Growing Revenue Consistently and Predictably with Sponsored Products Ads

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“I know I have some winning products but I've had trouble getting them right on Amazon.”

This inquiry from a recent potential client got me thinking about the best way to communicate the most effective approach to managing advertising and content on Amazon for the best results.

As I started writing out a response, I realized that my approach had a few more steps than I thought! I also started putting together the pieces of why Amazon sellers usually misunderstand how advertising works on Marketplace, and hopefully how better to explain why it works as it does.

This article is not for Amazon Marketplace newbies – if you aren’t already convinced of the need for PPC advertising on Amazon, there are other articles that approach that subject. This article assumes you already know you need Amazon PPC, but you’re not sure how to approach budgeting or structuring your campaigns for strong revenue growth at a reasonable cost.

If you’re looking for a step by step approach to setting up your ads on Amazon, I ran a challenge this last October(and updated it January 2019) that includes 5 hours of recorded content, and daily handouts with instructions and screenshots.

What are your limitations?

The most critical step to building out an advertising plan on Amazon is to determine what your budget is – not just your overall budget in dollars, but how much of your sales can you allocate to advertising over the next four months, then over the long term.

If you’re asking “why four months?” you’re not alone. I have worked on products in various categories on Amazon, and nearly every account requires 3-4 months for the ad spend to go from net negative to net positive.

This occurs when you’re getting most of your sales through advertising because you’re not ranking highly enough for most keywords or on “customer” shopping lists (the carousels on each individual detail page) to get sufficient organic traffic to be profitable in your advertising to organic ratio. I’m honestly not sure why it takes this amount of time, but it’s quite consistent in my experience.

In some situations, sales continue to come primarily from advertising. In those cases, the budgets typically need to be set with an overall advertising budget of 4-7% of total revenue for hardlines, with varying numbers for grocery, apparel, and supplements/skincare depending on margin.

So let’s go through the numbers.

If you have a product you’re trying to launch, you should expect to spend $1000-3000 a month to start gaining rank (depending on your niche and how broadly you’re targeting). Some very common product types can easily get you hundreds of dollars in clicks a day, so set your campaign budgets appropriately.

If you have no reviews, you should expect to achieve 150-250% ACoS. I have been asked over and over if there are legitimate ways to get reviews for Marketplace and there are not. Without Vine Voice, you need to convince someone to buy without a review somehow. We’ve found that social networks and influencers are most helpful here without an internal Amazon solution available to Marketplace sellers.

Always enroll in Early Review Program! ERP reviews are administered by Amazon, so they’re not likely to be “disappeared” like so many reviews have been over the past year.

Once you get at least one review, your advertising costs usually drop in half. Yes… in half. Sometimes more. It’s absolutely worth it to work with influencers or through other social channels to get visibility for your product(s).

I typically use the Placement report to see if the return is sufficient for a client to make it worth it to pay for top of page placement. Quite often, even though CPC (cost per click) is higher top of page, the conversion rate is also higher than on page placement, so you get a better return for your ad dollars, even though it feels intuitive to lower your bids to gain more ad return.

When I’m starting out with a client’s account, the first month or two is targeted at 100% ACoS (if they have at least one review), or 150% if they have none.

After four weeks, I drop the ACoS based on my client’s budget plus the uniqueness of the product type.

If it’s a product type where there is inherent demand, then I’ll drop the ACoS based on their percentage of advertising orders to organic orders and net margin so that they break even on advertising. If it’s a product where it’s unique or patented or crosses niches in some way, we will have to operate at a 20-30% loss for an additional 4 weeks.

One note – while these are targets… they are on occasion moving targets and require rapid readjustment.

Example 1: Inherent Demand/Break Even

For example, if the client has a net margin of 40%, and they have 60% of their sales coming in through advertising, then we need to target 66% ACoS.

Back of napkin walk through:

$25 product/ selling 250 units a month after one month of advertising

40% @ 40% = 100 units for $2500 revenue ($1000 net profit)

60% @ 0% = 150 units for $3750 revenue ($1500 ad spend using up net margin)

$1000 net profit + $1500 / $3750 (units sold through advertising) = 66% ACoS target

Example 2: Unique Niche/30% Loss

87.5% ACoS target at 80% of sales coming through advertising but unique niche (30% loss target).

Back of napkin walk through:

$25 product/ selling 250 units a month after one month of advertising

20% @ 40% = 50 units for $1250 revenue ($500 net profit)

80% @ 0% = 200 units for $5000 revenue ($2000 ad spend using up net margin)

$500 net profit + $2000 + $1875 (30% loss) / $5000 (units sold through advertising) = 87.5% ACoS target

These budget targets are then adjusted every 2-4 weeks, based on yours or your client’s objectives and budget.

