Solved: Investing in Amazon PPC at a Loss?

Hi there,

Thanks for reaching out! Happy to give you some initial thoughts on your situation with Amazon PPC. It's a question I see a lot, and frankly, most people think about it the wrong way.

The short answer to your question is yes, it's very common to lose money on ads when you first launch a product. But seeing it as just "losing money" is a trap. It's better to think of it as a calculated investment to acquire a customer and gain market traction. The real question isn't *if* you should invest at a loss, but *how much you can afford to invest* to win a customer that will pay you back over time.

Below, I've outlined a different way to look at this problem. It’s a bit of a longer read, but it moves beyond just tweaking PPC bids and gets to the heart of how to build a proper, profitable e-commerce business, not just a product listing.

We'll need to look at why 'losing money' is the wrong question...

Right, let's get this sorted first. When you launch a new item, especially in a competitive space, you're invisible. You have no sales history, no reviews, no organic ranking. PPC is the tool you use to buy your way into the game. You're paying for data, for initial sales velocity, and for the eyeballs that will hopefully turn into your first reviews.

Thinking of this as "losing money" sets you up for a short-term mindset. You'll get scared, pull back on spend too early, and your product will likely fizzle out before it ever gets a chance to rank organically. The successful sellers in those competitive niches you mentioned aren't just "taking a risk"; they've done the maths. They're not guessing. They know exactly how much they can afford to "lose" on the first sale because they know what that customer is worth in the long run.

This is the fundamental shift you need to make. You're not spending money on ads; you're buying customers. And just like any other asset, a customer has a value that extends far beyond their first purchase. The real question you should be asking isn't "how much should I lose?" but "what's the maximum I can profitably pay to acquire a new customer?". To answer that, you need to understand a concept that most small Amazon sellers completely ignore: Customer Lifetime Value.

I'd say you need to calculate your Customer Lifetime Value (LTV)...

This is probably the single most important metric for any e-commerce business, yet it's shocking how few people actually calculate it. Your LTV tells you the total profit you can expect to make from a single customer over the entire duration of their relationship with your brand. Once you know this number, advertising becomes a simple game of arithmetic, not a gamble.

It sounds complicated, but the basic formula is straightforward. You just need three pieces of information:

• Average Revenue Per Account (ARPA): Or in your case, the average monthly spend of a repeat customer. If they buy your €50 product every two months, your monthly ARPA for that customer is €25.
• Gross Margin %: This is your profit margin after accounting for the cost of goods sold (COGS). If your product sells for €50 and costs you €15 to make and ship, your gross profit is €35, so your margin is 70% (35/50).
• Monthly Churn Rate %: The percentage of customers who don't make a repeat purchase in a given month. This is the trickiest one to calculate early on, but you can start with an estimate. If 1 in 20 customers churns each month, your churn rate is 5%.

The calculation is then: LTV = (ARPA * Gross Margin %) / Monthly Churn Rate

Let’s run an example. Say your average customer spends €30 per month, your gross margin is 60%, and your monthly churn is 4%.

LTV = (€30 * 0.60) / 0.04
LTV = €18 / 0.04 = €450

In this scenario, each customer you acquire is worth €450 in gross profit to your business over their lifetime. Now, how does that change your perspective on spending a few hundred euros on ads?

Here’s a simple calculator so you can play with your own numbers. This is a bit of an eye-opener for most people.

Once you know your LTV, you can set a target for your Customer Acquisition Cost (CAC). A healthy ratio for most e-commerce businesses is an LTV:CAC of at least 3:1. This means for every euro you spend to acquire a customer, you should get at least three euros back in profit over their lifetime. So, with an LTV of €450, you could comfortably spend up to €150 to acquire a single customer and still have a very healthy business. That might mean an initial "loss" on the first sale, but you're actually massively profitable in the long run. This is the maths that unlocks scale.

You probably should stop obsessing over ACoS...

