Editor’s note: This is a guest post by Franz Jordan, CEO of Sellics
By the end of 2016 Amazon sellers saw a sharp increase in their PPC spend.
The average winning CPC bid by Amazon product category increased by approximately 20% ($0.28 to $0.34), from Jan-July 2016. According to CPC Strategy, “the biggest takeaway is that CPC’s went up in all categories (with the exception of music & sports memorabilia).”
This effect has been compounded by Amazon’s incentivised review ban in October 2016, which pushed more sellers to use Amazon PPC, one of the remaining on-Amazon marketing strategies left to sellers to drive the potential for more reviews.
With more sellers flooding the Amazon marketplace in 2017, the PPC landscape is set to be more competitive than ever. This makes it critical for sellers to learn to optimize their PPC spend, and avoid burning money in ad spend areas they can control on Amazon.
Below are our top 3 tips for PPC optimization:
1. Define your target ACoS to maintain product profitability
In order to measure the success of any ad campaign, first you will need to have the right metrics in place to accurately track the costs of running PPC for a product.
The ACoS (Advertising Cost of Sale) is a key metric used to measure performance of PPC campaigns. ACoS indicates the ratio of ad spend to sales:
ACoS% = ad spend ÷ sales
If a product has generated $100 in sales with an ad spend of $25, then the ACoS will be 25 ÷ 100= 25%. In other words, you’re spending ¼ on ads for every $1 you make.
Assuming the goal of your PPC campaign is to maintain product profitability, you will need to determine your break-even ACoS and target ACoS. This will allow you to keep a tighter check on your ad spend and ensure your product always has a margin of profitability.
Note: Another typical use for running a PPC campaign is to boost sales & improve the BSR for a new product, in which case you will want to purposely increase your ACoS and possibly take a short-term profit loss in order to achieve this goal. Read more about this method here.
What is my break-even ACoS?
The break-even ACoS refers to your profit margin before your ad spend is taken into account. As a seller, you won’t incur a loss for a product as long as your ad spend is less than your profit margin. Your profit margin is the amount you make after all costs (Amazon fees, FBA fees, shipping & freight costs, etc) are deducted from your selling price.
In the example above, your profit margin is 35%. This is also your breakeven ACoS, and as long as you don’t spend over 35% on PPC to promote your product, you won’t lose money.
How do I determine my target ACoS?
The goal of an ad campaign is to make a profit, and you will need to define the net profit margin you intend to make for each product in order to keep your ad spend in check. This is why you need to determine your target ACoS.
Using the above example of a breakeven ACoS of 30%, if you wish to make a profit margin of at least 10% before deducting ad spend, then your ad spend should only reach a maximum of 20%, which is your target ACoS.
Defining your target ACoS will give you the key metrics you need to keep a tighter check on your ad spend, and ensure your product is always able to maintain a margin of profitability.
2. Bid on long tail keywords
With the average winning CPC bids set to increase across all Amazon product categories this year, it becomes increasingly difficult (and expensive) to rank for the popular ‘primary’ keywords that will generate a high sales volume for your product.
Long tail keywords are keyword phrases that usually contain three or more keywords, and highlight a more specific search intent by the customer. This means
you are targeting customers further down the conversion funnel, and because there are less Amazon products competing for long tail keywords, your CPC will typically be lower as well.
Sellers trying to stay ahead of the competition will find it lucrative to also bid on long tail keywords; you will draw in more targeted search traffic that will result in a higher conversion rate for your product.
How do I find long tail keywords?
First go through your Search Term Report (‘STR’) and look for search terms that have a high conversion rate but low impressions, and add those keywords to your Manual Campaign.
However, because you will want a very broad list of long tail keywords, just combing through your STR to search for long tail keywords will not be enough. It is also a fairly tedious process that only yields about 20 or so relevant keywords.
Use Sonar (free Amazon keyword research tool) to quickly scale your list of longtail keywords. Simply type in a keyword relevant to your product and pick the most relevant keywords from the results.
Sonar will display a search volume estimate for each keyword suggestion; this will help you to quickly identify the most relevant long tail keywords.
Pro tip: Copy & paste the long tail keywords you’ve identified in your STR (which you know convert well for your product) into Sonar, which will then generate a list of similar relevant keywords, which can then be exported via Excel and added into your PPC campaign.
We recommend sellers to be proactive and remove negative keywords faster, because you now risk spending significantly more ad dollars on unprofitable keywords (which may have cost you a lot less in previous years), as a result of the rising CPC cost we’re seeing across all Amazon product categories.
The goal of using negative keywords is to remove underperforming keywords that are generating clicks without conversions (i.e. keywords that are not relevant to the product), to avoid draining your ad spend on keywords that will never convert for you. Keep in mind the more negative keywords you use, the more you will restrict the search volume for a particular product.
Use the Search Term Report in your PPC automatic campaign to identify your list of negative keywords. You will want to remove the keywords with a high click-through-rate (‘CTR’) but low conversion rate (‘CR’), because these are the keywords that are costing you clicks, but not generating you any sales.
Amazon sellers will have little control over market demand pushing up CPC costs in 2017. The effect of Amazon’s incentivised review ban pushed a huge wave of sellers to use Amazon PPC towards the end of 2016, and this number will only increase throughout 2017.
By learning to optimize your PPC spend, you will be less likely to waste money on ad spend areas you can control on Amazon. Learn to define your break-even ACoS and target ACoS, which will equip you with the metrics you need to ensure your product always has a margin of profitability.
Leverage Sonar and your Search Term Reports to create a broad list of long tail keywords you will want to plug into your PPC campaign. Sellers should also take a proactive approach with negative keywords, to minimize the risk of draining ad spend on low-converting keywords that will likely to continue to increase in cost year-to-year on Amazon.
About the author:
Franz Jordan is the CEO of Sellics, a powerful All-in-One tool that combines everything sellers need to be successful on Amazon. Whether you’re looking to increase sales or lower your ACoS, you can now manage your ad campaigns entirely in our PPC Manager (Sellics users will no longer need to use Seller Central to manage their Sponsored Product campaigns). Other key features include our profit dashboard, keyword ranking optimizer, competitor monitoring, and more. We offer a 14 day free trial for new customers.