Amazon’s Advertising arm is growing bigger than ever before. In January, the company reported a revenue of $10.1 billion for the year 2018 from the sales of advertising services, which was almost up by 95% from the previous year. Amazon has become more than just a shopping site. More than 50% of online shoppers head directly to Amazon to search for (or research) the product that they intend to buy. With these numbers, it is safe to say that Amazon Sponsored Ads are indispensable for the growth and success of any brand.
To keep listings from drowning in a sea of new entrants, sellers are ramping up their advertising budgets to increase their exposure and win the prime real estate – page one of Amazon’s search results. Thus, Advertising on Amazon has become extremely competitive and expensive over the years. In this blog, we will walk you through the basics of Amazon PPC and help you get started using the right strategy.
What is Amazon PPC?
Amazon PPC refers to the Sponsored Ads that you see on the Amazon pages. Whenever a shopper enters a search term to buy a product, ads enter an auction that runs behind the scenes. Sellers bid on the keywords which they feel are appropriate for their products. Amazon will determine if an ad is relevant for the search term and will then determine the placement of the ads based on the maximum bid. The seller will have to pay Amazon every time someone clicks on their ads and hence the name “Pay Per Click” (aka PPC).
What Are The Different Types Of Amazon Sponsored Ads?
Amazon Sponsored Ads come in three different models.
- Sponsored Product Ads – Available for all those who sell on Amazon with a professional selling plan.
- Sponsored Brand Ads – Available only for the sellers with Brand Registry.
- Sponsored Display Ads – Available for all those who sell on Amazon with a professional selling plan.
Ad Placements
Sponsored Product Ads – These ads generally appear in two places – search results pages (Keyword targeting) and product detail pages (Product targeting).
Sponsored Brand Ads – Previously known as Headline Search Ads, these are keyword targeted “Banner Ads” which appear on the top and bottom of the search results page.
Sponsored Display Ads – These predominantly appear below the “Add to Cart” button in the product detail pages but can also show on other websites through Amazon’s offsite marketing.
What Is The Cost Of Advertising On Amazon?
As explained earlier, the advertiser has to pay Amazon whenever his ads get clicked by a shopper – that is, the cost-per-click (CPC). The CPC is determined by the amount that you bid for a certain keyword and how much your competitors are willing to pay. When a buyer’s search query matches your keyword, you become eligible for the auction. And when you outbid your competitors, your ads get the highest placement assuming all other factors are equal like relevancy.
The efficiency of a PPC campaign is often measured by the Advertising Cost of Sales (ACoS) which can be calculated using the below formula:
What is Good ACoS? How Much Is Too Much?
Contrary to the popular belief, a low ACoS is not always the best for your Amazon Advertising. While a high ACoS means reduced profit margin, a low ACoS can result in the loss of potential ad sales which could have driven organic sales growth and higher search rankings. Hence, a “Good ACoS” is very subjective – it depends on a lot of factors like your business objectives and profit margin.
If you haven’t already read this – Take a look at our detailed post on why a low ACoS is not always the best.
How To Set up And Run A Sponsored Ads Campaign?
Amazon’s Advertising console is has become more user-friendly and setting up sponsored ads campaign is fairly easy. The difficult part lies in fine-tuning and optimizing the campaigns to reduce the advertising cost and improve profitability.
At Advance, we follow the Keyword Funnel approach and all of our base campaigns are structured in the following format.
With this campaign structure, you should funnel the high performing keywords into more specific campaigns and optimize the campaigns periodically to see the best results.
Why You Should Advertise On Amazon?
With all said, if you are still contemplating whether you should jump big on the advertising bandwagon, you should know there are numerous direct and indirect benefits of Advertising on Amazon.
When ACoS is less than the profit margin, sellers are earning a marginal return from the advertising. That is, they are earning additional profit which they otherwise wouldn’t without advertising. Effective advertising can generate additional profits. It can also transform an entire account, as seen in the image below.
Case Study: Scaled Sales from $6k/month to $104k/month without adding a single additional product
Advertising also has substantial indirect benefits as well. Even in cases when ACoS exceeds margin, sellers still benefit. Any sales increase over a given period improves sales velocity, which improves product ranking. Improvements in ranking help shoppers find products more easily. Since ad sales increase velocity and velocity increases ranking, each ad sale promotes more organic sales. This is often referred to as the ripple effect or multiplying effect of advertising.
Case Study (same seller): 16x increase in ad sales drove $370k total sales growth.
A Word of Caution
Creating and managing well-built, effective Sponsored ad campaigns is extremely time-consuming, even with good software. A quick Google search on the major Software as a Service offering for Amazon Advertising will reveal countless complaints on inadequate results. If you do not have the knowledge or time to set the right targets, create the right campaign structures or make the right adjustments, then you will likely end up with the wrong results.
If you don’t have full-time resources to dedicate exclusively to advertising, consider outsourcing your PPC management or taking a limited approach to advertising. Inefficient campaigns can quickly put an otherwise healthy account into the red.
If you’re currently cash limited, make use of our free PPC tools and start by advertising your most profitable products with the most reviews. If you are still challenged with something, reach out to us. We have the knowledge, experience, and software needed to improve your profitability while saving you time. Schedule a free consultation with our PPC experts today to learn more about Amazon PPC and how to improve your campaign performance.