Amazon PPC Advertising Series, Part 1
In this series, we’ll cover one of the most powerful tools that Amazon gives Sellers and Vendors to generate revenue on the marketplace, Amazon Pay-Per-Click Advertising.
Over the course of this series, we’ll review what PPC Advertising is and what tools you have access to so you can maximize your investment on Amazon.
DON’T implement these strategies UNTIL your product is “Retail Ready”, meaning that your product is competitive enough to have a chance to compete against other brands on Amazon.
Before you dive into this series, review our articles in Retail Readiness; read the first part.
What is Amazon PPC?
So, what is Amazon PPC (aka Pay-Per-Click) Advertising? PPC has been around for a while, with Google the first big player, and then Amazon invested heavily into PPC technology as they onboarded millions and millions of sellers between 2015-2020.
High-level PPC advertising gives brands the ability to advertise products based on a set of keywords.
For example, if you sell headphones, you bid against the keyword “Headphones”, or against a product, such as having your headphones advertised on a competitor’s Product Detail Page of headphones.
You only pay for the ad if a customer clicks on the keyword you’re bidding on, or the ASIN you’re bidding on.
This is typically confused with display advertising.
Most popular is Facebook and Instagram ads, which are based on Cost Per 1000 impressions [CPM], meaning you pay for when 1000 people see your ad when scrolling through Facebook, even if it was for a second and they didn’t engage with your ad or click on it.
Again, with Amazon PPC, you only pay if a customer clicks on your ad, not when they see it (hence the name, Pay-Per-Click).
How does PPC Work?
Now that you know what PPC is, let’s examine how it works. It’s based on a bid auction amongst millions of sellers bidding on the same Keywords or ASINs.
This auction format is why it’s typical to hear that advertising is expensive, because everyone wants their ad to be seen and to be clicked on.
The auction is based on which brand is the highest bidder for a specific keyword, such as setting a bid for your brand of headphones at $1.21, with the next highest bidder at $1.20.
In this scenario, you are the highest bidder, so you would pay $0.01 above your bid ($1.22) your item would have a decent shot at showing up at the top for the keyword “headphones”.
Or, it would seem so. However, Amazon also takes into account the overall performance of a brand’s campaign, such as click through rate, conversion rate, and more things that Amazon won’t disclose.
The key to having Amazon advertising work for you is to show up at the top of the search for search term because 70% of all sales happen on page one for a given customer search term.
If you’re bidding on the keyword “headphones” and you’re bidding at $1.00 and, theoretically, the top placements are at $1.15-$1.21, then the chances of your ad showing on page one is minimal.
You have to pay to play if you want to generate sales, which is why it’s vital your product is truly Retail Ready, otherwise people will click on your ad and not convert or no one clicks on your ad because your product isn’t qualified for that traffic.
Back to the auction. You’re bidding on the Keyword “headphones” and you are the highest bidder.
Amazon will give your ad a chance to show up at the top of the search for maybe a few days or a few hours (it’s all an algorithm).
Let’s assume for that entire day, you get 50 clicks for “headphones” ($1.22 per click), and no conversions; that’s a $61 spend. Amazon will likely ding your ad from getting a top placement again for that Keyword long-term.
Why? Because Amazon is the most customer-centric company in the world and they reward brands that speed up the path to a conversion.
Technically, Competitor X could have a set of headphones very similar to yours — similar price and style — but let’s say their Product Detail Page is Retail Ready. They bid at the same amount as you [$1.22] and they get 50 clicks and 10 conversions for the keyword “headphones.”
Amazon will then likely reward them for the conversions and click through rate. They could even pay less than they’re bidding, even if they are the max bidder because Amazon wants to give customers products that will sell the fastest based on the path of a search query, to click, and finally to buying.
Available Ad Types
Now that we’ve reviewed how PPC works, let’s examine the ad types available to you. We’ll go high-level through each, and in future posts in this series we’ll unpack specific strategies you can implement.
Amazon gives Brand Registered brands three ad types:
Sponsored Products (Automatic and Manual)
Sponsored Brands
Sponsored Display
Sponsored Products (most popular and effective) are the ads that look most native to an organic product placement; see the example below. With these, you can bid on specific Keywords at three different match types: Exact, Phrase, and Broad. We’ll talk about these in another part of the series.
Sponsored Brands are the ads that are shown typically with videos in search. You can bid on specific Keywords at the three different match types, and also bid on competitor ASINS. See below for the placement.
Finally, Sponsored Display Ads. With these ads, you can bid on ASINs to steal real estate from competitors for similar or alike products.
These can be below the Buy Box, below the bullet points, or below the fold of a Product Detail Page, where it says, “Products Related to this item”.
The last part we’ll discuss is how to measure the success of your PPC ads. You measure your performance of an ad based on your Advertising Cost of Sales (ACOS) or Return on Ad Spend (ROAS).
ROAS is most known in the ad world, and Amazon just this past year implemented reporting this way. Just like anything you do in business, you need to understand your numbers [COGS/Amazon Fees/Amazon Profit at the product level].
Many brands believe a “low ACOS” is a good thing, such as 20%. However, this is vertical-, category-, and product-specific.
A great example is in the CPG space. Here, brands typically have a higher ACOS and product COGS are typically lower, although this is not always the case.
In contrast, in the furniture space, the ACOS should be low because furniture is expensive to manufacture, and this type of item is typically a big investment that requires a lot of clicks to get a customer to convert.
If you’re looking to scale your business on Amazon, we recommend running at your breakeven ACOS, meaning you’re operating at covering the costs of the product; you’re not making or losing money.
This usually helps you drive organic ranking, which helps you generate more profit even if you can’t directly see it through your Ads initially.
Here’s how you calculate your breakeven ACOS. We’re going to use an example with a $100 pair of headphones.
Figure out your COGs (LANDED and everything to produce it). Here we’ll say it’s $25
Figure out your Amazon Fees (FBA and Referral Fee). Here we’ll say it’s $25
So far, if you sell $100 headphones with no ads, you stand to make $50 profit on a sale.
Find breakeven ACOS by dividing your total net Amazon profit ($50) by your retail price ($100), $50/$100 = 50% ACOS.
There you see how 50% ACOS is our breakeven. Going above this, you lose profit; going below this, you make profit.
So, now you’re probably thinking: let’s just go lower. Wrong.
As stated earlier, you have to pay to play and most brands know that their competitors are operating at their breakeven ACOS, so they’re willing to bid higher and aim to get the top ad placements where all the ad Sales are.
Always keep track of your numbers.