If you wish to have a successful business that is part of the constantly growing, ravenous beast that is global e-commerce today, selling on Amazon is no longer an option, but a necessity.
As the premier American multinational e-commerce company, headquartered in Seattle, Washington, Amazon employed 566,400 full-time and part-time employees, in 2017.
With its 2017 headcount of 566,400 employees, Amazon has a far larger number of employees than either Google, or its e-commerce competitor eBay for one simple reason…they are necessary in order to meet the demands of Amazon’s ever increasing sales volumes.
The evolution of Amazon.com has truly been AMaZing over the last 20 years. Starting out primarily as an online bookstore, Amazon has become the digital retailer of choice for consumer across the US, with around 178 billion U.S. dollars in net revenues for 2017.
It has even extended its reach into such areas as original programming and movies.
It’s a no-brainer, that if you have products to sell online, you want them to be a part of the Amazon e-commerce juggernaut.
If you have a product or new line of products, the question then becomes how do you get prospective customers to know about them and more importantly, to buy them?
That’s where Amazon Sponsored Products Ads play a critical role. The Amazon PPC strategy provides another way to get more eyes on your product(s) and increased the likelihood that those products will be purchased by online shoppers.
Another compelling reason to advertise on Amazon is that if you’re using Amazon PPC campaigns, your organic Amazon rankings will likely improve as well.
Sponsored Products is a PPC (pay per click) platform, which exists within the Amazon Marketplace and drives traffic to an Amazon detail page when a shopper is searching for a product.
A lot of people are asking, “Does Amazon advertising work?” Amazon Sponsored Products is and will continue to be one of the most powerful tools for driving discoverability and incremental sales for Amazon sellers.
Amazon advertising is placed according to a kind of automated bidding war: the higher a given seller bids on a keyword, the more favorable their ads’ positioning will be; with the first place bid occupying the top spot in the search engine results.
It is worth mentioning, however, that quality also plays a role: a well-designed ad that is relevant to its target keywords will have an easier time winning bids than a poorly designed or irrelevant ad. Here is our Amazon PPC guide, that includes some recommendations for getting started.
Regardless of how high or low your bid may be, however, you will not pay unless your ad is clicked (thus the name, Pay per Click advertising.) If you have ever used Google Adwords, you should already be pretty familiar with this format.
Sponsored Product ads are usually displayed above or below the search results page, as well as on other product detail pages. These ads are keyword-targeted, and sellers have the option of choosing from exact, phrase, or broad match types.
Keyword match types play an important role in Sponsored Products campaigns. They allow Amazon sellers to fine-tune which shopper search terms their ads may be eligible to be shown against. Sellers can choose from broad, phrase, and exact match types.
Broad match keywords will give the most traffic exposure, while phrase and exact match will restrict traffic to a more precise target audience.
There’s another match type that gives Amazon sellers that last little bit of control over which search terms trigger keywords in a sponsored products campaign.
It’s called a Negative Keyword and it can be used in either exact or phrase match types. Adding negative keywords tells Amazon that you do not want to bid on those search terms even if they will trigger one of your keywords.
Also, with Sponsored Products, Amazon sellers must determine how much they want to spend (set a daily budget), which products they want to feature and what time period they want to advertise for (the campaign duration). While a campaign can be paused at any time, it must run for at least 1 day.
Depending on their objectives, Amazon sellers are able to create PPC campaigns to launch a new product(s) or to feature products that are seasonal or in demand.
The Two Types of Campaigns (Auto and Manual)
Auto campaigns: They are easy to create, but you have control over only four areas that impact the campaign (daily budget, campaign duration time, products advertised, default bid). You do not have control over which keywords Amazon choose for your campaign. However, a seller does have the ability to optimize and expand the campaign on a search term level.
Once an auto campaign starts, Amazon will guess which keywords are relevant to the products in the campaign. Starting with an Auto campaign will help validate that Amazon understands your listing. It will also help to reveal profitable keywords.
When a shopper searches using one of those keywords, your ad will enter the ad auction with the bid you specified and if you win Amazon will show your ad.
Manual campaigns: Give the seller complete control. With Manual campaigns you choose the keywords, set the match type and bid for each keyword. They take more effort to set up and optimize, but are where the majority of your profits will come from over the long haul.
