With over 2.5 million third-party sellers on Amazon, it's never been more important for merchants to find ways of outdoing their competition.1 But when it comes to PPC on Amazon, it isn’t always clear how best to get ahead of the pack, especially when success can require analyzing data in-depth, and strategically manipulating algorithms.
In this article, we’re going to cover four important topics: search term optimization, using PPC to boost organic ranking, ‘CLV’ adjusted ACoS, and the importance of setting goals. From here, we’ll have an answer to the question of how best to improve PPC performance on Amazon. Let’s get started.
Suggested reading: For more insight into mastering Amazon as a Seller, consider reading our eBook — Differentiating Amazon Merchant Strategies.
Step 1: Optimize your search terms
When it comes to selling on Amazon, ‘search term optimization’ (or ‘STO’) refers to the method of isolating and targeting those search terms which are best performing on a product-by-product level. Removing irrelevant terms from your bidding campaigns — and focusing especially on terms with a high conversion rate (or ‘CVR’) — is the best way to Optimize the efficiency of your PPC spend. The outcome of this is a reduction in costs, improved sales, and an increase in organic ranking.
However, STO and associated biddings strategies are not without their potential pitfalls. If this process is done without research or a proper understanding of data you’ll run the risk of minimizing product visibility, wasting resources on irrelevant terms, suffering sales losses, and ultimately damaging rankings.
Strategies to help:
Running both ‘Auto’ and ‘Manual’ ad campaigns is an effective way of researching new keywords, and then solely isolating the best ones. Auto campaigns allow Amazon to determine certain keywords and products where your ads will be targeted. The strength of these campaigns lies in the discovery of keyword phrases that you may never have assumed were used by customers.
Once your Auto campaign is set up for a product group, you can — based on the insights afforded by the Auto campaigns — set up one or more Manual campaigns for the relevant product group. The main thing you want to use the manual campaign for is isolating your exact match terms that you want to target with STO. You can then, if you want, experiment further with these using broad match manual campaigns. but the main point is to identify and isolate the most important term.
Suggested reading: For more information on STO and how to understand and use the tactic, check out our blog — What is Search Term Optimization?
Step 2: Utilize PPC to boost your organic ranking
Effective use of Amazon PPC reporting metrics is vital to effective PPC — which in turn is a means of generating sales and increasing brand awareness. But, and perhaps somewhat counterintuitively, PPC can also be used to boost your organic ranking -- i.e. appearing in unpaid search engine results.
Organic ranking success on Amazon is determined by their A9 algorithm, and one unique feature of the A9 algorithm is that it is in some ways affected by PPC. Accordingly, boosting organic ranking requires insight into how the A9 algorithm (and the numerous factors constituting it) operates.
Despite the exact mechanics of the A9 algorithm being somewhat obscure, a merchant's relevance score within the algorithm is understood as being positively influenced by a high CVR.
Strategies to help:
The main tool at your disposal for driving an increase in organic results with PPC is properly executed STO. As we've already discussed, the best way of increasing the CVR of an individual product or group of products is to utilize STO. In this sense, proper use of STO will be essential in order to facilitate PPC strategies, higher CVRs, and improved organic rankings.
Note: A focus on non-branded terms will actually have the biggest impact on organic rankings. But… they’re much more expensive to target than branded terms.
Through aspirational, prioritized targeting of certain products and initial use of PPC to increase brand awareness and sales velocity — this allows for gains in CVR to feed into Amazon’s A9 algorithm. In principle, the algorithm is manipulated into boosting organic ranking, which should, in turn, lead to even further increases in popularity and sales velocity, and so on and so forth. This represents a mutually reinforcing cycle of boosted organic ranking.
Suggested reading: For further information on how to use Amazon PPC to maximize your organic traffic, check out our blog — How to Use Amazon PPC to Drive Organic Results
Step 3: Calculate a CLV-adjusted break-even ACoS
Briefly put, ‘advertising cost of sales’ (ACoS) is the amount you’ve spent on advertising in order to generate $1 in sales revenue. Because high ACoS damages profitability, it’s important to keep this figure below whatever acceptable target you’ve set. Your break-even ACoS is the tipping point between a profit-making and a profit-losing campaign.
