Strategically Planning Amazon Paid Advertising to Boost Your Overall Sales
Sellers often struggle to project total revenue, and specifically ROI, for their efforts on Amazon. In part, this is because of the complexity of Amazon’s fee structures. But the difficulty also comes from anticipating how your products will perform against the competition, as well as understanding the nuances of Amazon’s paid advertising capabilities.
And this understanding is only growing in importance. As of September 2019, 11% of all page views on Amazon resulted from interaction with a paid advertisement. That’s a 3% point increase from 8% (e.g., a 37% increase total) from 2018.
And competition is increasing. There can be no argument that a paid component of your Amazon strategy is critical, but how does your company plan to navigate that conversation?
More important than anything else, know that there is no “right or wrong” answer here. However, it is possible to lose (more) money if you embark on a campaign without careful strategic thinking. There’s definitely no secret formula or software for paid promotion strategies on Amazon that will allow you to “set it and forget it.” You need to find the right approach and guidance that works for you.
What’s right for you depends largely on three main things:
- Your business: who are you and what are you trying to achieve?
- Your category: who else is out there competing, and how well do your audiences know you?
- Your risk tolerance: how aggressive are you, and how much data do you need to make confident decisions?
All of these factors can make navigating important advertising decisions extremely tricky. We recommend speaking to an expert about the nuances that may affect you, many of which we discuss further below.
This post will help demystify the challenges of Amazon’s paid advertising ecosystem by breaking down common ad formats, looking at targeting parameters, and balancing the bigger picture. Our ultimate goal is ensuring smart paid strategies help “widen the gap” to fuel total sales (i.e. increasing your “organic” sales) beyond mere profit from advertising.
What are the Basic Amazon Paid Advertising Options?
Amazon paid advertising can range from extremely simple to incredibly complex. Before diving into decisions about what types of ads you want to run, or where you want them to appear, take a quick step back to consider your business objectives. Certain ad formats may be better if your product is already well known to consumers, and you just want it to appear more regularly and be top-of-mind. Other ad formats will help you gain exposure higher up the funnel, which can be helpful to reach new audiences or provide a rich explanation of the product.
At the broadest level, sellers can run Sponsored Products, Sponsored Brands, or Sponsored Display. We’ll break each of them down.
When you sponsor a product, Amazon can help ensure more customers are exposed to it as they search and shop. For many commodities that consumers are already looking for, this can help drive more traffic to your product over your competitors. Typically, these campaigns are set up as Pay-Per-Click, or PPC, which means you only pay for the ad if a user actually clicks on it. PPC ads can be served as a sponsored product that appears in many locations — including search results, related or competing products, and more.
Again, choosing the right format should reflect your goals. Ads that use search rely on specific keywords, which Amazon can recommend to you or you can provide based on your own customer insights (e.g. Google Adwords). But regardless of where the keywords come from, the ad format should only reach customers who are already showing interest and intent.
If you have multiple products within a single category, there may be some advantages to running a sponsored brand ad campaign instead of just a single product. The main difference is that a sponsored brand ad can feature your logo (gaining exposure for your whole brand) in addition to a custom headline and up to three products. By appearing at the top of the page as a header in search results, it ensures you are seen by consumers searching for your category.
Sponsored Display – Self-Serve through Amazon DSP
Most sellers won’t necessarily engage with Amazon’s demand side platform (DSP). For starters, it has a $35,000 minimum commitment, and most sellers’ primary goals can be accomplished with other ad buys. It is still worth understanding these ad-buys, however, to have a general sense of the full advertising ecosystem on Amazon (in which your ads are ultimately all competing).
- Display ads can allow brands to promote their products on Amazon, even if they don’t sell directly on Amazon. It is a way to buy exposure among audiences who are already shopping for similar items. Because it utilizes Amazon’s DSP, these ads also appear on websites and apps outside of the main Amazon website. If it makes strategic and financial sense, this can be a way to grow exposure and reach new audiences outside of Amazon, or retarget customers who showed interest but never completed a purchase.
- Video Ads: Similar to display, these ads function outside of the typical Amazon funnel and basic advertising strategies. Video is an effective medium to create emotional connections with target audiences, and they offer placements in Prime Video, Echo, and more. However, they can be expensive to produce and rarely fit into a straightforward Amazon advertising strategy.