This leads me to another point. The main metric Amazon pushes on you is ACoS (Advertising Cost of Sale). It’s calculated as Ad Spend / Ad Revenue. A lot of sellers become obsessed with getting their ACoS as low as possible. This is a huge mistake.

ACoS is a short-sighted metric. It only measures the efficiency of a single transaction from a single ad click. It tells you nothing about the overall health of your business, customer loyalty, or lifetime value. By optimising purely for a low ACoS, you're often just targeting bottom-of-the-funnel, brand-specific keywords. You miss out on the massive opportunity to attract new customers who've never heard of you before, who are naturally more expensive to acquire but are essential for growth.

A much better metric is ROAS (Return On Ad Spend), which is simply Ad Revenue / Ad Spend. It’s the inverse of ACoS and is the standard across almost every other ad platform. More importantly, you should be looking at your total business profitability, often called MER (Marketing Efficiency Ratio) or Blended ROAS, which is Total Revenue / Total Ad Spend. This gives you a true picture of how your advertising is impacting your entire business, not just a single campaign.

To put it simply: you can have a very high, "unprofitable" ACoS on your launch campaigns, but if those campaigns are acquiring customers with a high LTV, your overall business can be incredibly profitable. Don't let a single metric dictate your entire strategy.

You'll need a plan beyond Amazon...

Here's some brutally honest advice. If your entire business exists only on Amazon, you don't have a business; you have a high-risk dependency. Amazon can change their algorithm, increase their fees, suspend your listing for a bogus reason, or a competitor can hijack it overnight. You are building your castle on rented land.

The smartest play is to use Amazon as a sales channel and an acquisition tool, but to simultaneously build a brand and an audience that you own. This means having your own e-commerce store (on a platform like Shopify), an email list, and a social media presence. This is where you can truly build a relationship with your customers and maximise that LTV we talked about.

I've worked on campaigns for loads of eCommerce brands, from subscription boxes to women's apparel. One campaign we worked on for a subscription box client achieved a 1000% Return On Ad Spend. We did this by driving traffic from platforms like Meta (Facebook & Instagram) to their own website. They control the customer experience, they own the data, and they can retarget and communicate with their audience whenever they want, without paying Amazon's tax.

So, while you're running your Amazon PPC to get those initial sales, you should also be thinking about running a small-budget Meta ads campaign. The goal isn't necessarily direct sales at first. It could be to drive traffic to a blog post, build an email list by offering a discount, or simply grow your social media following. This is how you start to de-risk your business and build a real, defensible brand.

We'll need to find out who your customer really is...

When you start advertising off-Amazon, you can't just throw your product out there and hope for the best. You need to know exactly who you're talking to. And I don't mean "women aged 25-40 who like yoga". That's a demographic, and it's useless for writing compelling ads.

You need to understand your Ideal Customer Profile (ICP) not by who they are, but by the problem they have. What is the specific, urgent, frustrating nightmare in their life that your product solves? Your customer isn't just a person; they are in a specific *problem state*.

For example, if you're selling high-quality, ergonomic kitchen knives, your ICP isn't just "people who like to cook". The nightmare is 'trying to prep a big family dinner with a dull, cheap knife that slips, crushes tomatoes, and makes your wrist ache'. The pain is frustration, wasted time, and the fear of cutting yourself. It's the difference between a joyful cooking experience and a dreaded chore.

Once you've identified that nightmare, you can build your entire advertising strategy around it. Your ad copy, your images, your videos—everything should speak directly to that pain and position your product as the clear, obvious solution. This is how you stop competing on price and start competing on value. Forget generic targeting. Find the specific online communities they're in, the YouTube channels they watch, the influencers they follow. That's where you'll find your real customers.

You'll need to craft a message they can't ignore...

Once you know their pain, you need to structure your ads to grab their attention and persuade them to act. A great framework for this is the **Before-After-Bridge**.