Start Manual campaigns once your product is validated.
Ad groups are one step lower than campaigns. Every campaign must have at least one ad group, but they can also contain several. Ad groups should consist of ads that are related to each other.
Every SKU group should have its own set of campaigns and have either one SKU or variations of one product. For close variations (like size or color), grouping the variations can make the account more manageable. You still have the option of putting each SKU into its own ad group to collect even more precise data.
Your ad will show your listing’s main picture, title, star rating, review count, and price.
Ads in Amazon Sponsored Products are simple, a seller simply picks the SKU in their account for which they want to advertise. This simplicity is beneficial to a seller because their ad looks very much like any other search result.
What you spend on Amazon PPC can depend on several factors.
While most Amazon sellers agree that incorporating Sponsored Products campaigns into their business model is a good idea, there exists a ‘passionate’ debate about how much money should be spent on those ads. Ask three Sponsored Products experts and you may get three different answers.
There is no perfect strategy for determining how much your Amazon PPC ad spends should be, especially in a marketplace as diverse as Amazon that covers so many different categories.
A good guideline, however, would be that you should be spending as much on Sponsored Products ads as is profitable for your business. If for every $10 you dedicate to ad spend returns $50 in sales, you probably want to earmark as many dollars as possibly towards those campaigns.
As an Amazon seller, you must also consider the competitiveness of your product category. In some competitive categories such as nutritional supplements or beauty supplies, competitors are willing to place high bids on popular keywords, raising the cost of marketing those items sometimes as high as a few dollars per click. In other categories with less intense competition, the cost per click on some keywords can be as low as under a dollar.
Having less than 10% of your sales being attributed to PPC means you’re conducting a very profitable Sponsored Products campaign, but you should consider that you might be losing out on increased sales volume by bidding too conservatively, or are using too small of a keyword set.
Realizing a percentage of revenue from ads higher than 35% means you might be relying too heavily on paid advertising efforts to drive sales and may want to look at increasing your rank organically for high-priority terms shoppers use to find your product(s). An ideal scenario is to have your percentage of sales from PPC ads remain steady while watching your overall revenue grow month-to-month.
And BTW, it’s hard to get a handle on all of this if you don’t have a good understanding of your profit margins and true Amazon ACoS.
One of the key components to success as an Amazon seller is to NOT create and operate any Sponsored Products campaign in the ‘Guess Zone’. If you don’t know what your profit margins and true ACoS numbers consist of, you are in real danger of actually spending more money than what you will make on a sale.
The profit margin is the amount you make after all costs are subtracted from the selling price. Costs can be related to production, shipping, employee salaries, storage costs, Amazon fees, etc.
ACoS or Advertising Cost of Sale is a metric used to measure the performance of an Amazon Sponsored Products campaign. ACoS indicates the ratio of ad spend to targeted sales and is calculated by this formula: ACoS = ad spend ÷ sales.
In order to determine whether a certain ACoS is good or bad, you’ll need to take the entire cost structure of your product into account.
Let’s say you spent $20 on ad spend to make $100 in sales. Your ACoS percentage would be, in this example, 20%.
Once you determine your product’s profit margin as a percentage, you would then deduct the ACoS percentage to get your final margin.
As long as you spend less than your profit margin on advertisement, you won’t incur a loss on your SP campaigns. The higher your ACoS, the higher your ratio of ad cost to sales revenue.
The lower your ACoS, the lower your ratio of ad cost to sales revenue. Ideally you want as high a sales revenue figure as possible, with as low an ACoS as possible.
Having a clear understanding of your profit margins and true ACoS, as well as awareness of the competition in your niche, are good guides for finding your own personal approach to determining your PPC ad spend.
Starting out on the Sponsored Products game board means learning how all of the pieces move and work together. Success as an Amazon seller is a matter of consistent learning, persistent effort and the ability to quickly adapt to the changing currents of Amazon.
It can be done.
Thousands of Amazon sellers are proof of this.
Keep learning. Put forth the effort. Adapt as necessary…
And you will have a strong foundation upon which to build the type of Amazon business you’ve always dreamed of and deserve.
Here are two invaluable resources that we at PPC Entourage Provide:
Last but not least, if you have any detailed questions, feel free to get in touch with PPC Entourage today!