance data.
- Use Automated Tools: Leverage automated bidding and optimization tools to ensure your campaigns are running efficiently.
- Stay Updated on Amazon's Advertising Features: Amazon frequently updates its advertising platform with new features and tools. Stay informed and take advantage of these updates to optimize your campaigns.
Conclusion
Calculating and reducing wasted ad spend on Amazon is essential for eCommerce leaders looking to maximize ROI and drive growth. Conducting thorough analyses, adjusting bidding strategies, optimizing ad placements, and implementing negative keywords can significantly improve campaign performance. However, navigating Amazonโs complex ad ecosystem requires deep expertise.
At SalesDuo, our team of ex-Amazon employees knows the ins and outs of Amazonโs advertising algorithms, helping brands eliminate wasted spend and maximize profitability. With our proprietary BI dashboard, we provide real-time insights, pinpoint inefficiencies, and optimize campaigns with data-backed strategies. Our hands-on approach ensures your ad dollars are spent effectively, driving higher conversions and sustainable growth.
Stop letting inefficient ad spend drain your budget. Partner with SalesDuo to take full control of your Amazon advertising strategy. Book a call today and letโs unlock the full potential of your ad spend.
Frequently Asked Questions
About the Author
Siddhant Shaw, an Amazon Ads expert at SalesDuo, combines strategic thinking with a calm, hassle-free approach to drive ad performance. A keen observer, he maximizes results with minimal queries, ensuring efficiency and impact. Focused on continuous growth, he believes in mastering his craft while staying content and composed.