• Before: Describe their world with the problem. This is the nightmare state we just talked about. "Tired of your kitchen knives crushing more than they cut? Frustrated with prepping meals taking twice as long as it should?" You're showing them you understand their struggle.
• After: Paint a picture of their world with your solution. The dream state. "Imagine gliding through vegetables with effortless precision. Picture yourself prepping meals with speed and joy, feeling like a professional chef in your own kitchen."
• Bridge: Introduce your product as the bridge that takes them from the 'Before' to the 'After'. "Our knives are the bridge. Forged from high-carbon steel and perfectly balanced, they turn kitchen chores into a culinary delight."

This simple structure is incredibly effective because it focuses on the customer's transformation, not just your product's features. Nobody cares that your knife has a "full tang" or a "15-degree edge". They care that it will make their life easier and more enjoyable. Your ads need to sell the destination, not the airplane.

I'd say you need the right campaign structure...

When you do move to platforms like Meta, it's not just about writing one good ad. You need a systematic way to find new customers and nurture them towards a purchase. We typically structure this using a funnel approach: Top of Funnel (ToFu), Middle of Funnel (MoFu), and Bottom of Funnel (BoFu).

• ToFu (Top of Funnel - Awareness): This is where you reach cold audiences who've never heard of you. You'd use broad targeting based on the interests and "nightmares" of your ICP. The goal here isn't to sell; it's to educate, entertain, and make them problem-aware. Video ads work really well here.
• MoFu (Middle of Funnel - Consideration): This is your retargeting audience. You're showing ads to people who have already engaged with you in some way (e.g., watched your video, visited your website) but haven't bought yet. Here, you can show them testimonials, user-generated content, or highlight specific product benefits.
• BoFu (Bottom of Funnel - Conversion): This is for the hottest prospects—people who have added your product to their cart or initiated checkout. These ads are direct and urgent, often featuring a discount or a reminder about their abandoned cart to push them over the finish line.

Structuring your campaigns this way ensures you have a constant flow of new prospects coming in and a system to convert them. It’s far more effective than just running a single campaign and hoping for the best.

You'll need to set realistic expectations for cost...

So, what does it actually cost to acquire customers on platforms outside of Amazon? It varies wildly based on your niche, product price, and targeting, but I can give you some general ballpark figures based on our experience with eCommerce campaigns.

For a typical eCommerce store selling products in developed countries (like Western Europe, North America), you might see a cost per click (CPC) between €0.50 and €1.50. A decent website conversion rate is around 2-5%. Let's do the maths: your cost per purchase (CPA) could be anywhere from €10 (€0.50 / 5%) to €75 (€1.50 / 2%).

This might sound high, but again, it all comes back to your LTV. If your LTV is €450 and your average order value is €50, paying €30 to acquire that customer is an incredibly profitable move. I remember one campaign we ran for a client selling women's apparel where we achieved a 691% return. For another selling cleaning products, it was a 633% return. These results don't come from panicking about the cost of the first sale; they come from understanding the long-term value of the customer.

Here’s a chart to give you a rough idea of the performance ranges you might see. Remember, these are just averages to help you set a baseline.

I've detailed my main recommendations for you below:

This is a lot to take in, I know. It's a big shift from just managing PPC bids. But this is the difference between running a product and building a brand. To summarise, here's what I believe your focus should be.

As you can see, this is a much more involved process than simply tweaking bids in your Amazon Seller Central account. It requires a proper strategy, a deep understanding of multiple advertising platforms, and the ability to analyse data and make informed decisions.

Doing this all yourself, especially when you're also trying to manage inventory, customer service, and everything else, can be overwhelming. This is often where expert help can make a massive difference. An experienced agency or consultant can help you build this entire engine for growth far more quickly and effectively than you could on your own, avoiding costly mistakes along the way.

I hope this has given you a much clearer framework for thinking about your advertising and growth. If you'd like to chat through your specific situation in more detail, we offer a completely free, no-obligation initial consultation where we can look at your product and give you some more tailored advice.

Regards,

Team @ Lukas Holschuh