Setting Up Amazon Paid Advertising Strategically
Just like ad formats should derive from your stated business objectives, your Amazon paid advertising strategy should likewise consider two critical factors: how can you target, and how much is it wise to spend?
Keywords Drive Targeting, and Amazon Can Help
Once you’ve decided what you want to achieve and which formats will help you do that, Amazon’s targeting will help make it happen. To run PPC campaigns in product searches, Amazon uses an algorithm to manage bids from competitors based on various keywords, products, subcategories, and classes.
You must identify the keywords your consumers are searching for, and then set a bidding strategy. Amazon can help do this automatically, but it is critical to revise and optimize to be as cost effective as possible. Amazon’s algorithm looks primarily at highest bids among a number of other factors to determine the winner of the auction. Calculating the ideal bids — and prioritizing keywords — must be done with incredible precision to avoid over- or under-bidding. Some considerations for keywords and auctions should always be top of mind:
Complexity of Search Terms. It helps to think of keywords as long-tail vs. short-tail. “Long-tail” keywords are much more specific and, therefore, more relevant to your exact product (e.g., “small brown mens button-down shirt”). As you have a stronger brand presence, you may have more competitive edge to bid on “short-tail” keywords (e.g., “mens shirts”).
- Optimize Match-Type. It’s simple to think of keywords as the search terms you want to bid on, but Amazon allows you to nuance your bidding much more strategically. For any keywords, you can set the match-type to be broad, phrase, or exact.
- Broad match casts a wide net for words that are similar to your keywords, including plurals, abbreviations, or related terms. For example, if your keyword is “baseball hat,” you may also match with “men’s baseball cap” or “youth hats” depending on the match.
- Phrase match narrows the wide net by requiring the search term to include your specific phrase. There may be additional terms in the search before or after your phrase. In the same example of a keyword “baseball hat,” you would match for “men’s baseball hat” but not necessarily for “hat Washington Nationals baseball.”
- Exact match, as the name implies, requires the user to search for your exact keyword(s). Any modifiers, as described above, would remove your bid from the auction. In our example, you would only appear for “baseball hat” or “baseball hats.”
- Utilize Negative Keywords. Match-type can offer a lot of nuance and insight into how your customers think and search. But sometimes casting an extremely narrow net by targeting via phrase or exact match can be too limiting. You may want a broad match, but one that excludes a specific keyword. In the above example, imagine you had broad match set for “baseball hat” but found that many of your clicks were coming from keywords for “trucker hats.” These audiences end up not buying from you, so your clicks are being wasted and you are losing money. You can keep the broad search but use “trucker” as a negative keyword to ensure you no longer appear when people search for trucker hats.
Our advertising strategies at Toucan are tailored to where you are in your sales process. Whether we need to optimize your existing campaigns, reset and come up with a new strategy, or help you take the first steps into paid ads altogether, there is a solution for you that we can craft together.
For example, new sellers looking to advertise for the first time may often cast a wide-net to start, utilizing Amazon’s auto-campaign for each ASIN. This quickly generates thousands of different keywords and combinations that may be related to the products. Then, we can mine the data and pull only the high-performing keywords into new manual campaigns with nuanced emphasis, volume, testing, and ultimately profits.
Amazon also makes regular updates to its algorithm to give sellers more control over where and how their bids appear. Some of these features are sophisticated (like placement multipliers that can increase your bid by a predetermined percentage), while others require less effort on your part (like automatic targeting, an enhanced setting you can enable when you set your targeting defaults). There are many modifiers and highly-nuanced targeting opportunities; if you think going beyond the basics might be helpful, we’d love to have that discussion and offer some tailored insights for your situation.
Understand Your Break-Even ACoS to Bid Wisely
Some of these targeting discussions can feel impossibly complex as additional methods, layers, and nuances come to light. That’s okay; it’s not the work that you live and breathe every day. And that’s why we exist in the first place, to help sellers navigate these areas. But keywords are only one part of the battle. How to use them and set bids strategically is equally critical.
What is ACoS?
Figuring out your break-even Advertising Cost of Sale (ACoS) can help you compare how much money you spend on advertising compared to the generated revenue in sales. In other words, know your “break-even” point so you can set a target that beats it. This will help calculate if you are making or losing money on every click to find your best return.
The formula is simple if you understand your total cost of doing business on Amazon.
- Start with your list price: this is how much revenue is generated for each sale.
