How to plan and set up your advertising budget for Sponsored Products
How to control your advertising budget
You can control your advertising budget through three levels of settings: account level, campaign level, and portfolio level.
- Account-level budget settings allow you to set an upper limit for the average daily budget for Sponsored Products ads across your account.
- Campaign-level budget settings help you set the daily budget for your entire campaign.
- Portfolio-level budget settings help you control when campaigns in your portfolio stop and when you stop spending on portfolios. Within the budget date range, when the ad budget’s upper limit is reached, all campaigns in the portfolio will stop.
How to allocate your advertising budget
There are two main types of budget allocation methods: 1) holistic profit percentage method and 2) target budget allocation method.
1. Holistic profit percentage method
With this method, you set a minimum and maximum ad budget based on percentage of ad spend in total annual sales, and review and adjust monthly and quarterly. The holistic profit percentage method requires identification of three numbers: annual sales objective, profit margin, and the percentage of ad budget in annual sales revenue. Here is an example:
- Estimated annual sales revenue: $1 million
- Average transaction profit: 40%
- Ad budget percentage: minimum 10% and maximum 15%
- Estimated annual ad budget: $40,000-$60,000
The holistic profit percentage method is simple to calculate and applies to the budget across the whole year, but the downside is that it doesn't take into consideration other factors that affect sales. The holistic profit percentage method is more suitable for sellers with stable sales.
2. Target budget allocation method
This budget method is based on your advertising objectives. Break down your marketing strategy into individual objectives and determine the budget for the campaign based on each objective. Here are the steps for the target budget allocation method:
Step 1: Define advertising objectives
Step 2: Calculate the total investment needed for achieving the objectives
Step 3: Set daily budget based on campaign period and the number of campaign activities
Step 4: Review performance and make needed adjustments
Advertising objectives can be brand exposure, new product promotion, inventory clearance, peak season promotion, etc. When setting different advertising objectives, you should consider the lifecycle of your products. As for specific metrics to measure advertising objectives, if your objective is to improve brand awareness, you can measure impressions, volume for branded search terms, or new-to-brand metrics. If your objective is to clear inventory, you can measure the number of transactions over a certain period of time.