Have you found that it’s tough to get ahead by “organic” means on Amazon?
If so, you’re not alone. Most sellers are finding that they have to take extra measures, including paid advertising to draw more traffic to their products. It’s fair to say that our options for gaining a competitive advantage through organic traffic are narrowing. There are many competitors out there for every seller, and everyone is doing their research on how to optimize their listings.
Paid advertising is a good step to take, as long as you are setting it up well. Recently, while we were attending the Prosper Show, Franz Jordan of Sellics gave a presentation where he revealed that more than 50% of PPC campaigns are losing money!
Many sellers are using AMS (Amazon Marketing Services), or getting into some sponsored product ads, but are they effective? This is something we wanted to address here, as well as look at what’s happening with paid advertising:
Amazon’s big push
One reason why paid advertising is now even more relevant to Amazon sellers is that Amazon has been working on a big push to unseat the dominant PPC platforms. Google and Facebook currently dominate digital advertising, representing more than half of the US market.
You may have noticed that recently, Amazon has been experimenting with a number of new advertising measures outside of their regular headline search ads, sponsored product ads, and product display ads. They’ve been dabbling in video products, ecommerce search and the use of ads via the Echo device.
Reports indicate that Amazon has been aggressively hiring marketing talent from top universities and is investing a lot in the growth of their advertising services. They’re even providing a managed service for some top-paying clients.
For you as a seller, it’s important to bear in mind that Amazon is invested in making their advertising solutions a success. This means that, while you might be struggling to gain traffic organically, paid advertising holds more relevance. We can already see that there are more paid spots on search pages than there were a couple of years ago, which can push your organic result even further down the list.
Why so many campaigns lose money
When Franz Jordan stepped out and showed his findings that 50% or more of PPC campaigns were losing money, this immediately held the attention of the room. What can we be doing so wrong that those campaigns through AMS might be money down the drain?
Here’s what we learned:
- Many of the courses or education pieces you see out there claiming “best practices” are based on theoretical knowledge. An example Franz gave is the idea that you should start a long bullet point with an all-caps sentence. This is one idea that has been floating around (and you see a number of listings styled this way), yet as he points out, there are no actual studies to clearly indicate whether this works or not. What we need are good, data-driven solutions.
- Data is available – it’s a data-driven industry, and yet, we’re not using that data optimally.
- As Franz said, product is the most important criteria for success. You can still have some success with a great product and poor marketing, however, a poor product with great marketing will soon catch up to bite you. He points out that product research is hard – many people don’t know where to start, or, if they do, they don’t know how to complete and reach a conclusion.
- Many sellers waste a huge amount of spend on unprofitable or non-performing keywords. Franz found that just a few high-volume keywords drive revenue, but it is the long tail keywords that drive profitability. If you take a look at one of his slides below, he shows the campaign data he has pulled, with profitable keywords (a small number of high volume keywords), unprofitable keywords (also small number and high volume), and keywords without conversions (these tend to be a large number of low volume keywords).
Managing your ACoS
ACoS is your Advertising Cost of Sale and is a metric used to measure the performance of your Amazon campaigns. ACoS shows you the ratio of advertising spend to sales and is calculated with the formula:
ACoS = advertising spend ➗ sales
For example, if you had made $500 in sales with ad expenditure of $100 over time, then your ACoS would be 100/500 = 20%. You spent 20 cents on advertising for every dollar of sales.
Why is this important as far as best practices for managing your paid Amazon campaigns? Well, it helps you to measure the overall profitability of your ad campaigns. To do this, as Franz points out, you need to take into account the entire cost structure of your product – ACoS alone doesn’t give you the full picture.
You need to know your net profit margin before advertising and take it from there. To break it down, let’s keep it simple and say your product sells for $100. Your Amazon fees account for 25%, sales tax is 7%, logistics and production is 37% and other overheads are 10%. This leaves you with a 21% net profit margin before any paid advertising. In this case, to break even with advertising, your ACoS should never exceed 21%.
Other factors to be aware of are your CTR (click through rate) and CR (conversion rate). You might have a relatively uniform conversion rate of 5%. If we take that and apply it to the product math above to get CPC (cost per click), then 5% of 21 is 1.05 – your CPC shouldn’t exceed $1.05 to break even.
Sometimes if you bid a little higher on your PPC ads, you might get better CTR and overall sales, but you need to look at the impact on ACoS and net profit. For example, in the table from Franz’s presentation below, the higher CTR came from a higher cost per click, but ACoS meant it only broke even. Conversely, the lowest cost per click and ACoS did not equate to the best profit after advertising. This is something that is important to test and monitor with your ads.
Work on improving CTR
When you’re selling in a competitive market, you’ve got to look for every possible advantage you can get. Improving your CTR is one “best practice” move to make. Doing so means focusing on creating and targeting ads that will be appealing to your target market. Here are some examples of things you can do:
- Keywords – High number of impressions, but few clicks means that those keywords are not targeted to an appropriate audience. Pause those and instead look for better-targeted, more specific keywords.
- A/B test the main image used in the ad. The image is often a key CTR driver.
- Take successful automated campaigns and create manual campaigns with those keywords.
- Use negative keywords to minimize irrelevant traffic.
- Test your headlines, looking for phrases and words and calls to action that compel customers to click.
Check out Amazon’s own tips on CTR in the video below:
Improve conversion rates
Conversion rates are, of course, the ultimate measure for Amazon sellers. They tell you that you are targeting the right product to the right people (or not), and ultimately dictate your overall profits, as well as the maximum cost per click you can go for with your advertising.
How can you improve conversion rates? You need to look at what the customer sees once they click through on the ad. This includes things like descriptions, price, reviews and ratings. Can you do more to optimize your product listing? Do your descriptions match up with what a customer would expect if they click based on your headline or image?
One piece of advice Franz gave when it comes to advertising is that the quicker your reaction to non-performing ads, the better as this impacts your overall profit. This means monitoring closely and acting to shut off or improve anything that isn’t performing.
For those of you who caught up with us at the Prosper Show, it was great to see you! If you haven’t got there yet, we highly recommend that you add it to your calendar next year. There are plenty of valuable, high-caliber presentations such as Franz’s which give you practical tips for boosting your Amazon business.
As you can see, success with paid advertising on Amazon really isn’t a “set and forget” thing. You need to monitor closely and understand metrics such as ACoS, net profit, CTR and CR in order to be proactive and make good decisions.
In a market where it is harder and harder to get organic results, mastering PPC might be your next best advantage.