Amazon’s status as an ecommerce giant only grows stronger. Amazon added an eBay's worth of sales to its Gross Merchandising Volume (GMV) last year. Amazon is central to any brand's online success, and Amazon PPC is a critical tool to make the most of the platform.
Increasing profit on Amazon is just one strategic goal that PPC can help you achieve. But doing so requires tactical use of the tools at your disposal. Advertising inherently damages profit margins. If you could avoid paying anything beyond the physical necessities required to create a product and deliver it to your customers, that would be the most profitable scenario. But this is obviously a fantasy. In the real world, even the best-known brands advertise because it helps drive sales. But what’s the most profitable way to make those investments?
This article is one in a multi-part series explaining how to better use Amazon PPC tactics to drive strategic outcomes. Here, we are going to explore the different ways that you can optimize your PPC campaigns to maximize profit margins across your product portfolio. Let’s get started!
Additional reading: Effective advertising requires understanding your customers. For detailed information on Amazon’s main reporting tool, check out our free ebook — Mastering Amazon Brand Analytics.
Step 1: Isolate your “best” search terms
Amazon PPC ads are charged on a CPC (cost-per-click) basis. This means that the CPC cost-point will have a large impact on your overall ad spend, but so will your conversion rate (CVR). Ads that are clicked on but do not lead to a sale are simply a drain on your total profit margin.
From a profit-generating standpoint, you’re best search terms have two criteria:
- Search terms with a high CVR: High-converting search terms drive sales, which drives profit. Your ability to identify and target high-converting terms will let you optimize your ad spend by maximizing the effectiveness of the ads placed.
- Low-cost search terms: Low-cost terms, assuming they also boast a respectable conversion rate, are the “other-side-of-the-coin” when it comes to profit-generating PPC. They let you get the outcomes you need at the lowest possible price-point — contributing to increased profit-margin and increased sales.
The best search term is a low-cost and high-converting term. These two criteria don’t always align, but they do more often than you might expect. Generally, the highest-converting search terms are the most relevant and most specific (long-tail) phrases — which are also lower volume, making them cheaper.
Strategies to help:
You can’t simply drop in a list of terms from a Google campaign and expect things to turn out well. Success requires the systematic identification and targeting of your best search terms through a process called “search term optimization”, sometimes called search term isolation. This process has five main steps:
- Step 1: Set up a product-specific, broad-match, auto campaign. Let this campaign run for a period of time. (*Note: It doesn’t have to be for that long, but it’s good practice to set aside a small portion of your PPC budget for keyword research, and run these types of “research” campaigns regularly)
- Step 2: Review the results of your auto-campaign using the Search Term Report in Amazon Advertising and identify both your best and worst performing search terms.
- Step 3: Remove your best and worst performing search terms from your auto campaign using negative keywords.
- Step 4: Create a new exact match and manual campaign solely targeting your best keywords on a product-by-product basis. Don’t forget to negate those terms in the relevant match types (see step 3).
- Step 5: Continue to review results and repeat the process.
A lot of Amazon Sellers and Vendors waste profit with sloppy PPC. By restructuring campaigns to optimize bids, dramatic results can be rapidly achieved. For example, we helped a supplements brand increase their conversion rate by 107%, and drive down ACoS by 23% using this basic strategy.
Want to use Amazon Brand Analytics to optimize your campaigns?
Within this process, you should also consider lowering bids in order to test the true “floor” for each search term, and manually adjust those bids to make sure you are minimizing your expenditure. PPC tools that provide functions like dayparting and AI-driven bid calculations can help you stretch a limited budget even further.
Lastly, it’s critical to avoid cross-matching — instances in which you bid more than once for a search term — which can drive up costs because you are effectively competing against yourself. This is why campaign structure and the effective application of negative keywords are so critical to your success.
Pro tip: “Search term optimization” is most applicable to search term targeting. However, you can follow a similar process when targeting ASINs. Simply identify your best-converting and lowest-cost placements, and double down — while simultaneously ceasing to bid on your highest-cost and worst converting placements.
Step 2: Focus on bottom-of-funnel ads
Amazon offers a lot of different advertising types. Even if we ignore the Amazon DSP and simply focus on Amazon PPC, there are Sponsored Brand, Sponsored Product and Sponsored Display — along with a number of different targeting creative variations within each.
Understanding how each of these ad types works and interacts with your product portfolio is critical to driving any outcomes using Amazon PPC.
Strategies to help:
There are no hard-and-fast rules about how each ad type can perform. However, Sponsored Product ads are the bottom-of-funnel option, and are likely to deliver the best results from a profit-driving perspective. This is because they are targeting search intent, and take shoppers directly to product detail pages.
You can see the direct conversion-value of Sponsored product ads in the stats. Spend growth for sponsored products in the US was up 28% year over year, but sales grew even faster at 37% and clicks increased 49%.
With that said, we’ve seen Sponsored Brand ads, particularly, perform very well under certain circumstances. While these are more traditionally considered awareness advertising options, you can occasionally get a very low bid option on a term that converts well. If you spot this, don’t rule it out because of the ad type.
Step 3: Think long-term and short-term
If your goal is to drive short-term profit margin, we’ve already covered the basics. But you should also think about long-term growth and profitability. With the increased competition on Amazon, a long-term profit growing strategy can be more effective. Fundamentally, you need to be aware of measuring in too short a timescale as this can overlook the impact of halo sales, organic sales or retargeting efforts. It also makes it difficult to include repeat purchases.
Customer Lifetime Value (CLV) and gateway products
CLV (customer lifetime value) measures the overall revenue generated by a customer. If measured accurately, this is the real figure dictating the profitability of different advertising approaches. If your customers regularly re-convert, steadily buying your products for years, the profitability of that single product sale becomes a completely different measure.
For example, we ran our Customer Analytics tool for 12 months of a client's data. Our analysis uncovered that a relatively cheap ASIN which hardly had any ad spend was one of the "gateway" ASINs that led to repeat purchases — not just of the same ASIN but cross categories and for much more profitable ASINs. Your ability to focus on these gateway products can help boost profitability long-term, even if you aren’t targeting the lowest cost and highest-converting search terms.
Suggested reading: CLV is complex, and, realistically, requires the use of analytics tools to effectively calculate. If you want to learn more about our approach to CLV, check out the blog — Can CLV Calculations Ever Be Accurate?
Total profit, TACoS and organic sales
Driving profit margin with PPC is all about optimizing your spend and increasing RoAS/decreasing ACoS. However, you also need to consider your overall dependence on PPC. Like we started this article mentioning, the lowest-cost form of advertising is no advertising at all. Amazon PPC is relatively unique in so much as PPC placements can impact organic ranking. Amazon also helps you understand what proportion of your total sales come from PPC vs organic with the metric TACoS.
Suggested reading: If you want to learn more about driving organic results with PPC, check out our blog - How to Use Amazon PPC to Drive Organic Results.
Trust the data
It is not unusual to have evolved inefficient PPC strategies, and optimization can be a fairly straightforward win. To really drive profit margins, you want to scale and hone in on the best converting and cheapest terms — bidding where you can achieve a really low ACoS. To do this you need good data, and good analysis.
Amazon is all about data. The more you analyze this data, the more focused you are on keywords and goals, and the better outcomes you will achieve. At Nozzle, we work with businesses to better understand their customers, and use that information to drive success on Amazon. Get in touch for a free PPC audit today.