- Then, subtract any Amazon fees (listing, fulfillment, etc.) as well as the costs of goods sold (COGS).
- This new number tells you how much profit you stand to make per organic sale — prior to factoring in cost of advertising.
So, if you list an item for $30, but you pay $10 in fees and $5 COGS, you stand to make $15 per sale, without the cost of ads. If your entire sales engine is somehow driven totally organically, that $15 per sale would be all profit.
But that is hardly possible. We know that you must advertise to make an impact in the market. So the question is: how much can you spend and still be profitable? Revisiting the numbers, if you spent all $15 per sale on additional advertising, you would break even (which sometimes is just the goal getting out the door in order to gain reviews and momentum). That ratio ($15 ad cost over the $30 list price) gives us your break-even Average Cost of Sale (ACoS) at 50%. Any ACoS under this is profitable; anything over means you lose money on each transaction.
Lowering ACoS to “Widen the Gap” and Create Exponential Growth
In many cases, lowering your ACoS can be challenging and confusing. If your ACoS is 60% and your break-even is 48%, how do you begin evaluating to optimize? How confident are you in setting broad match vs. exact match for your target keywords in a PPC campaign? Or negative phrases to exclude the wrong searches?
This is the type of questioning that can cause massive headaches, but it couldn’t be more critical. That’s because every optimization, however larger or small it seems, can have tremendous impact on your bottom line over hundreds and thousands of transactions. If you optimize effectively, you can begin to “widen the gap” between your total sales and ad sales (aka your “organic sales”), which turns linear revenue growth into more of an exponential curve.
Again, there is no secret formula you can apply once and find automatic exponential growth. However, careful optimization and a tailored approach for your business can result in incremental optimizations to your ACoS and a subsequent widening of the gap for your organic growth. This is how we assemble a winning, holistic approach unique to each of our clients.
Amazon Paid Advertising Should be Strategic and Holistic
At Toucan, we often talk about a holistic approach to promoting your products. This means working to ensure your product pages are optimized to stand out and improve your organic rankings to help your page traffic grow naturally in complement to your ad strategy. When done well, early and aggressive promotion of your product can garner product reviews that are essential to boosting your page’s performance. Over time, this may allow you to adjust and nuance your ad strategies for specific products and allocate your budget most effectively.
This holistic view of promotion is significant in maximizing your revenue potential. A traditional marketing “funnel” assumes consumers are on a linear journey from awareness to consideration and purchase. But many marketers now think less of a linear funnel and more of a “flywheel.”
The shape of the flywheel (circular versus linear) better reflects the reality of consumers, shopping, and their engagements with a certain brand or product. It also acknowledges that decision-making in behavioral theories is influenced by more than just a brand’s messaging as conveyed through an ad. It incorporates organic page elements like product reviews, customer service, and even broader factors like environmental impact, sustainability and seasonality.
When thinking about a circular flywheel instead of a linear funnel, it’s easier to keep the wants and needs of the customer or target audience at the center of your model. And, thinking about the model holistically, it is easier to think of the way your advertising revenues and organic revenues work together; as you plot growth over time, the best strategies will help you “widen the gap” between total revenue numbers and revenue from sales alone. This gap represents the momentum behind the revenue from your organic sales (those not tied directly to advertising).
In other words, a holistic strategy should aim to leverage the momentum of advertising sales with additional organic growth.
Finally, beyond the many considerations about your brand and products, a holistic strategy also requires you to keep timing and context in mind when you make decisions about your advertising. For certain products, the holidays may be natural times to be aggressive with advertising, bearing in mind that competitors may do the same.
Outside of the holidays, timing must tie back to your company’s production and development cycles (e.g., pushing out old inventory to make way for a new launch, or gaining momentum for the launch itself). Where you are as a company (and your tolerance for risk) may also help you decide whether aggressive growth is a priority, or if you are looking to project a steadier, albeit slower return.
Making Decisions for Your Brand Objectives
At the end of the day, every decision you make must support your brand and business objectives. Setting up a product page — or many pages — to sell on Amazon is just a first step, one that is unlikely to ever reap significant benefits just by itself. Having a comprehensive strategic plan that effectively uses Amazon’s advertising opportunities can better position your brand, immediately amplify your sales volume with incremental gains, and — most importantly — accelerate your overall sales growth.
When in doubt, don’t hesitate to ask questions. That’s why we’re here.