Last year Amazon’s marketplace once again proved to be the major player in the UK’s eCommerce landscape: Sales in the United Kingdom soared by 51% to a mind-blowing £19.4 billion – in part due to the Covid-19 pandemic. The marketplace undoubtfully will remain a mandatory sales channel for both vendors as well as retailers. Pay-Per-Click-campaigns (PPC) have become a major driver of success on Amazon. The following article by Sellics, a leading advertising software solution for brands and agencies on Amazon, is an abstract of a detailed guide which provides a roadmap for successful PPC campaigns.
Amazon offers the three following ad types:
- Sponsored Products: Keyword- and product-targeted ads that enable advertisers to promote individual products within Amazon search results – they are the most popular ads on Amazon.
- Sponsored Brands: Ads for brand building that allow brands to place ads above the search results and with the ability to send shoppers to their Amazon Stores page or a custom landing page on Amazon. Newly available are also video ads linking to product detail pages.
- Sponsored Display ads: They deliver relevant ads both on Amazon and on external websites to shoppers who are visiting or visited (remarketing) specific products on Amazon.
Fig. 1: Appearance of ads on Amazon’s search results page, source: Sellics
Fig. 2: Appearance of ads on Amazon’s product page, source: Sellics
The Cost-Per-Click (CPC) for each ad on Amazon is determined in a so-called second-price auction. Each advertiser submits a default bid (the maximum they are willing to pay per click) for their ad. The highest bidder wins the highest ad position (ad rank #1) and will also pay the highest CPC. However, the highest bidder does not pay the amount they bid but pays only $0.01 (or £/€) more than the second-highest bid.
Fig. 3: Example of a second-price auction, source: Sellics
Important Key Performance Indicators (KPIs)
The following table shows the different KPIs, how they are calculated and what makes them important:
|KPI||How is it calculated?||Why is it important?|
|Advertising Cost of Sale (ACoS)||ACOS = ad spend ÷ ad revenue x 100||Allows you to see if your ads are profitable; also allows you to see how efficient your ads are compared with competitors.|
|Return on Ad Spend (ROAS)||ROAS = ad revenue ÷ ad spend||ROAS is the inverse of ACoS. ROAS allows you to see if your ads are profitable; also allows you to see how efficient your ads are compared with competitors.|
|Cost-Per-Click (CPC)||CPC is determined in a second-price auction (see above)||CPC determines your ad costs and is a general indicator of competition intensity in a category.|
|Click-Through-Rate (CTR)||Click-Through-Rate = number of clicks ÷ number of impressions x 100||Click-Through-Rate is an indicator of how appealing your ads are to potential customers.|
|Conversion Rate (CVR)||Conversion Rate = number of orders ÷ number of clicks x 100||Conversion Rate is an indication of how persuasive your ads and products are; also as CVR goes up, so does profitability.|
But what are some benchmarks for good performance of KPIs? To identify areas in which you can improve your advertising strategy, it’s a good idea to use tools like the free Sellics’ Amazon PPC Benchmarker [Beta] to see how your KPIs compare with other sellers in your marketplace and category.
For example, on the Amazon US marketplace (see figure 4), Health & Household has a relatively high conversion rate for both Sponsored Products (14.6%) and Sponsored Brands ads (10.1%). By comparing your conversion rate with your peer group via Sellics’ Benchmarker, you can understand if there is potential to improve the persuasiveness of your landing pages (store or product pages) as a seller of Health & Household products.
Fig. 4: Conversion rate across ad types and top categories on Amazon US marketplace, source: Sellics
In another example the Sponsored Products ACoS of 27% for the Electronics category on the Amazon US marketplace indicates that for every dollar made, 27 cents have been spent on Sponsored Products ads – see figure 5. If you are spending much more, you might be overpaying and there is room to increase the efficiency of your campaign. However, keep in mind that a good ACoS for your ad campaigns also depends on individual factors. Similar to CPCs, you have to ask yourself what you can afford to pay (depending on your profit margin) and what you are willing to pay (depending on your advertising goals).
Fig. 5: Advertising cost of sales (ACoS) across ad types and top categories on Amazon US marketplace, source: Sellics
How to set goals for your Amazon PPC campaign
Advertisers running Amazon PPC ads will already know that it can be very easy to incur a loss on your product if you’re not tracking the performance of your campaigns against your PPC costs.
In order to evaluate the performance of your Amazon PPC campaigns, you need to be clear about your goals for running Amazon ads from the outset.
Typically, advertisers go for:
- maximizing sales (e. g. for a product launch) or maximizing impressions (e. g. for a brand awareness campaign). In this case, the costs are typically kept at a break-even level which is reflected by the so-called target KPI ‘break even ACoS’;
- generating incremental sales while achieving a certain profit margin which is reflected by the so-called target KPI ‘target ACoS’.
Find more information about how to calculate these target KPIs in the complete guide.
Before starting with Amazon PPC advertisers should optimize their Amazon SEO in two steps: Keyword optimization and listing/content optimization to increase reach and conversion rates of their ads. A complete guide on how to optimize your Amazon SEO can be found here.
Additionally, each ad type has its own benefits and targeting methods. Advertisers should be clear about their goals and strategy and choose the ad type to reflect those.
First steps with Amazon Sponsored Products
For beginners we recommend the following easy strategy:
- 1 automatic campaign (with 1 automatic ad group)
- 1 manual campaign (with 1 ad group for broad match keywords and 1 ad group for ASIN targets)
Fig. 6: Sponsored Products – Getting started strategy, source: Sellics
This approach combines the advantages of automatic campaigns (low effort) and manual campaigns (high precision).
How exactly you should set up and optimize your Sponsored Products campaign, and which steps you need to take for Sponsored Brands and Sponsored Display campaigns, can be found in the full entry “Amazon PPC: The Ultimate Guide” on Sellics’ blog: https://sellics.com/blog-amazon-ppc-guide/
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