Pro tip: For more help calculating your ACoS and break-even ACoS, check out our blog — How to calculate break-even ACoS and CLV
‘Customer lifetime value’ (CLV) is best understood as the total profit each customer generates during the entirety of their purchasing relationship with a business. Awareness of CLV augments calculations concerning break-even ACoS and allows you to truly use your break-even ACoS to your advantage. Although it is common to just look at ad spend on a transactional level — for example, the profit generated by one sale — this is short sighted. Customers can stay active purchasers with you for a long time so taking a long term view can improve your capacity to determine how much to spend on attracting new customers, retaining existing ones, or whether particular bids on products (or associated keywords) are justified.
For example, with CLV figures to hand it’s possible to start predicting buying trajectories, and to then use these predictions in managing things like acquisition costs. Broadly speaking, a given PPC campaign may be warranted (even at a significant cost) if the said campaign is forecasted to acquire customers who offer repeat purchasing and greater long-term value.
In similar instances, concerns over necessary upfront advertising costs and short-term losses can be offset by long-term profits (and buying habits) predicted by a CLV-adjusted approach to break-even ACoS. CLV therefore offers great utility as a metric, but it needs accurate calculation. Unfortunately, customer data on Amazon isn’t always easy to obtain, to dismantle data silos or to collapse into manageable formats.
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Strategies to help:
Analytics tools — which include both machine learning and AI — are able to collate and analyze the volumes of customer and product data necessary for things like CLV metrics. There are a lot of variables that inform CLV calculations — all of which depend on speed of analysis in real-time — so accurate calculations are hard to come by alone. Third-party assistance allows you to direct resources and time to the conclusions of these reports and put insights into practice. The information you need to calculated CLV includes —
- The initial cost of customer acquisition
- Annual revenue contribution per customer
- Associated product costs
- Annual direct costs per customer
- Annual customer retention rate
Suggested reading: For further information on CLV calculations, check out our blog — Can CLV calculation ever be accurate?
Step 4: Set attainable, strategic goals
Only by establishing clear business goals can you identify exactly what it is that you’d like to achieve with PPC. Once this preliminary stage is complete, you can turn to align your PPC spend with your wider Amazon strategy, and that encompasses bidding strategies, brand building, and PPC campaigns.
More specifically, this goal-oriented kind of approach is key to efficiently managing your PPC spend. For instance, the kinds of PPC spending required for the launching of a new product or for growing brand awareness are different from the kinds of spending necessary to see out aims like improving organic traffic or increasing profitability short-term.
Understanding this (and appreciating goals more generally) is crucial to making the right business decisions.
Strategies to Help:
Customer data (and the analytics tools required to process such data) is absolutely essential for understanding how PPC and your business goals should intersect. Data and analytics tools can be used to illuminate the nuances involved in things like PPC efficacy, bidding campaigns, organic rankings, CLV-adjusted ACoS, product ratings, and generally modeling advertising success.
In short, however varied your business aims are, data and analytics are vital in setting, measuring, and achieving these goals. Because of the inbuilt complexity involved in gathering and digesting swathes of data, partnering with a specialist third-party analytics provider is a way of approaching strategic goals intelligently.
Data is the key to optimum PPC performance
As just hinted at, the key to improving your PPC performance is data and the key to understanding and optimizing your data analysis is realizing you cannot undertake that task manually. For example, solely using the tools provided by Amazon for data collection and analysis will only leave you with data silos, which are both hard to access and effectively cross-reference. Further, calculating more advanced metrics like CLV is virtually impossible to do in real time. The upshot? You need a sophisticated analytics platform to help you.
We, at Nozzle, have been pioneers in this field. We operate exclusively across the Amazon Marketplace so that we are best-placed to solve these challenges and to support you in your Amazon selling venture. The data analytics that we offer are tailored not only to your business but specifically to the Amazon ecosystem. This means that the depth of contextualized understanding that you can ascertain through our platform, not just concerning your PPC efforts, will drastically ameliorate your overall Seller-performance.
Don't just take our word for it however, get in touch with us to receive your free demo today!