 

How should you target?

To get the most out of Amazon advertising, I recommend starting manual ads at the same time as automatic ads.

Use a reverse keyword lookup tool to find appropriate keywords, sometimes within the hundreds of potential keywords!

These are then made into phrase AND exact match keyword targets, not broad. I rarely use broad target anymore just due to the difficulty of controlling the variability of spend/targeting. We use phrase and exact because sometimes one keyword is a winner as a phrase, and a total dud as exact, or vice versa.

Additionally, we typically recommend starting with just Sponsored Products, as the customer search term report in Sponsored Products gives you the exact term used by the customer to buy the product along with the number of clicks and sales – invaluable data for your brand.

If you’re getting a great click through rate (CTR), but poor ACoS, you may have a misaligned price/value proposition, unclear marketing content, or a review problem.

Once you’ve got a nicely curated list of converting keywords, create Sponsored Brands campaigns and direct them to your Storefront.

Of course, your Storefront needs to be well done enough to be converting browsers into customers for this to be effective, but that’s an entirely different post! Also, I’m running a 5-day Storefront challenge next month (April 2019) and would love to see you there!

JOIN THE STOREFRONT CHALLENGE

Right now, product and category targets are quite variable. I’ve seen some results as low as 4% ACoS and as high as 700% ACoS. If you’re trying to limit your exposure, rather than experiment with what Amazon suggests, then you can use the results from your Search Terms Report to target only ASINs that have actually converted into sales, and turn them into product targeting advertisements.

Display ads are so far showing the same variability as the product and category targets.

How should ads be structured?

This is the area that I get most frustrated by on most of the new accounts that we work on. The previous agency or the account owner created ads that had multiple ASINs or very different sets of products on each individual ad group, so it’s almost impossible to see what search term converted for what ASIN. This isn’t a website, where you can just install Google Analytics and be overwhelmed with the resulting data. Amazon Marketplace ads are characterized by the relative paucity of data available.

Further, if you name your ad groups “Group 1” or “Set 3” – you’re going to have a really hard time managing that in the reporting tools as well. We learned this the hard way within the first few months of supporting clients with ads, and switched our naming convention to start with ASINs for ease of reporting management.

No matter how good your ads are at converting to sales, or what automation tools you use to achieve that, if you’re not using the search term report to optimize your listing content and Storefront, then you’re missing half the point of advertising on Amazon: getting the exact keywords and phrases that convinced browsers to click and convert to customers.

So what about portfolios?

We use portfolios to manage our budget via sorting them into various sponsored products campaign types.

We have experimental campaigns that are new and thus have the very high ACoS targets, or they’re getting moved into the second phase of break even/30% loss, or they’re being moved into a 10% (or whatever the target is) profit goal portfolio.

We also always separate manual ads by type (no mixing them to confuse the data), and separate automatic and manual ads.

Basically how it works is that you manage the budget for the week on the experimental campaign as say $500/week. Once that $500 is used up, it won’t run the ads anymore. This helps you cull through dozens and dozens of potentially good or bad keywords in a controlled manner. Then you move the campaign to a portfolio without a limit so that the campaign budget wins, when the campaign has reached the target ACoS/return goals.

This helps prevent you from having a runaway bad keyword that takes up a bunch of clicks/spend without benefit. Even working on client accounts with automation, these kind of issues can run for a week or more without being stopped depending on your automation settings.

Some important key features of Amazon Marketplace advertising

  • The more successful your ad is, the more Amazon will show it. They want their referral fee from your obviously popular products. You’re likely to see those “you’re out of budget” emails earlier and earlier each day.
  • When this happens, Amazon will suggest raising the campaign budget. Before you do, make sure the ad is meeting your revenue and net margin targets.
  • Last year, Amazon Marketplace Advertising merged with AMS (Amazon Marketing Services) and AMG (Amazon Media Group) and is now called Amazon Advertising. What this did was make available to brand registered Marketplace sellers advertising features that had previously been limited to vendors on Amazon. Every month, their team launches new features for Marketplace. For example, most Marketplace brand registered sellers now have access to Display Ads.
  • Amazon will indeed stop showing your ad if it’s not successful, but their idea of successful is a lot more generous than mine. As long as something converts and clicks are being achieved, I’ve seen Amazon continuing to give placement to ads at 250%+ ACoS. It will never get as bad as I’ve seen Google ads get, but Amazon is much more generous in their definitions of “successful” than you should be.
  • The same exact ad, with the same exact keywords, started on the same exact day, and targeting the same exact products, will have different results, sometimes wildly different results. This is because the ads “learn” as they behave with browsers. If browsers more frequently turn into customers than where Amazon has set their threshold, the ad continues to be shown and interactions happen. If browsers hit the back button, Amazon will stop showing the ad. Ads do not change generally once they’ve learned they are terrible or successful. For this reason, I have run the same ad multiple times after a product got more reviews, or after it’s got a coupon or promotion attached to it so that customer sales conversion increases and changes the ad’s results.
  • Advertising is much more difficult in narrower keyword fields – “compression socks” is my favorite example here as there just aren’t that many search alternatives available – and also in very competitive categories, such as supplements or skincare/cosmetics.
  • Advertising isn’t just about sales – that’s important, yes – but it’s more about getting your product ranked for various keywords that it wouldn’t rank for just with automatic ads or through organic search. Keep in mind that the more ad dollars you throw at a successful keyword, the more impact it can have in helping raise your rank for that keyword organically.
  • If you are sharing the buy box, you have to be much tighter and narrower in your ad goals. You may not have enough of the buy box to help your product to rank, so you need to grow it through external demand such as through social media and only profitable keywords.

