Every day more and more sellers appear on Amazon, and that means more and more of them are using Amazon Sponsored Products for PPC campaigns. With all of that competition, sellers need to pay attention and put in more effort to stay within budget while still driving sales volume. Just as you’ve put in effort to stay on top of product pricing and customer messages, you now have to monitor each keyword to ensure you aren’t wasting ad spend, or missing out. This article aims to help you understand how Amazon PPC bidding works and how to beat the system, and thus the competition.
Amazon PPC Keyword Bids Use Auctioning
The Amazon Sponsored Products system for deciding who gets what spot for which ad is done via a bidding auction. For any given keyword, there is a spread of typical prices that a seller can be in to have an ad displayed. The higher the bid, the better your chances of being top bidder and thus achieving better placement; however this also increases your chances of wasting ad spend on errant clicks.
Amazon PPC uses a variation of the Vickerey auction model, sometimes called “Second Price”, which means that the winner is the highest bidder, but pays the value of the second highest bid for the click, while the second place winner pays the value of the 3rd highest click, and so forth. The intricacies of this style of auction and why these methods are employed by various PPC platforms are beyond the scope of this article.
If seller A bids $0.50 for a keyword and seller B bids $0.25 for the same keyword, Seller A’s ad will display more prominently. When a buyer clicks on that sponsored ad, Seller A will only pay $0.25 for the click, since that was the ‘second price.’ This is why you don’t always pay the bid amount, but oftentimes a smaller number.
There are a number of strategies for approaching bids in a system such as Amazon’s, but the two most common are to go for the highest bid and then react to ACoS by raising or lowering the amount, and “value bidding”, where a seller bids the true value of a click and no more. Value bidding is the best long term strategy for maximizing sales while making the most of your budget. You’ll arrive at your target ACoS faster, and with less volatility in the end.
So, what’s value based bidding?
To discover a keywords true value on a per click basis, you need to take a look at your own historical Amazon PPC data to start. You’ll have to calculate the conversion rate, target ACoS, and finally a cost-per-click for each and every keyword (and ad group for automatic campaigns). With the conversion rate and ACoS target in hand, you need to do a few more calculations.
First, find out how much you can spend on clicks until you get one order. Take your target ACoS and multiply it by the revenue from 1 sale. This is the amount of spend for clicks that you should tolerate to get that sale. Multiply this number by your conversion rate, and you’ll have your value based cost-per-click. This final number is the true value of your keyword bid, and the one you’ll enter in when you set the bid in Amazon.
Target ACoS is your primary lever in this mechanism. The lower your target ACoS, the less of a budget you’re giving yourself to generate a sale. This keeps costs down, but can impact sales volume if you go too low. That’s why you should calculate how much spend you can afford and what you are willing to lose per sale, if anything, when launching a new product. This higher ACoS generates more exposure, getting your product in front of the eyes of a broader audience.
This method is far more involved than the typical ACoS chasing, reactionary method of keyword bidding but in the long run, you will achieve your campaign objectives faster and more efficiently.