When you should hire an agency

If you’re looking for return on your ad spend only, then I highly suggest one of the multiple ad spend automation tools on the market. Most can be set pretty aggressively to focus only on return on ad spend and are cheaper than tasking humans with this work.

If you’re looking to improve your listings, reach more customers organically, or set up your Storefront for greater traffic (or set up your Storefront at all), then it makes sense to hire an agency for this task as a lot of the work here requires critical thinking and creativity, something an automated tool will certainly not be able to achieve.

Because the ad creative (the detail page or Storefront landing page) is so critical to the success of the ads, at Cascadia, we only do advertising for accounts where we also have creative input on the detail pages and Storefronts. Other agencies outsource one or the other, as the skillset to be successful in creative content development and managing advertising is often very different.

Some areas you should be looking into when deciding on an agency to hire: 1) how much do they understand about how learning systems work? Do they understand that Amazon’s ads are not a straight “buy a spot/get a spot” type of system? 2) are they using a lot of examples from their Facebook or Google experience? Amazon is quite different. 3) Are you trying to increase return on ad spend, or are you trying to gain exposure to net new customers to your brand? The second requires a much more creative approach to advertising AND content than capitalizing on existing inherent demand.

What makes us different is that we manage the ad creative (the page and Storefront) as well as the ad performance. An ad may be targeting the right things, getting great clicks, and then failing to achieve conversions; not because the ad was bad, but because the page simply wasn’t compelling. We use a unique data-driven approach to determine exactly what customers care about with our clients’ products, then rearrange or rewrite the bullets, descriptive content, images, and search terms in the clients’ pages to reflect what customers care about, making advertising far more effective.

Look below for case studies on results that we’ve achieved here at Cascadia managing advertising for Marketplace sellers. If you’d like to work with us, click here to add your name to our waiting list.

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Case Studies:

Case Study 1:

First month of ads for a client with an established business who had run advertising before, but with limited success:

Approximately $200 in advertising sales at the beginning of the month, with $750-850/day by the end of the month, with only 10% increase in ACoS, and movement on SKUs that previously had limited sales.

Because we’re still trying to rank for additional keywords, high cost keywords have not been eliminated yet.

Case Study 2:

Beginning of the year to end of February (two months of data). At the beginning of January, average daily sales were $2-3k from ads, and at the end of February, it was $6-7k. More importantly, monthly sales in January were $346k and February was $391k. Sales for March are estimated to come in at $484k, nearly 2x YoY.

This was achieved by targeting the top 40 ASINs on the account for advertising “re-launch” through our targeted keyword/automatic ad approach, then keyword culling approach, and portfolio management approach.

By being so targeted and careful with the ads, the client not only has much higher revenue, but he’s growing the revenue from fewer SKUs that are ranking for customer search terms that he previously didn’t rank as highly on, allowing him to manage his supply chain more efficiently.

The performance of the ads also indicates to us which of his extremely large catalog of products makes the most sense to target for Storefront landing pages, videos, and detailed imagery.

Lastly you can see the jump in ACoS when the ads were launched, and then slowly inch downwards as the ads are optimized.

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About the Author
I got my first job at Amazon because of my German language skills from my Master’s in History. Take that, people who said I’d never get a good job with my liberal arts degree! I soon learned that I’m not good at taking orders and started my MBA coursework at Seattle University.

I worked at Amazon for 8 years, as a liaison for law enforcement in Fraud/Transaction Risk, a quality and compliance manager in Product Compliance for Amazon Brands and imports globally, and lastly, managing hardware for Website Availability. I love the flexibility that working for clients on Amazon rather than for Amazon affords me.

In my not significant free time, I do fiber crafts such as spinning, crocheting, and embroidery, and I have been in a community band since 2009, playing French Horn, Trombone, or Euphonium depending on the band’s needs that season.

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